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Real Guaranty follows: "In the event an action is presented

1. Involving real property by the Luzon Surety Company against
a. Real Mortgage Fortunato Resurreccion for the recovery of
i. Laws the said indebtedness and the interests
>Land Registration Act (Act No. 496) thereon, I, Laureano Marquez, obligate
>Sec. 194 of the Revised Administrative Code myself to indemnify Fortunato
>Property Registration Decree (P.D. No. 1529) Ressurreccion for all the damages he may
>Republic Act No. 4882 suffer in case the parcels of land
>Act 3135 mortgaged to the Luzon Surety Company
>Rule 68 of the Revised Rules of Court are sold at public auction, including the
>A.M. No. 99-10-05-0, Jan. 15, 2000, as amended fees of the attorneys of Fortunato
Feb. 20, 2007 Ressurrecion as well as in the action that
Fortunato Resurreccion in the suit brought
ii. Subject Matter by the Luzon Surety Company as well as in
Dilag v. Heirs of Resurreccion, 76 Phil 650 the action that Fortunato Resurreccion may
Norberto L. Dilag, as administrator of the bring against me in relation to this
intestate estate of Laureano Marquez, agreement."
vs. ● Laureano Marquez failed to pay the
The Legal Heirs of Fortunato Resurreccion, et indebteness of Fortunato Resurreccion to
al., the Luzon Surety Company, and the latter
foreclosed judicially the mortgaged
G.R. No. 48941, May 6, 1946 (76 Phil 650) executed in its favor by Fortunato
FACTS: ● Pending the foreclosure sale of the
● Laureano Marquez was indebted to Company, Laureano Marquez executed
Fortunato Resurreccion in the sum of and delivered to Fortunato Resurreccion
P5,000 as the balance of the purchase another document. Since Laureano
price of a parcel of land which the Marquez Marquez again did not fulfill his promise,
had bought and received from the the mortgaged properties were sold at
Fortunato Resurreccion. public auction and were totally lost by
● Fortunato Resurreccion, in turn, was Fortunato Resurreccion.
indebted to the Luzon Surety Company in ● Resurreccion commenced the present
the same amount, which was secured by a action against Laureano Marquez to
mortgage on three parcels of land, one of recover the value of the lost properties
which was that bought by Laureano amounting to P16,500, with legal interest
Marquez from him. The deed of sale from thereon from the date of the filing of the
Resurreccion to Marquez was to have been complaint, plus P2,000 as indemnity for the
executed after Marquez shall have fully rents of the lands sold and P1,000 as
paid the purchase price and after attorney's fees, and to foreclose the
Resurreccion shall have secured the mortgage embodied in said instrument.
cancellation of the mortgage by the Luzon
Surety Company. ISSUE:
● Laureano Marquez had agreed to pay Whether a property that is subsequently acquired
Fortunato Resurreccion's indebtedness of can be the subject of a mortgage.
P5,000 to the Luzon Surety Company by
way of satisfaction of his own indebtedness HELD: NO. AFFIRMED WITH MODIFICATIONS.
to Fortunato Resurreccion in the same The petitioner contends that Fortunato
amount. Laureano Marquez signed a Resurreccion cannot be granted damages caused
document where he bound himself as by the loss of two of the three parcels of land
mortgaged to the Luzon Surety Company because assignees on any other property he then might
they did not belong to Fortunato Resurreccion but have and on those he might acquire in the future.
to Emiliana Resurreccion and the children of
Vicente Platon. He contends that it was only the
said owners of those lands who could have brought Did such a stipulation constitute a valid mortgage
the present action. This contention runs counter to on the five other parcels of land which Laureano
the provision of section 3 of Rule 3 of the Rules of Marquez subsequently acquired? We do not think
Court, which says that a party with whom or in so. In the first place, Laureano Marquez could not
whose name a contract has been made for the legally mortgage any property he did not yet
benefit of another may sue or be sued without own. In the second place, in order that a
joining the party for whose benefit the action is mortgage may be validly constituted, the
presented or defended. We do not think that the instrument by which it is created must be
word "contract" used in section 3 of Rule 3 refers recorded in the registry of deeds and insofar as
exclusively to a bilateral contract. the additional five parcels of land are
concerned, the registration of the document did
It obviously refers to any contract — bilateral or not affect and could not have affected them
unilateral — enforcible in court. The rule in question because they were not specifically described
refers to a suit by or against "a party with whom or therein.
in whose name a contract has been made for the
benefit of another. Article 1254 of the Civil Code The contention of the respondents that after the
says that a contract exists from the moment one or institution of the present action notice of lis
more persons consent to be bound with respect to pendens was filed in the registry of deeds affecting
another or others to deliver something or to render the said five additional parcels of land, merely
some service. serves to emphasize the fact that there was no
mortgage thereon; otherwise there would have
A deed of sale or mortgage is usually a unilateral been no necessity for any notice of lis pendens.
contract in the sense that only the vendor or
mortgagor signs it. Likewise a promissor note is a Peoples Bank & Trust co. v. Dahican Lumber
unilateral contract in the sense that only the Co., 20 SCRA 84
promissor or maker signs it. But these do not mean People’s Bank & Trust Co. & Atlantic, Gulf &
that the signer is the only party to that contract and Pacific Co. of Manila
the only one entitled to sue thereon. The obligee is vs.
as much a party to the contract as the obligor, for Dahican Lumber Company, Dahican American
there can be no obligor without an obligee; and as Lumber Corporation, & Connell Bros. Co. (Phil),
a matter of course it is the obligee who has the right
to sue on and enforce the obligation. G.R. No. L-17500, May 16, 1967 (20 SCRA 84)

The petitioner assails the judgment against him FACTS:

insofar as it authorizes the sale at public auction of ● Dahican Lumber Co. (DALCO) obtained
five parcels of land which were not specifically a loan from People's Bank and Trust Co.
described in the mortgage deed. Those five parcels (Bank) secured by a deed of mortgage
are said to have been acquired by Laureano covering 5 parcels of land together with
Marquez subsequent to the execution of the all the buildings and other improvements
document. In the fifth clause of said document existing thereon and all the personal
Laureano Marquez stipulated that inasmuch as the properties of DALCO located in its place
five parcels of land described in the fourth clause of business.
were not sufficient to cover all his obligations in
● After the day of the execution of the
favor of Fortunato Resurreccion, he also
mortgage, DALCO purchased various
constituted a mortgage in favor of the latter and his
machinery, equipment, spare parts and payment of a loan in the amount of
supplies. P37,000
● Pursuant to the provision of the mortgage ● The sum was to be spent for the
deeds regarding "after acquired construction of two buildings, one for a
properties", the Bank requested DALCO hotel and the other for residence. The
to submit complete list of the said mortgage was later on registered.
properties but DALCO refused to do so. ● The two buildings were subsequently
ISSUE: ● Upon violation of the terms of the
Whether or not the "after acquired properties" mortgage, the RFC foreclosed the same. In
the auction sale, said RFC, as highest
were subject to the deed of mortgage.
bidder, was awarded the mortgaged
properties for the total sum of P31,000
followed by the issuance of the
corresponding Transfer Certificates of Title.
Yes, they are subject to the deeds of mortgage.
● The hotel and residence buildings were
valued at P18,000 and P4,000,
Article 415 of the Civil Code does not define real
property but enumerates what are considered as
● In the edification(improvement) of the two
such, among them being machinery, receptacles, buildings, the spouses bought on credit
instruments or replacements intended by owner construction materials valued at about
of the tenement for an industry or works which P7,000 from the plaintiff Luzon Lumber &
may be carried on in a building or on a piece of Hardware Co. Said building materials were
land, and shall tend directly to meet the needs of furnished by the lumber company between
the said industry or works. October 1948 and March 1949. Only
P3,500 of this amount was paid, leaving an
The chattels or the "after acquired properties" unpaid balance of P3,456.50.
were placed in the real properties mortgaged to
the Bank. They came within the operation of To recover this balance including interests and
Article 145. attorney's fees the lumber company filed this suit
against the spouses, the complaint being later
Hence, the "after acquired properties" were amended so as to include the RFC as party
subject to the deed of mortgage. defendant. According to the RFC said amendment
was made about a week after the auction sale of
Luzon Lumber & Hardware Co., Inc. v. the foreclosed properties.
Quiambao, 94 Phil 663
Luzon Lumber & Hardware Company, Inc. After hearing, the Court of First Instance of Tarlac
vs. rendered judgment ordering the defendant spouses
Manuel Quiambao, Virginia Santiago, & Manuel and Virginia to pay to the plaintiff lumber
Rehabilitation Finance Corporation, company the sum of P3,456.49 with legal interests
and in default of such payment by them, the RFC
G.R. No. L-5638, March 30, 1954 (94 Phil 663) was ordered to pay to plaintiff out of the proceeds
of the sale of the hotel and the house, the said sum
FACTS: of P3,456.49 together with the corresponding legal
● Manuel Quiambao and his wife Virginia interests thereon. The RFC is appealing from that
Santiago, owners of three lots mortgaged decision.
the said lots in favor of the Rehabilitation
Finance Corporation (RFC) to secure the ISSUE:
Whether a registered mortgage is preferred over a that it was already provided for in article 1923,
refectionary credit on construction materials. paragraphs 3 and 5 under refectionary credits. This
liberal view and interpretation of refectionary credit
HELD: YES. REVERSED. is in consonance with principles of justice and
Art. 2242 (claims, mortgages & liens that constitute fairness, for there seems to be no valid reason why
encumbrance over specific immovable property) one furnishing material for purposes of repair or
and 2253 (effectivity of law & non-impairment of reconstruction should be given preference while
vested rights clause) of the New Civil Code may not another furnishing material on new construction is
be applied in the instant case for the reason that not given the same consideration.
the credit of the plaintiff is not a new right or one
declared for the first time, a condition required by With respect to the holding of the trial court that in
Article 2253 of the new Civil Code for its point of time the credit of the plaintiff enjoys priority
enforcement and application, because said right over that of the RFC for the reason that according
was already provided for by article 1923 of the old to said court the lien of the plaintiff vested when the
Civil Code particularly paragraphs 3 and 5. The materials were furnished while the mortgage credit
question now to be decided is whether the of the RFC vested only when the buildings were
furnishing of lumber and building materials by the constructed, we must not forget that according to
plaintiff for the construction of the two buildings of the facts of the case the loan of P37,000 was given
the spouses falls under refection credit mentioned to the spouses to construct the two buildings, and
in paragraphs 3 and 5. that under the terms of the deed of mortgage, not
only the lots but also all the improvements now
Refectionary credit is primarily an indebtedness existing or which may hereafter be constructed on
incurred in the repair or reconstruction of something the mortgaged property are included. In other
and does not ordinarily include an entirely new words, the mortgage in favor of the defendant RFC
work, but that Spanish jurisprudence appears to not only enjoyed the presumption provided by law
have sanctioned in certain cases this broader view that a mortgage includes all improvements on the
to include a new work or construction. The word land mortgaged when the obligation falls due, but
"refaccionario" from which come the English there was an express stipulation to include all
translation of "refectionary" is derived from the Latin buildings and improvements thereafter to be
verb "refacio", "refacere", meaning "rehacer" which constructed on the mortgaged premises.
implies the idea of reconstruction or repair for
reason of destruction or deterioration. As already This lien on all improvements vested on the day
said, that was the original idea of the word and hour the mortgage was registered - about one
"refectionary". The liberal interpretation of the month before plaintiff began furnishing materials for
refectionary credit to include new construction construction. One of the purposes of the creation of
is upheld in the ENCICLOPEDIA JURIDICA the RFC was to finance the construction and
ESPAÑOLA. reconstruction of buildings for purposes of
rehabilitation. We may even take judicial notice of
And this view is shared by our Code Commission the fact that the security of the loans from the RFC
which prepared the new Civil Code. In its Report on is based mainly on the buildings and constructions
the proposed Civil Code of the Philippines (now our themselves, and that to assure that the loans are
new Civil Code) which went into effect in 1950, spent for the said construction, the money is
referring to article 2242 of the new Code, it said sometimes given on the installment basis, that is,
that the new encumbrances in said article are Nos. so much money is released by the RFC as the
2, 3, 6, 7 and 9, meaning to say that paragraph 4 construction progresses. This is to show the
referring to claims of furnishers of materials used in intimate relation between an RFC loan and the
the construction, reconstruction or repair of building construction financed by it, for purposes of security.
which as invoked by the plaintiff and applied by the
trial court is not a new provision, clearly implying
In the discussion of this case among the members under paragraph 5 of the same article under
of this Tribunal, there was a suggestion, even a unregistered and unrecorded refection credits.
contention that the credit of the plaintiff herein
might be made to fall under article 1922 of the old
Civil Code (preferred encumbrances over personal Ajax Marketing & Dev. Corp. v. CA, 284 SCRA
property). But we believe that the two buildings in 222
question constructed partly with building materials Ajax Marketing & Development Corporation,
furnished by the plaintiff may not be considered as Antonio Tan, Elisa Tan Yee, & Sps. Marcial See
personal property under article 1922. Once said & Lilian Tan
building materials were used in the construction vs.
and had become part of the building, they lost their CA, Metropolitan Bank & Trust Company, & the
classification as personal property and become real Sheriff of Manila,
G.R. No. L-118585, September 14, 1995 (248
It is true that in the case of Unson vs. Orquije, et SCRA 222)
al., 50 Phil., 160, this Tribunal applied the provision
of article 1922, paragraph 1, referring to the FACTS:
purchase price of personal property in the Ylang-Ylang Merchandising Company, a
possession of the debtor (machinery and grinder partnership between Angelita Rodriguez and
sold to the Capiz Central and installed in its Antonio Tan, obtained a loan in the amount of
building), the reason being that said machinery and P250,000.00 from the Metropolitan Bank and Trust
grinder did not lose their form and substance and Company, and to secure payment of the same,
they preserved their identity. Besides, they could spouses Marcial See and Lilian Tan constituted a
easily be removed from the building of the Central. real estate mortgage in favor of said bank over their
property in the District of Paco, Manila. The
May the same thing be said in the present case as mortgage was annotated at the back of the title.
regards the building materials which went into the
construction of the hotel and the house? The Subsequently, after the partnership had changed its
answer can be given only in the negative. Said name to Ajax Marketing Company albeit without
materials had already become part of the two changing its composition, it obtained a loan in the
buildings either as posts, frames, floor, partition, sum of P150,000. 00 from Metropolitan Bank and
roof, etc. They have lost their form and identity and Trust Company. Again to secure the loan, spouses
had become part of the buildings which are real Marcial See and Lilian Tan executed in favor of
property. said bank a second real estate mortgage over the
same property.
There is another circumstance in this case which
greatly weakens plaintiff's claim. While as already On February 19, 1979, the partnership (Ajax
stated, appellant RFC's mortgage which included Marketing Company) was converted into a
the two buildings in question was recorded in corporation denominated as Ajax Marketing and
September 1948, thus serving as notice to third Development Corporation, with the original partners
parties including the plaintiff, the latter began (Angelita Rodriguez and Antonio Tan) as
furnishing building materials for the construction of incorporators and three (3) additional incorporators,
the two buildings only in October 1948, that is the namely, Elisa Tan, the wife of Antonio Tan, and
month following, and what is more, the evidence Jose San Diego and Tessie San Diego.
fails to show that it was ever recorded in the
Registry of Deeds, so that said refection credit Ajax Marketing and Development Corporation
comes not under paragraph 3 of article 1923 of the obtained from Metropolitan Bank and Trust
old Civil Code, as does the RFC mortgage, but Company a loan of P600,000.00, the payment of
which was secured by another real estate mortgage
executed by spouses Marcial See and Lilian Tan in there is a change of either the person of the debtor,
favor of said bank over the same realty. or of the creditor in an existing obligation. When the
change of the object or principal conditions of an
In December 1980, the three (3) loans with an obligation occurs at the same time with the change
aggregate amount of P1,000,000.00 were re- of either in the person of the debtor or creditor a
structured and consolidated into one (1) loan and mixed novation occurs.
Ajax Marketing and Development Corporation,
represented by Antonio Tan as Board The well settled rule is that novation is never
Chairman/President and in his personal capacity as presumed. Novation will not be allowed unless it is
solidary co-obligor, and Elisa Tan as Vice- clearly shown by express agreement, or by acts of
President/Treasurer and in her personal capacity equal import. Thus, to effect an objective novation it
as solidary co-obligor, executed a Promissory Note. is imperative that the new obligation expressly
declare that the old obligation is thereby
Due to non-payment, the bank extrajudicially extinguished, or that the new obligation be on every
foreclosed the mortgaged property. A case was point incompatible with the new one.
filed with the trial court whereby the debtors
contended that a novation occurred when their In the same vein, to effect a subjective novation by
three (3) loans which are all secured by the same a change in the person of the debtor it is necessary
real estate property were consolidated into a single that the old debtor be released expressly from the
loan of P1 million under a Promissory Note, thereby obligation, and the third person or new debtor
extinguishing their monetary obligations and assumes his place in the relation. There is no
releasing the mortgaged property from liability. novation without such release as the third person
who has assumed the debtor's obligation becomes
The trial court upheld the foreclosure. merely a co-debtor or surety.

The CA affirmed. The attendant facts herein do not make a case of

novation. There is nothing in the records to show
ISSUE: the unequivocal intent of the parties to novate the
Whether a real estate mortgage can cover future three loan agreements through the execution of a
debts. promissory note. The provisions of the promissory
note yield no indication of the extinguishment of, or
HELD: YES. HELD. an incompatibility with, the three loan agreements
Basic principles on novation need to be stressed at secured by the real estate mortgages.
the outset. Novation is the extinguishment of an
obligation by the substitution or change of the The provisions of the real estate mortgage show
obligation by a subsequent one which extinguishes that petitioners agreed to apply the real estate
or modifies the first, either by changing the object property to secure obligations that they may
or principal conditions, or, by substituting another in thereafter obtain including their renewals or
place of the debtor, or by subrogating a third extensions with the principals fixed at P600,000.00,
person in the rights of the creditor. Novation, unlike P150,000.00, and P250,000.00.
other modes of extinction of obligations, is a
juridical act with a dual function, namely, it The promissory note merely restructured and
extinguishes an obligation and creates a new one renewed the three previous loans to expediently
in lieu of the old. It can be objective, subjective, or make the loans current. There was no change in
mixed. the object of the prior obligations. The consolidation
of the three loans, contrary to petitioners'
Objective novation occurs when there is a change contention, did not release the mortgaged real
of the object or principal conditions of an existing estate property from any liability because the
obligation while subjective novation occurs when mortgage annotations all remained uncancelled,
thus indicating the continuing subsistence of the February, 1956, the Cajucoms borrowed the title
real estate-mortgages. from her on the excuse that they needed it to
segregate from the land the portion claimed by
Neither can it be validly contended that there was a other persons.
change or substitution in the persons of either the
creditor (Metrobank) or more specifically the Thereafter, Samanilla asked for the return of the
debtors (petitioners) upon the consolidation of the title so that she could register her mortgage, but the
loans. The bare fact of petitioner's conversion from Cajucoms refused.
a partnership to a corporation, without sufficient
evidence, either testimonial or documentary, that Samanilla filed a petition against the Cajucoms.
they were expressly released from their obligations, They opposed the petition, claiming that the
did not make petitioner AJAX, with its new mortgage in question was void ab initio for want of
corporate personality, a third person or new debtor consideration, and that the issues should be
within the context of a subjective novation. If at all, litigated in an ordinary civil action.
petitioner AJAX only became a co-debtor or surety.
The court found the petition well-taken and ordered
Without express release of the debtor from the the Cajucoms to surrender their title either to the
obligation, any third party who may thereafter Register of Deeds or to the Court. From this order,
assume the obligation shall be considered merely the Cajucoms appealed.
as co- debtor or surety. Novation arising from a
purported change in the person of the debtor must ISSUE:
be clear and express because, to repeat, it is never Whether a mortgage which has not been registered
presumed. Clearly then, from the aforediscussed is valid.
points, neither objective nor subjective novation
occurred here. HELD: YES. AFFIRMED.
The appeal has no merit. Appellants' sole objection
An action to foreclose a mortgage is usually limited to the registration of the deed of mortgage is that
to the amount mentioned in the mortgage, but the same was executed without any consideration.
where on the four corners of the mortgage But there is a legal presumption of sufficient cause
contracts, as in this case, the intent of the or consideration supporting a contract, even if such
contracting parties is manifest that the mortgaged cause is not stated therein. This presumption
property shall also answer for future loans or appellants cannot overcome by a simple assertion
advancements then the same is not improper as it of lack of consideration. Especially may not the
is valid and binding between the parties. presumption be so lightly set aside when the
contract itself states that consideration was given,
iii. Formalities & Registration and the same has been reduced into a public
Samanilla v. Cajucom, 107 Phil 432 instrument with all due formalities and solemnities
Paz Samanilla as in this case.
Cenen A. Cajucom, et al., Appellants assert that they cannot be compelled to
surrender their title for registration of the mortgage
G.R. No. L-13683, March 28, 1960 (107 Phil 432) in question until they are given an opportunity to
show its invalidity in an ordinary civil action,
FACTS: because registration is an essential element of a
The Cajucoms had executed in Samanilla’s favor, real estate mortgage and the surrender of their title
on December 20, 1955, a real estate mortgage would complete this requirement of registration.
over their rights and participation on the parcel of The argument is fallacious, for a mortgage, whether
land covered by Original Certificate of Title No. O- registered or not, is binding between the parties,
966 to secure a loan of P10,000. Sometime in registration being necessary only to make the same
valid against third persons (Art. 2125, New Civil Thereafter Feliciano Basa, Jr., thru his present
Code). attorney Mr. Benedicto M. Javier, procured from the
clerk of court a certified copy of said project of
In other words, registration only operates as a partition in a modified or mutilated form in that page
notice of the mortgage to others, but neither adds 22 thereof was omitted at the express request of
to its validity nor convert an invalid mortgage into a Attorney Javier. That certified copy, together with
valid one between the parties. Appellants still have the owner's duplicates of the certificates of title
the right to show that the mortgage in question is covering the real properties adjudicated to Feliciano
invalid for lack of consideration in an ordinary Basa, Jr., was presented to the register of deeds of
action and there ask for the avoidance of the deed Manila for registration with a view to the issuance of
and the cancellation of its registration. But until the corresponding transfer certificates of title in the
such action is filed and decided, it would be too name of Feliciano Basa, Jr., free from the mortgage
dangerous to the rights of the mortgagee to deny lien in favor of Antonio Gonzalez. The latter, upon
registration of her mortgage, because her rights learning thereof, objected to the registration of the
can so easily be defeated by a transfer or project of partition as thus mutilated and requested
conveyance of the mortgaged property to an the register of deeds, in lieu thereof, to register the
innocent third person. certified complete copy of said document which he
then and there presented with a view to the
If the purpose of registration is merely to give annotation of the mortgage in his favor on the
notice, the questions regarding the effect or certificates of title to be issued in the name of
invalidity of instruments are expected to be decided Feliciano Basa, Jr.
after, not before, registration. It must follow as a
necessary consequence that registration must first The register of deeds refused to accede to said
be allowed and validity or effect litigated afterwards. request of Attorney Gonzalez claiming Attorneys
Javier & Javier, representing Feliciano Basa Jr.,
Gonzales v. Basa, 73 Phil 704 refused to grant him authority to annotate said
Antonio Gonzalez mortgage on the certificates of title to be issued in
Vs. the name of Basa, and that since a mortgage is
Feliciano Basa, Jr. & Pilar Lopez de Basa, presumed to be a voluntary transaction between
the parties he had no authority to make such
G.R. No. 48695, September 30, 1942 (73 Phil annotation without the consent of both parties. The
704) matter was brought to the CFI which ruled to
instruct the register of deeds of Manila to register a
FACTS: certain project of partition in its entirety and not in a
In the matter of the estate of the deceased Amalia mutilated form as requested by the appellants.
Arcega y Alfonso Vda. de Basa, Pilar Lopez de
Basa, as administratrix; Feliciano Basa, Jr., as sole ISSUE:
and universal heir, and Antonio Gonzalez, as Whether the mortgagee is entitled to register the
creditor and attorney of the estate, presented to the mortgage as a matter of right.
court a project of partition jointly signed by them
and asked that it be approved. The said document HELD: YES. AFFIRMED.
consists of several clauses. Clause 2 contains an In deciding to comply with the request of the
inventory of the properties left by the deceased, appellants for the registration of the project of
and clause 3 contains a list of all the obligations of partition as mutilated, over the objection of the
the estate. The adjudication is contained in clause appellee, who tendered a complete, certified true
4. Said project of partition was approved by the copy of the same document, the register of deeds
court. of Manila impliedly conceded to them the right to
repudiate and annul an obligation evidenced by
said document against the will of the obligee and It is the same as if a buyer of real property who
without judicial intervention. mortgaged the property bought to secure the
payment of the purchase price, had presented the
That is obviously wrong. It is precisely his duty to combined deed of sale and mortgage to the register
see to it that a document presented for registration of deeds with the request to transfer the title to him
is regular and in due form. The mutilated certified without annotating the mortgage thereon.
copy was irregular on its face and should have
been rejected by him. Is the register of deeds authorized to comply with
such request? No reasonable person would so
In fact his authority in the premises goes no farther contend; and yet that is what the register of deeds
than this. He has no authority to inquire into the of Manila proposes to do in the present case.
intrinsic validity of a document based upon proofs
aliunde. If he had no authority to inquire into the
truth of appellants' allegation as to lack of
consideration for the mortgage in question, much Agri Credit Coop Assoc. Of Hinigaran v. Yusay,
less was he authorized to assume the truth of such 107 Phil 791
allegation without any investigation. Agricultural Credit Cooperative Association of
The project of partition in question, having been vs. Estanislao Yulo Yusay, et al.,
signed by the parties and approved by the court, is
presumed to be valid and is acceptable for G.R. No. L-13313, April 28, 1960 (107 Phil 791)
registration in its entirety. Neither of the parties may
alter it without the consent of the other and the FACTS:
approval of the court. Rafaela Yulo executed in favor of the cooperative a
mortgage for P33,626.29, due from her, her
The reasoning of the register of deeds that, mother, sisters, brothers, and others, which amount
inasmuch as a mortgage is a voluntary transaction, she assumed to pay to the cooperative. A motion
he had no authority to register it without the was presented to the court by the cooperative
consent of both parties, is fallacious. He confuses demanding the surrender of the owner's duplicate
the execution of a mortgage with its registration. It certificate of title that it may annotate said mortgage
is the execution of the mortgage that is voluntary. at the back of the certificate. Estanislao Yusay, a
Once a mortgage has been signed in due form, the part owner of the lot, opposed the petition on the
mortgagee is entitled to its registration as a matter ground that he is owner of a part of the property in
of right. By executing the mortgage, the mortgagor question; that the granting of the motion would
is understood to have given his consent to its operate to his prejudice, as he has not participated
registration, and he cannot be permitted to revoke it in the mortgage cited in the motion; that Rafaela
unilaterally. Yulo is dead; that the motion is not verified and
movant's rights have lapsed by prescription. Finally
The validity and fulfillment of contracts cannot be it is argued that his opposition raises a
left to the will of one of the contracting parties controversial matter which the court has no
(article 1256 of the Civil Code). In the last analysis, jurisdiction to pass upon.
the case is as if Feliciano Basa, Jr., had presented
to the register of deeds a certified complete copy of The existence of the mortgage is not disrupted, and
the project of partition with the request that the neither is the fact that the mortgagor Rafaela Yulo
register of deeds take into consideration only the is part owner of the lot. The oppositors do not
rights, and ignore the obligations, evidenced by dispute that she is such a part owner, and their
said document. main objection to the petition is that as part owners
of the property, the annotation of the mortgage on
the common title will affect their rights.
ordinary case before the courts, not before a court
The matter was brought to the CFI, and it ordered acting merely as a registration court, which did not
the Register of Deeds to register the mortgage. have the jurisdiction to pass upon the alleged effect
or invalidity.
Whether the validity or effectivity of a mortgage
may be determined during its registration Ursal v. CA, 473 SCRA 52
Winifreda Ursal vs. CA, the Rural Bank of
HELD: NO. AFFIRMED. Larena (Siquijor), Inc., & Sps. Jesus Moneset &
In his Brief before this Court, counsel for appellants Cristita Moneset,
argue that the mortgage sought to be registered
was not recorded before the closing of the intestate G.R. No. 142411, October 14, 2005 (473 SCRA
proceedings of the deceased mortgagor, but was 52)
so recorded only four months after the termination
of said proceedings, so that the claim of movant FACTS:
has been reduced to the character of a mere Jesus and Cristita Moneset (Monesets) are the
money claim, not a mortgage, hence the mortgage registered owners of a 333- square meter land
may not be registered. together with a house thereon situated at Sitio
Laguna, Basak, Cebu City. On January 9, 1985,
In the first place, the proceeding to register the they executed a "Contract to Sell Lot & House" in
mortgage does not purport to determine the favor of petitioner Winifreda Ursal.
supposed invalidity of the mortgage or its effect.
Registration is a mere ministerial act by which a Ursal paid the down payment and took possession
deed, contract or instrument is sought to be of the property. She immediately built a concrete
inscribed in the records of the Office of the Register perimeter fence and an artesian well, and planted
of Deeds and annotated at the back of the fruit bearing trees and flowering plants thereon
certificate of title covering the land subject of the which all amounted to P50,000.00. After paying six
deed. monthly installments, petitioner stopped paying due
to the Monesets' failure to deliver to her the transfer
The registration of a lease or mortgage, or the entry certificate of title of the property as per their
of a memorial of a lease or mortgage on the agreement; and because of the failure of the
register, is not a declaration by the state that such Monesets to turn over said title, petitioner failed to
an instrument is a valid and subsisting interest in have the contract of sale annotated thereon.
land; it is merely a declaration that the record of the
title appears to be burdened with the lease or Unknown to Ursal, the Monesets executed on
mortgage described, according to the priority set November 5, 1985 an absolute deed of sale in
forth in the certificate. The mere fact that a lease or favor of Dr. Rafael Canora, Jr. over the said
mortgage was registered does not stop any party to property for P14,000.00. On September 15, 1986,
it from setting up that it now has no force or effect. the Monesets executed another sale, this time with
pacto de retro with Restituto Bundalo. On the same
The court below, in ordering the registration and day, Bundalo, as attorney- in-fact of the Monesets,
annotation of the mortgage, did not pass on its executed a real estate mortgage over said property
invalidity or effect. As the mortgage is admittedly an with Rural Bank of Larena located in Siquijor for the
act of the registered owner, all that the judge below amount of P100,000. 00. The special power of
did and could do, as a registration court, is to order attorney made by the Monesets in favor of Bundalo
its registration and annotation on the certificate of as well as the real estate mortgage was then
title covering the land mortgaged. By said order the annotated on the title on September 16, 1986. For
court did not pass upon the effect or validity of the the failure of the Monesets to pay the loan, the
mortgage - these can only be determined in an
Bank served a notice of extrajudicial foreclosure Our agreement with petitioner on this point of law,
dated January 27, 1988 on Bundalo. notwithstanding, we are constrained to refrain from
granting the prayers of her petition. The reason is
Ursal filed an action for declaration of non- that, the contract between petitioner and the
effectivity of mortgage and damages against the Monesets being one of "Contract to Sell Lot and
Monesets, Bundalo and the Bank. She claimed that House," petitioner, under the circumstances, never
the defendants committed fraud and/or bad faith in acquired ownership over the property and her rights
mortgaging the property she earlier bought from the were limited to demand for specific performance
Monesets with a bank located in another island, from the Monesets, which at this juncture however
Siquijor; and the Bank acted in bad faith since it is no longer feasible as the property had already
granted the real estate mortgage in spite of its been sold to other persons.
knowledge that the property was in the possession
of petitioner. A contract to sell is a bilateral contract whereby
the prospective seller, while expressly reserving the
The trial court ruled that Ursal was more credible ownership of the subject property despite delivery
than the Monesets and that the Monesets are liable thereof to the prospective buyer, binds himself to
for damages, fraud, and breach of contract. As to sell the said property exclusively to the prospective
the real estate mortgage, the trial court held that buyer upon fulfillment of the condition agreed upon,
the same was valid and that the bank was under no that is, full payment of the purchase price. In such
obligation to look beyond the title. contract, the prospective seller expressly reserves
the transfer of title to the prospective buyer, until
CA affirmed. the happening of an event, which in this case is the
full payment of the purchase price. What the seller
ISSUE: agrees or obligates himself to do is to fulfill his
Whether the bank, as mortgagee, can rely solely on promise to sell the subject property when the entire
the certificate of title and had no obligation to look amount of the purchase price is delivered to him.
beyond the title. Stated differently, the full payment of the purchase
price partakes of a suspensive condition, the non-
HELD: NO. AFFIRMED WITH MODIFICATIONS. fulfillment of which prevents the obligation to sell
We agree. Banks cannot merely rely on certificates from arising and thus, ownership is retained by the
of title in ascertaining the status of mortgaged prospective seller without further remedies by the
properties; as their business is impressed with prospective buyer. It is different from contracts of
public interest, they are expected to exercise more sale, since ownership in contracts to sell is
care and prudence in their dealings than private reserved by the vendor and is not to pass to the
individuals. Indeed, the rule that persons dealing vendee until full payment of the purchase price,
with registered lands can rely solely on the while in contracts of sale, title to the property
certificate of title does not apply to banks. passess to the vendee upon the delivery of the
thing sold. In contracts of sale the vendor loses
Respondent is not an ordinary mortgagee; it is a ownership over the property and cannot recover it
mortgagee-bank. As such, unlike private unless and until the contract is resolved or
individuals, it is expected to exercise greater care rescinded, while in contracts to sell, title is retained
and prudence in its dealings, including those by the vendor until full payment of the price. In
involving registered lands. A banking institution is contracts to sell, full payment is a positive
expected to exercise due diligence before entering suspensive condition while in contracts of sale,
into a mortgage contract. The ascertainment of the non-payment is a negative resolutory condition.
status or condition of a property offered to it as
security for a loan must be a standard and Since the contract in this case is a contract to sell,
indispensable part of its operations. the ownership of the property remained with the
Monesets even after petitioner has paid the down
payment and took possession of the property. In as proof of her willingness and readiness to comply
Flancia vs. CA, where the vendee in the contract to with her part of the obligation.
sell also took possession of the property, this Court
held that the subsequent mortgage constituted by As held in San Lorenzo Development Corp vs. CA,
the owner over said property in favor of another the perfected contract to sell imposed on the
person was valid since the vendee retained vendee the obligation to pay the balance of the
absolute ownership over the property. At most, the purchase price. There being an obligation to pay
vendee in the contract to sell was entitled only to the price, the vendee should have made the proper
damages. tender of payment and consignation of the price in
court as required by law. Consignation of the
Petitioner attributes her decision to stop paying amounts due in court is essential in order to
installments to the failure of the Monesets to extinguish the vendee's obligation to pay the
comply with their agreement to deliver the transfer balance of the purchase price. Since there is no
certificate of title after the down payment of indication in the records that petitioner even
P50,000.00. On this point, the trial court was attempted to make the proper consignation of the
correct in holding that for such failure, the amounts due, the obligation on the part of the
Monesets are liable to pay damages pursuant to Monesets to transfer ownership never acquired
Art. 1169 of the Civil Code on reciprocal obligatory force.
obligations. The vendors' breach of the contract,
notwithstanding, ownership still remained with the In other words, petitioner did not acquire ownership
Monesets and petitioner cannot justify her failure to over the subject property as she did not pay in full
complete the payment. the equal price of the contract to sell. Further, the
Monesets' breach did not entitle petitioner to any
In Pangilinan vs CA, the vendees contended that preferential treatment over the property especially
their failure to pay the balance of the total contract when such property has been sold to other
price was because the vendor reneged on its persons.
obligation to improve the subdivision and its
facilities. In said case, the Court held that the Petitioner's rights were limited to asking for specific
vendees were barred by laches from asking for performance and damages from the Monesets.
specific performance eight years from the date of Specific performance, however, is no longer
last installment. feasible at this point as explained above. This being
the case, it follows that petitioner never had any
The legal adage finds application in the case at bar. cause of action against respondent Bank. Having
Tempus enim modus tollendi obligations et no cause of action against the bank and not being
actiones, quia tempus currit contra desides et sui an owner of the subject property, petitioner is not
juris contemptores-For time is a means of entitled to redeem the subject property.
dissipating obligations and actions, because time
runs against the slothful and careless of their own Indeed, it is the Monesets who first breached their
rights. obligation towards petitioner and are guilty of fraud
against her. It cannot be denied however that
In this case, petitioner instituted an action for petitioner is also not without fault. She sat on her
"Declaration of Non-Effectivity of Mortgage with rights and never consigned the full amount of the
Damages" four years from the date of her last property. She therefore cannot ask to be declared
installment and only as a reaction to the foreclosure the owner of the property, this late, especially since
proceedings instituted by respondent Bank. After the same has already passed hands several times,
the Monesets failed to deliver the TCT, petitioner neither can she question the mortgage constituted
merely stopped paying installments and did not on the property years after title has already passed
institute an action for specific performance, neither to another person by virtue of a deed of absolute
did she consign payment of the remaining balance sale.
encumbered in any manner without the written
Rivera v. Peña, 1 SCRA 747 consent of the mortgagee; that the consent of the
Teotimo Rivera corporation to the contract of lease had never been
Vs. sought. The corporation had granted the loan
Timoteo Peña, Rehabilitation Finance guaranteed by said mortgage for the development
Corporation & Register of Deeds Tarlac, of the property in question, to be undertaken by the
mortgagor; and, as a matter of policy, the
G.R. No. L-11781, March 24, 1961 (1 SCRA 747) corporation does not allow, therefore, the leasing of
mortgaged property.
Timoteo Peña was the registered owner of 2 lots of The lower court denied the petition because the
the barrios of Pacalcal and Anupul, respectively, deed of lease sought to be registered is in the
municipality of Bamban, province of Tarlac, and Pampango dialect and that it does not bear the
covered by TCTs. Timoteo Peña executed in favor correct number of the title covering the leased
of petitioner Rivera a contract of lease over said property.
two (2) parcels of land, for the period from
September 14, 1956 to September 15,1960, as
evidenced by a public document in the Pampango ISSUE:
dialect. This contract was merely a renewal of a Whether a subsequent encumbrance may be
previous contract of lease over the same parcels of registered when a previous encumbrance disallows
land, between the same parties. it.

The owner's duplicates of the aforementioned HELD: NO. AFFIRMED.

transfer certificates of title are in the possession of One of the conditions of the contract executed by
the Rehabilitation Finance Corporation, to whom Timoteo Peña in favor of the Rehabilitation Finance
said lands were mortgaged by Timoteo Peña on Corporation is that the property thus mortgaged
October 26, 1955, to guarantee the payment of a thereto shall not be encumbered in any manner
P25,000.00 loan, which mortgage is duly annotated whatsoever without the written consent of the
on the aforementioned transfer certificates of title; mortgagee. Such consent has never been sought.
and that, in order to protect his rights over the Had it been requested, the consent would have
parcels of land aforementioned, petitioner Rivera been denied or refused, as a matter of policy, by
desires to have said rights registered in the office of the mortgagee, the loan guaranteed by said
the register of deeds of Tarlac and annotated in the mortgage having been granted for the development
certificates of title above referred to, for which of the mortgaged property, which should, therefore,
reason he prayed that the Rehabilitation Finance be cultivated by the mortgagor himself.
Corporation be ordered to surrender to said register
of deeds the owner's duplicates of the Inasmuch as appellant's rights were derived from
aforementioned transfer certificates of title and that Timoteo Peña and is bound, therefore, by his
said register of deeds be directed to register the commitments in favor of said corporation, it is clear
original of the contract of lease, and to make the that appellant has no valid adverse claim which
corresponding annotations in said transfer may be ordered registered and that, accordingly,
certificates of title, upon presentation of said the lower court has not erred in denying his petition,
original of the contract of lease and payment of the regardless of the language or dialect in which the
corresponding fees. deed of lease in question is written and of the
inaccuracy of the number therein given of one of
The Rehabilitation Finance Corporation objected to the transfer certificates of title involved in this
said petition upon the ground that, pursuant to the incident.
deed of mortgage executed in its favor by Timoteo
Peña, the lands above referred to shall not be PNB v. CA, 187 SCRA 735
Philippine National Bank The records show that Chu Kim Kit entrusted his
Vs. Transfer Certificate of Title No. T-1412 to his
CA & Chu Kim Kit represented by Chu Tong U, mother, Felisa Boyano, before he left for mainland
China and allowed his mother to administer the
property, and to enjoy its fruits in his absence.
G.R. No. 43972, July 24, 1990 (187 SCRA 735) Those acts of his enabled Felisa Boyano to cause
the cancellation of TCT No. T -1412 and to obtain
TCT No. T-1439 in her name. That Felisa Boyano
FACTS: was administering his property may also have
Chu Kim Kit, a Chinese national and son of created the impression in the mind of third persons
defendant Boyano, is the absolute owner of a that she was the owner of the property and could
commercial lot and building on Rizal Avenue, dispose of it. It is plain to see that by his own acts
Tacloban City, registered in his name. Chu Kim Kit of confidence in Felisa Boyano, the private
went to mainland China, and he was prevented respondent was partly to blame for the commission
from returning to the Philippines when the of the fraud against himself by his mother. As
Communists took over mainland China. Through between him and the petitioner which was totally
letters, he requested Chu Tong U to take care of innocent and free from negligence or wrongdoing in
his aforementioned property. Although Boyano was the transaction, the latter is entitled to the
aware that her son was still alive, she executed an protection of the law.
affidavit on May 21, 1963, alleging that he had died
and adjudicating to herself, as his sole heir, the There is no question that the petitioner PNB is a
above-described property. By means of said mortgagee in good faith and for value. At the time
affidavit of adjudication, she was able to obtain a the mortgage was constituted on the property on
Transfer Certificate of Title over the land in her October 30, 1963, it was covered by TCT No. T -
name. She thereafter mortgaged the property to the 1439 in the name of Felisa Boyano. The title carried
Philippine National Bank, Tacloban Branch, to no annotation, defect or flaw that would have
secure a loan of P25,000. She was also about to aroused suspicion as to its authenticity. "The
dispose of the property. certificate of title was in the name of the mortgagor
when the land was mortgaged to the PNB. Such
Chu Kim Kit, represented by his uncle, Chu Tong being the case, petitioner PNB had the right to rely
U, filed a case against Felisa Boyano for on what appeared on the certificate of title, and in
cancellation of the latter's Certificate of Title. the absence of anything to excite suspicion, it was
Boyano admitted that Chu Kim Kit was still alive but under no obligation to look beyond the certificate
she alleged that she signed the affidavit of and investigate the title of the mortgagor appearing
adjudication without having read its contents, the on the face of the certificate."
same being written in English which she does not
understand. Where there was nothing in the certificate of
title to indicate any cloud or vice in the
The trial court ruled that the TCT of Boyano were ownership of the property, or any encumbrance
null and void. thereon, the purchaser is not required to
explore farther than what the Torrens Title upon
CA affirmed. its face indicates in quest for any hidden defect
or inchoate right that may subsequently defeat
ISSUE: his right thereto. If the rule were otherwise, the
Whether a mortgagee may rely on the correctness efficacy and conclusiveness of the certificate of title
of the certificate of title. which the Torrens System seeks to insure would
entirely be futile and nugatory.
Where innocent third persons relying on the Transfer Certificate of Title No. 260376 of the
correctness of the certificate of title issued, acquire Register of Deeds of Quezon City to secure the
rights over the property, the court cannot disregard payment of their obligation amounting to P2.3
such rights and order the total cancellation of the Million in favor of the respondent spouses. Based
certificate for that would impair public confidence in on the terms of the REM, the petitioners agreed to
the certificate of title; otherwise everyone dealing pay interest on the principal amount at the rate of
with property registered under the torrens system 2.5%/month, or P 57,500.00/month. Upon the
would have to inquire in every instance as to default of the petitioners, the respondent spouses
whether the title had been regularly or irregularly commenced the extrajudicial foreclosure of the
issued by the court. Indeed, this is contrary to the REM to recover from the petitioners the total liability
evident purpose of the law. Every person dealing of P 3,579, 100.00 (inclusive of the principal and
with registered land may safely rely on the the unpaid interest).
correctness of the certificate of title issued therefor
and the law will in no way oblige him to go behind The petitioners sued the respondent spouses in the
the certificate to determine the condition of the Regional Trial Court (RTC) in Quezon City to annul
property. Stated differently, an innocent purchaser the extrajudicial foreclosure of the REM and the
for value relying on a torrens title issued is public auction conducted pursuant to the
protected. A mortgagee has the right to rely on extrajudicial foreclosure. They alleged that all the
what appears in the certificate of title and, in the proceedings relevant to the extrajudicial foreclosure
absence of anything to excite suspicion, he is under were null and void, pointing out that there had been
no obligation to look beyond the certificate and no power or authority to sell inserted in the REM or
investigate the title of the mortgagor appearing on attached thereto as required by Section 1 Act No.
the face of said certificate. 3135; and that the interest rate of 8% was
unconscionable and violative of the Anti-Usury Law.
The right or lien of an innocent mortgagee for value The petitioners seek the reversal and setting aside
upon the land mortgaged must be respected and of the decision of the Court of Appeals (CA)
protected, even if the mortgagor obtained his title declaring the extrajudicial foreclosure of their
through fraud. The remedy of the persons mortgaged property valid.
prejudiced is to bring an action for damages against
those who caused the fraud, and if the latter are ISSUE #1: Whether or not the Court of Appeals
insolvent, an action against the Treasurer of the erred when it declared that the extrajudicial
Philippines may be filed for recovery of damages foreclosure was valid despite the lack of provision
against the Assurance Fund. in the mortgage deed granting special power to sell
to the mortgagee.
HELD #1: YES. In the extrajudicial foreclosure of
Baysa v. Plantilla, 762 SCRA 433 property subject of a real estate mortgage, Section
Spouses Benito Baysa and Victoria Baysa, 1 of Act No. 3135[1] (An Act to Regulate the Sale of
Petitioners, Property Under Special Powers Inserted in or
vs. Annexed to Real Estate Mortgages) is quite explicit
Spouses Fidel Plantilla and Susan Plantilla, and definite about the special power to sell the
Register of Deeds of Quezon City and the property being required to be either inserted in or
Sheriff of Quezon City, Respondents. attached to the deed of mortgage. Accordingly, to
enable the extra judicial foreclosure of the REM of
G.R. No. 159271, July 13, 2015 the petitioners, the special power to sell should
have been either inserted in the REM itself or
FACTS: embodied in a separate instrument attached to
The case involves a real estate mortgage (REM) the REM. But it is not disputed that no special
entered into by the petitioners involving their parcel power to sell was either inserted in the REM or
of land in Cubao, Quezon City covered by their attached to the REM. Hence, the respondent
spouses as the foreclosing mortgagees could not lower courts, doing so only in this appeal. Hence,
initiate the extrajudicial foreclosure, but must resort they cannot be permitted to bring the issue for the
to judicial foreclosure pursuant to the procedure set first time in this Court, for that would be unfair not
forth in Rule 68 of the Rules of Court. The omission only to the adverse parties but also to the lower
of the special power to sell the property subject of courts by depriving the latter of the opportunity to
the mortgage was fatal to the validity and efficacy pass upon the issue. And, thirdly, the invalidation
of the extrajudicial foreclosure, and warranted the by the CA of the 8% compounded interest does not
invalidation of the entire proceedings conducted by justify deleting the stipulation on the 2.5%/month
the sheriff. interest that was really separate and distinct from
the former.
ISSUE #2: Whether or not the Court of Appeals
erred when it concluded that consenting to the
extrajudicial foreclosure of the property, by [1] Section 1. When a sale is made under a special
necessary implication, carries with it the grant of power inserted in or attached to any real estate
power to sell the property at public action. mortgage hereafter made as security for the
HELD #2: YES. What was necessary was the payment of money or the fulfillment of any other
special power or authority to sell - whether inserted obligation, the provisions of the following section
in the REM itself, or annexed thereto - that shall govern as to the manner in which the sale and
authorized the respondent spouses to sell in the redemption shall be effected, whether or not
public auction their mortgaged property. The provision for the same is made in the power.
requirement for the special power or authority to
sell finds support in the civil law. To begin with,
because the sale of the property by virtue of the United Overseas Bank v. BOC-HLURB, 760
extrajudicial foreclosure would be made through the SCRA 300
sheriff by the respondent spouses as the
mortgagees acting as the agents of the petitioners Facts:
as the mortgagors-owners, there must be a written EDUPLAN bought a condominium unit from J.O.S.
authority from the latter in favor of the former as Managing Builders, Inc. under a contract to sell.
their agents; otherwise, the sale would be void. The condominium unit was fully paid in August
And, secondly, considering that, pursuant to Article 1998 and executed their deed of absolute sale in
1878, (5), of the Civil Code, a special power of December 1998. However, J.O.S. Managing
attorney was necessary for entering "into any Builders did not deliver the condominium certificate
contract by which the ownership of an immovable is title to EDUPLAN, which, in time, discovered that
transmitted or acquired either gratuitously or for a J.O.S. Managing Builders that the unit was the
valuable consideration," the written authority must subject of mortgage by J.O.S. Managing Builders in
be a special power of attorney to sell. favour of United Overseas Bank. Now EDUPLAN
filed a petition to declare the mortgage between
ISSUE #3: Whether or not the Court of Appeals J.O.S. Managing Builders and United Overseas
erred in not declaring the 2.5% monthly interest Bank null and void. On August 15, 2001, HLURB
illegal and usurious, considering that the 8% (Housing and Land Use Regulatory Board) Arbiter
interest was already declared as invalid and declared the mortgage null and void. Such decision
unwarranted. led to the petition of United Overseas Bank.
HELD #3: NO. To start with, the petitioners are now
estopped from assailing the validity of the monthly Issues:
interest payments made. They expressly consented W/N the HLURB erred in declaring null and void the
to be liable to pay 2.5%/month on the principal loan mortgage.
of P2.3 Million, and actually made several
payments of interest at that rate. Secondly, they did Ruling:
not assail the rate of 2.5%/month as interest in the
Yes, the HLURB erred in declaring null and void the required the former to submit a certification from
mortgage. This is because EDUPLAN, a unit buyer, the Bureau of Forest Development that the land is
has no legal standing in order for it to seek alienable and disposable. However, on October 29,
complete nullification of the mortgage when it only 1981, said office issued a certificate attesting to the
has interest to the single unit that it purchased. fact that the said property was classified as
timberland, hence not subject to disposition.

iv. Effects The loan application of respondent spouses was,

DBP v. CA, 294 SCRA 331 nevertheless, eventually approved by DBP in the
Development Bank of t h e Philippines sum of P140,000.00, despite the aforesaid
Vs. certification of the bureau, on the understanding of
CA, Celebrada Mangubat & Abner Mangubat, the parties that DBP would work for the release of
the land by the former Ministry of Natural
G.R. No. 110053, October 16, 1995 (249 SCRA Resources.
To secure payment of the loan, respondent
FACTS: spouses executed a real estate mortgage over the
A land, covered by a tax declaration, was originally land on March 17, 1982, which document was
owned by one Presentacion Cordovez, who, on registered in the Registry of` Deeds pursuant to Act
February 9, 1937, donated it to Luciano Sarmiento. No. 3344. The loan was then released to the
spouses Mangubat on a staggered basis. After a
On June 8, 1964 Luciano Sarmiento sold the land substantial sum of P118,540.00 had been received
to Pacifico Chica. by private respondent, they asked for the release of
the remaining amount of the loan. It does not
On April 27, 1965, Pacifico Chica mortgaged the appear that their request was acted upon by DBP,
land to DBP to secure a loan of P6,000.00. ostensibly because the release of the land from the
However, he defaulted in the payment of the loan, then Ministry of Natural Resources had not been
hence DBP caused the extrajudicial foreclosure of obtained.
the mortgage.
The spouses Mangubat then filed a complaint
In the auction sale held on September 9, 1970, against DBP seeking the annulment of the subject
DBP acquired the property as the highest bidder deed of absolute sale on the ground that the object
and was issued a certificate of sale on September thereof was verified to be timberland and, therefore,
17, 1970 by the sheriff. is in law an inalienable part of the public domain.
They also alleged that DBP acted fraudulently and
On October 14, 1980, spouses Celebrada and in bad faith by misrepresenting itself as the
Abner Mangubat offered to buy the property for absolute owner of the land and in incorporating the
P18,599.99. DBP made a counter-offer of waiver of warranty against eviction in the deed of
P25,500.00 which was accepted by respondent sale
spouses. The parties further agreed that payment
was to be made within six months thereafter for it to In its answer, DBP contended that it was actually
be considered as cash payment. the absolute owner of the land, having purchased it
for value at an auction sale pursuant to an
On July 20, 1981, a deed of absolute sale was extrajudicial foreclosure of mortgage; that there
executed. Said document contained a waiver of the was neither malice nor fraud in the sale of the land
seller's warranty against eviction. under the terms mutually agreed upon by the
parties; that assuming arguendo that there was a
Thereafter, the spouses Mangubat applied for an flaw in its title, DBP cannot be held liable for
industrial tree planting loan with DBP. The latter anything inasmuch as respondent spouses had full
knowledge of the extent and nature of DBP's rights, which is the principal obligation. In case of nullity,
title and interest over the land. the mortgage deed remains as evidence or proof of
a personal obligation of the debtor, and the amount
The trial court rendered judgment annulling the due to the creditor may be enforced in an ordinary
subject deed of absolute sale and ordering DBP to personal action.
return the P25,500.00 purchase price, plus interest;
to reimburse to respondent spouses the taxes paid Considering that neither party questioned the
by them, the cost of the relocation survey, legality and correctness of the judgment of the
incidental expenses and other damages in the court a quo, as affirmed by respondent court,
amount of P50,000.00; and to further pay them ordering the annulment of the deed of absolute
attorney's fees and litigation expenses in the sale, such decreed nullification of the document
amount of P10,000.00, and the costs of suit. has already achieved finality. We only need,
therefore, to dwell on the effects of that declaration
Upon appeal, the CA rendered judgment modifying of nullity.
the disposition of the lower court by deleting the
award for damages, attorney's fees, litigation With respect to the right of a party to recover the
expenses and the costs, but affirming the same in amount given as consideration, this has been
all its other aspects. passed upon in the case of Leather Manufacturers
National Bank vs. Merchants National Bank where
ISSUE: it was held that: "What money is paid upon the
Whether a loan contract which is secured by a void representation of the receiver that he has either a
mortgage is still valid. certain title in property transferred in consideration
of the payment or a certain authority to receive the
HELD: YES. Affirmed with Modifications. money paid, when in fact he has no such title or
In its legal context, the contract of loan executed authority, then, although there be no fraud or
between the parties is entirely different and discrete intentional misrepresentation on his part, yet there
from the deed of sale they entered. The annulment is no consideration for the payment, the money
of the sale will not influence the existence and remains, in equity and good conscience, the
demandability of the loan. One who has received property of the payer and may be recovered back
money as a loan is bound to pay to the creditor an by him."
equal amount of the same kind and quality.
Therefore, the purchaser is entitled to recover the
The fact that the annulment of the sale will also money paid by him where the contract is set aside
result in the invalidity of the mortgage does not by reason of the mutual material mistake of the
have an effect on the validity and efficacy of the parties as to the identity or quantity of the land sold.
principal obligation, for even an obligation that is And where a purchaser recovers the purchase
unsupported by any security of the debtor may also money from a vendor who fails or refuses to deliver
be enforced by means of an ordinary action. Where the title" he is entitled as a general rule to interest
a mortgage is not valid, as where it is executed by on the money paid from the time of Payment. A
one who is not the owner of the property, or the contract which the law denounces as void is
consideration of the contract is simulated or false, necessarily no contract whatever, and the acts of
the principal obligation which it guarantees is not the parties in an effort to create one can in no wise
thereby rendered null and void. That obligation bring about a change of their legal status. The
matures and becomes demandable in accordance parties and the subject matter of the contract
with the stipulations pertaining to it. remain in all particulars just as they did before any
act was performed in relation thereto.
Under the foregoing circumstances, what is lost is
only the right to foreclose the mortgage as a special Carpo v. Chua, 471 SCRA 471
remedy for satisfying or settling the indebtedness Spouses David B. Carpo & Rechilda S. Carpo
Vs. HELD: NO. Affirmed.
Eleanor Chua & Elma Dy Ng, There is no need to unsettle the principle affirmed
in Medel and like cases. From that perspective, it is
G.R. Nos. 150773 & 153599, September 30, 2005 apparent that the stipulated interest in the subject
(471 SCRA 471) loan is excessive, iniquitous, unconscionable and
exorbitant. Pursuant to the freedom of contract
FACTS: principle embodied in Article 1306 of the Civil Code,
The spouses Carpo borrowed from Chua and Ng contracting parties may establish such stipulations,
the amount of P175,000 payable within 6 months clauses, terms and conditions as they may deem
with an interest of 6% per month. To secure the convenient, provided they are not contrary to law,
loan, they mortgaged their residential house and lot morals, good customs, public order, or public
in Camarines Sur. They failed to pay the loan. policy. In the ordinary course, the codal provision
Consequently, the property was extrajudicially may be invoked to annul the excessive stipulated
foreclosed and sold at an auction sale to Chua and interest.
Ng. Upon failure to exercise their right of
redemption, a certificate of sale was issued and In the case at bar, the stipulated interest rate is 6%
TCTs were issued in the name of the winning per month, or 72% per annum. By the standards
bidders. Despite such developments, the spouses set in the above - cited cases, this stipulation is
Carpo continued to occupy the house and lot similarly invalid. However, the RTC refused to apply
prompting Chua and Ng to file a petition for writ of the principle cited and employed in Medel on the
possession. Such writ was issued. ground that Medel did not pertain to the annulment
of a real estate mortgage, as it was a case for
The spouses Carpo then filed a complaint for the annulment of the loan contract itself. The question
annulment of real estate mortgage and the thus sensibly arises whether the invalidity of the
consequent foreclosure proceedings. They stipulation on interest carries with it the invalidity of
consigned the amount of P257, 197.26 with the the principal obligation. The question is crucial to
court. A TRO was issued. The RTC suspended the the present petition even if the subject thereof is not
enforcement of the writ of possession pending the the annulment of the loan contract but that of the
final disposition of the complaint. mortgage contract.

Chua and Ng questioned this suspension order The consideration of the mortgage contract is the
before the CA. During the pendency of the case same as that of the principal contract from which it
before the CA, the court handling the complaint for receives life, and without which it cannot exist as an
annulment dismissed the case on the ground that it independent contract. Being a mere accessory
was filed out of time and was barred by laches. A contract, the validity of the mortgage contract
petition was filed assailing the dismissal of the would depend on the validity of the loan
complaint. secured by it. Notably in Medel, the Court did not
invalidate the entire loan obligation despite the
The CA eventually reversed the suspension order inequitability of the stipulated interest, but instead
on the ground that it was the ministerial duty of the reduced the rate of interest to the more reasonable
lower court to issue the writ of possession when rate of 12% per annum. The same remedial
title over the mortgaged property had been approach to the wrongful interest rates involved
consolidated in the mortgagee. was employed or affirmed by the Court in
Solangon, Imperial, Ruiz, Cuaton, and Arrofo. The
ISSUE: Court’s ultimate affirmation in the cases cited of the
Whether a mortgage can be nullified on the ground validity of the principal loan obligation side by side
that the interest of the loan which is secured by the with the invalidation of the interest rates thereupon
mortgage is usurious. is congruent with the rule that a usurious loan
transaction is not a complete nullity but defective for himself and also in behalf of Juan Vargas by
only with respect to the agreed interest. virtue of the power granted him by latter, and that
Dolores Orozco appeared merely for the purpose of
The Court’s wholehearted affirmation of the rule complying with the requirements contained in the
that the principal obligation subsists despite the power of attorney. This instrument was duly
nullity of the stipulated interest is evinced by its recorded in the Registry of Property, and it appears
subsequent rulings, cited above, in all of which the therefrom that Enrique Grupe, as attorney in fact for
main obligation was upheld and the offending Vargas, received from the plaintiff a loan of 2,200
interest rate merely corrected. Hence, it is clear and pesos and delivered the same to the defendant. To
settled that the principal loan obligation still stands secure its payment, he mortgaged the property of
and remains valid. By the same token, since the his principal with defendant's consent as required in
mortgage contract derives its vitality from the the power of attorney.
validity of the principal obligation, the invalid
stipulation on interest rate is similarly insufficient to The loan was not paid. The creditor filed suit and
render void the ancillary mortgage contract. won in the lower court.

The petition for certiorari and mandamus ISSUE:

questioning the suspension order was proper since Whether validity of the mortgage can be affected by
the said order was interlocutory in nature and since the circumstances on how the money from the loan
the case involved the performance of a ministerial was received by the mortgagor.
Tuason v. Orozco, 5 Phil 596 The fact that the defendant received the money
Gonzalo Tuason from her husband's agent and not from the creditor
Vs. does not affect the validity of the mortgage in view
Dolores Orozco, of the conditions contained in the power of attorney
under which the mortgage was created. Nowhere
G.R. No. 2344, February10,1906(5Phil596) does it appear in this power that the money was to
be delivered to her by the creditor himself and not
FACTS: through the agent or any other person. The
On November 19, 1888, Juan de Vargas y Amaya, important thing was that she should have received
the defendant's husband, executed a power of the money. This we think is fully established by the
attorney to Enrique Grupe, authorizing him to record.
dispose of all his property, and particularly of a
certain house and lot known as No. 24 Calle A debt thus incurred by the agent is binding directly
Nueva, Malate, in the city of Manila, for the price at upon the principal, provided the former acted, as in
which it was actually sold. He was also authorized the present case, within the scope of his authority.
to mortgage the house for the purpose of securing (Art. 1727 of the Civil Code.) The fact that the agent
the payment of any amount advanced to his wife, has also bound himself to pay the debt does not
Dolores Orozco de Rivero. relieve from liability the principal for whose benefit
the debt was incurred.
On the 21st of January, 1890, Enrique Grupe and
Dolores Orozco de Rivero obtained a loan from the The individual liability of the agent constitutes in the
plaintiff secured by a mortgage on the property present case a further security in favor of the
referred to in the power of attorney. In the caption creditor and does not affect or preclude the liability
of the instrument evidencing the debt it is stated the of the principal. In the present case the latter's
Grupe and Dolores Orozco appeared as the parties liability was further guaranteed by a mortgage upon
of the first part and Gonzalo Tuason, the plaintiff, his property. The law does not provide that the
as the party of the second part; that Grupe acted agent can not bind himself personally to the
fulfillment of an obligation incurred by him in the program for the under-privileged, awarded it to one
name and on behalf of his principal. On the Julio Arizapa who constructed a house and
contrary, it provides that such act on the part of an upholstery shop thereon. The award was in the
agent would be valid. (Art. 1725 of the Civil Code.) nature of a "Contract to Sell" payable monthly for a
period of twenty (20) years. Before Julio Arizapa
The appellant's final contention is that in order to could pay for the lot, he died, leaving behind his
render judgment against the mortgaged property it wife and children. His wife died the following year.
would be necessary that the minor children of Juan The surviving children, including Evelyn Arizapa
de Vargas be made parties defendant in this action, Banua, executed a Deed of Extrajudicial Partition
they having an interest in the property. Under adjudicating unto themselves the lot and a
article 154 of the Civil Code, which was in force at Renunciation in favor of Evelyn. Cesar Orolfo is the
the time of the death of Vargas, the defendant had caretaker of the same subject property as
the parental authority over her children and authorized and appointed by Evelyn Banua, in
consequently the legal representation of their whose name TCT No. 197603 covering the said
persons and property. (Arts. 155 and 159 of the property is registered. The title of Evelyn Banua
Civil Code.) It can not be said, therefore, that they to the subject property is evidenced by a Deed
were not properly represented at the trial. of Sale executed by the City of Manila in her
Furthermore this action was brought against the favor and by a TCT.
defendant in her capacity as administratrix of the
estate of the deceased Vargas. She did not deny in Ruben Lagrosa claims to be the lawful possessor of
her answer that she was such administratrix. the subject property by virtue of the "Deed of
Assignment of Real Estate Mortgage" executed in
Vargas having incurred this debt during his his favor by Presentacion Quimbo on the basis of a
marriage, the same should not be paid out of "Contract of Real Estate Mortgage" executed by
property belonging to the defendant exclusively but Julio Arizapa in favor of the latter. Lagrosa posits
from that pertaining to the conjugal partnership. that he cannot be evicted from the subject property
This fact should be borne in mind in case the because he had prior possession as assignee of
proceeds of the mortgaged property be not the said "Assignment of Real Estate Mortgage"
sufficient to pay the debt and interest thereon. The executed by Presentacion Quimbo in his favor, and
judgment of the court below should be modified in with the consent of Mauricia Albaytar, the sister of
so far as it holds the defendant personally liable for the deceased Josefa Albaytar Arizapa, after the
the payment of the debt. demise of the spouses Julio Arizapa and Josefa

Evelyn Banua and her husband filed a case against

Lagrosa v. CA, 312 SCRA 298 Lagrosa. Lagrosa, in turn, filed a case against
Ruben Lagrosa Cesar Orolfo.
CA, Spouses Romulo & Evelyn A. Banua, & The case filed by Evelyn Banua was ruled in her
Cesar Orolfo, favor.

G.R. Nos. 115981-82, August 12, 1999 (312 The case filed by Lagrosa was ruled in his favor.
SCRA 298)
The case was consolidated in the CA, and the court
FACTS: affirmed the ruling in favor of Evelyn Banua and
Involved in this case is the possession of sixty-five reversed the ruling in favor of Cesar Orolfo.
(65) square meters of residential lot located in
Paco, Manila, originally owned by the City of Manila
which, in due course, following its land and housing ISSUE:
Whether a mortgage executed by a person who is found by the respondent Court of Appeals was by
not the owner of the property is valid. mere tolerance or permission. It is well-settled that
"a person who occupies the land of another at the
HELD: NO. Affirmed. latter's tolerance or permission, without any
The Deed of Real Estate Mortgage" executed by contract between them is necessarily bound by an
Julio Arizapa is null and void, the property implied promise that he will vacate upon demand,
mortgaged by Julio Arizapa being owned by the failing which, a summary action for ejectment is the
City of Manila under Transfer Certificate of Title No. proper remedy against him. By Lagrosa's own
91120. For a person to validly constitute a valid admission, he is merely an assignee of the rights of
mortgage on real estate, he must be the the mortgage of the lot and that, consequently, the
absolute owner thereof as required by Article respondent Court of Appeals correctly ruled that the
2085 of the Civil Code of the Philippines. only right of action of Lagrosa as such assignee of
the mortgagee, where the mortgagor is already
Since the mortgage to Presentacion Quimbo of the dead, is that provided for in Section 7 of Rule 86
lot is null and void, the assignment by Presentacon and Section 5 of Rule 87 of the Rules of Court.
Quimbo of her rights as mortgage to Lagrosa is Thus, the mortgagee does not acquire title to the
likewise void. Even if the mortgage is valid as mortgaged real estate unless and until he
insisted by herein petitioner, it is well- settled that a purchases the same at public auction and the
mere mortgagee has no right to eject the occupants property is not redeemed within the period provided
of the property mortgaged. This is so, because a for by the Rules of Court.
mortgage passes no title to the mortgagee. Indeed,
by mortgaging a piece of property, a debtor merely Castro v. CA, 250 SCRA 661
subjects it to a lien but ownership thereof is not Luis Castro, Jr., Marissa Castro, Ramon Castro,
parted with. Mary Ann Castro, Catherine Castro & Antonio
Thus, a mortgage is regarded as nothing more than Vs.
a mere lien, encumbrance, or security for a debt, CA & Union Bank of the Philippines,
and passes no title or estate to the mortgagee and
gives him no right or claim to the possession of the G.R. No. 97401, December 6, 1995 (250 SCRA
property. 661)
Petitioner Lagrosa now contends that what was
mortgaged by Julio Arizapa in favor of Presentacion FACTS:
Quimbo was "his right as an awardee over the On 15 August 1974, Cabanatuan City Colleges
homelot in question, and not the homelot itself." obtained a loan from the Bancom Development
Petitioner would have this Court uphold the validity Corporation. In order to secure the indebtedness,
and legality of the mortgage over the "right as an the college mortgaged to Bancom two parcels of
awardee" rather than the homelot itself. The land covered by TCT No. T -45816 and No. T-
agreement between the City of Manila and Julio 45817 located in Cabanatuan City. The parcels
Arizapa was in the nature of a "contract to sell," the were both within the school site. While the
price for the lot being payable on installment for a mortgage was subsisting, the college board of
period of twenty (20) years which could yet directors agreed to lease to petitioners a 1,000-
prevent, such as by the non-fulfillment of the square-meter portion of the encumbered property
condition, the obligation to convey title from on which the latter, eventually, built a residential
acquiring any obligatory force. Hence, there is no house. Bancom, the mortgagee, was duly advised
"right" as awardee to speak of, and there is no of the matter.
alienable interest in the property to deal with.
The school defaulted in the due payment of the
As to Lagrosa's prior possession of the subject loan. In time, Bancom extrajudicially foreclosed on
property, their stay in the property as correctly the mortgage, and the mortgaged property was
sold at public auction on 22 August 1979 with mortgagee can be included in the foreclosure
Bancom coming out to be the only bidder. A proceedings.
certificate of sale was accordingly executed by the
provincial sheriff in favor of Bancom. Subsequently, HELD: NO. REVERSED.
the latter assigned its credit to herein private Art. 2127 NCC provides that the mortgage extends
respondent Union Bank of the Philippines. On 10 to the natural accessions, to the improvements,
October 1984, following the expiration of the growing fruits, and the rents or income not yet
redemption period without the college having received when the obligation becomes due, and to
exercised its right of redemption, private the amount of the indemnity granted or owing to the
respondent consolidated title to the property. On 08 proprietor from the insurers of the property
May 1985, private respondent filed with the mortgaged, or in virtue of expropriation for public
Regional Trial Court of Nueva Ecija, Branch XXVIII use, with the declarations, amplifications and
in Cabanatuan City, an ex-parte motion for the limitations established by law, whether the estate
issuance of a writ of possession not only over the remains in the possession of the mortgagor, or
land and school buildings but also the residential passes into the hands of a third person.
house constructed by petitioners. On 10 May 1985,
the lower court granted the motion and direct This article extends the effects of the real estate
issuance of the corresponding writ. The ex- officio mortgage to accessions and accessories found on
provincial sheriff, in implementing the writ, thereby the hypothecated property when the secured
also sought the vacation of the premises by obligation becomes due. The law is predicated on
petitioners. When the latter refused, private an assumption that the ownership of such
respondent filed an ex-parte motion for a special accessions and accessories also belongs to the
order directing the physical ouster of the occupants. mortgagor as the owner of the principal. The
provision has thus been seen by the Court, in a
On 23 May 1986, petitioners formally entered their long line of cases beginning in 1909 with Bischoff
appearance in the proceedings to oppose the ex- vs. Pomar, to mean that all improvements
parte motion. Petitioners averred that, being the subsequently introduced or owned by the
owners of the residential house which they mortgagor on the encumbered property are
themselves had built on the foreclosed property deemed to form part of the mortgage. That the
with the prior knowledge of the mortgagee, they improvements are to be considered so incorporated
could not be ousted simply on the basis of a only if so owned by the mortgagor is a rule that can
petition for a writ of possession under Act No. 3135. hardly be debated since a contract of security,
whether real or personal, needs as an
The court, nevertheless, issued an order granting indispensable element thereof the ownership by the
private respondent's motion, and it directed Atty. pledgor or mortgagor of the property pledged or
Luis T. Castro representation of petitioners, to mortgaged. The rationale should be clear enough
deliver "all the keys to all the room premises" found — in the event of default on the secured obligation,
on the property foreclosed and authorized, in the the foreclosure sale of the property would naturally
event petitioners would refuse to surrender the be the next step that can expectedly follow. A sale
keys, private respondent "to the premises in would result in the transmission of title to the buyer
question and do what is best for the preservation which is feasible only if the seller can be in a
properties belonging to the Cabanatuan City position to convey ownership of the thing sold
Colleges." (Article 1458, Civil Code). It is to say, in the instant
case, that a foreclosure would be ineffective unless
Upon appeal, the CA affirmed. the mortgagor has title to the property to be
Whether a house subsequently built by a lessee on It may not be amiss to state, in passing, that in
mortgaged land with the knowledge of the respect of the lease on the foreclosed property, the
buyer at the foreclosure sale merely succeeds to L & R Corp refused to accept the payment. Hence,
the rights and obligations of the pledgor-mortgagor PWHAS was compelled to redeem the mortgaged
subject, however, to the provisions of Article 1676 properties through the ex-officio sheriff who, in turn,
of the Civil Code, on its possible termination. issued a Certificate of Redemption. Due to the
refusal of L & R Corp to return their owner’s
duplicate certificate of title, the spouses Litonjua
asked the Register of Deeds to annotate their
Litonjua v. L&R Corp., 320 SCRA 405 Certificate of Redemption as an adverse claim on
Sps. Reynaldo K. Litonjua & Erlinda P. Litonjua the titles. The Register of Deeds refused to do so,
& Phil. White House Auto Supply, Inc. hence the spouses Litonjua filed a petition against
Vs. L & R Corp for the surrender of the title.
L & R Corporation, Vicente M. Coloyan in his
capacity as Acting Registrar of the Register of While the case was pending, L & R Corp. executed
Deeds of Quezon City thru Deputy Sheriff an Affidavit of Consolidation of Ownership. The
Roberto R. Garcia, Register of Deeds then issued it a TCT, free of any
lien and encumbrance. L & R Corp then informed
G.R. No. 130722, December 9, 1999 (320 SCRA all tenants of the property to pay the rentals to it.
405) Upon learning of this, the spouses Litonjua filed an
adverse claim and a notice of lis pendens with the
FACTS: Register of Deeds. In the process, they learned that
The spouses Litonjua obtained loans from the L & the prior sale of the properties to PWHAS was not
R Corp. in the aggregate sum of P400,000. The annotated on the titles. A complaint for quieting of
loans were secured by a mortgage constituted by title, annulment of title & damages was filed.
the spouses upon their 2 parcels of land and the
improvements thereon located in Cubao, Quezon The lower court dismissed the complaint.
City. The mortgage provided that the mortgagor
cannot sell the mortgaged property without getting CA reversed at first, but set aside its decision in an
the consent of the mortgagee and that the amended decision.
mortgagee shall have the right of first refusal.
The spouses Litonjua then sold the property to Phil. 1. Whether a mortgage contract may provide that
White House Auto Supply, Inc. The sale was the mortgagor cannot sell the mortgaged property
annotated at the back of the certificate of title. without first obtaining the consent of the
The spouses Litonjua defaulted on their loan, so L
& R Corp. started extrajudicial foreclosure of the 2. Whether a mortgage contract may provide for a
property. During the public auction, L & R Corp., as right of first refusal in favor of the mortgagee.
the sole bidder, bought the land. When L & R Corp
attempted to have their Certificate of Sale recorded, HELD:
it discovered the prior sale of the land to PWHAS In the case of Philippine Industrial Co. v. El Hogar
for the first time. L & R Corp. wrote a letter to the Filipino and Vallejo, a stipulation prohibiting the
Register of Deeds requesting the cancellation of mortgagor from entering into second or subsequent
the annotation of the sale on the ground that the mortgages was held valid. This is clearly not the
contract of mortgage prohibited such sale. 7 same as that contained in paragraph 8 of the
months after the foreclosure sale, PWHAS, for the subject Deed of Real Estate Mortgage which also
account of the spouses Litonjua, tendered payment forbids any subsequent sale without the written
of the full redemption price to L & R Corp in the consent of the mortgagee.
form of a Chinabank manager’s check.
Yet, in Arancillo v. Rehabilitation Finance the immovable itself. For while covenants
Corporation, the case of Philippine Industrial Co., prohibiting the owner from constituting a later
supra, was erroneously cited to have held a mortgage over property registered under the
mortgage contract against the encumbrance, sale Torrens Act have been held to be legally
or disposal of the property mortgaged without the permissible (Phil. Industrial Co. v. El Hogar Filipino,
consent of the mortgagee is valid. No similar et al., 45 Phil. 336, 341-342; Bank of the
prohibition forbidding the owner of mortgaged Philippines v. Ty Camco Sobrino, 57 Phil. 801),
property from (subsequently) mortgaging the stipulations "forbidding the owner from alienating
immovable mortgaged is found in our laws, making the immovable mortgaged" are expressly declared
the ruling in Philippine Industrial Co., supra, void by law (Art. 2130, Civil Code).
perfectly valid. On the other hand, to extend such a
ruling to include subsequent sales or alienation Earlier, in PNB v. Mallorca, it was reiterated that a
runs counter not only to Philippine Industrial Co., real mortgage is merely an encumbrance; it does
itself, but also to Article 2130 of the New Civil not extinguish the title of the debtor, whose right to
Code. dispose – a principal attribute of ownership – is not
thereby lost. Thus, a mortgagor had every right to
Meanwhile in De la Paz v. Macondray &; Co., Inc., sell his mortgaged property, which right the
it was held that while an agreement of such nature mortgagee cannot oppose.
does not nullify the subsequent sale made by the
mortgagor, the mortgagee is authorized to bring the Insofar as the validity of the questioned stipulation
foreclosure suit against the mortgagor without the prohibiting the mortgagor from selling his
necessity of either notifying the purchaser or mortgaged property without the consent of the
including him as a defendant. At the same time, the mortgagee is concerned, therefore, the ruling in the
purchaser of the mortgaged property was deemed Tambunting case is still the controlling law.
not to have lost his equitable right of redemption. Indeed, we are fully in accord with the
pronouncement therein that such a stipulation
In Bonnevie v. Court of Appeals, where a similar violates Article 2130 of the New Civil Code. Both
provision appeared in the subject contract of the lower court and the Court of Appeals in its
mortgage, the petitioners therein, to whom the Amended Decision rationalize that since paragraph
mortgaged property were sold without the written 8 of the subject Deed of Real Estate Mortgage
consent of the mortgagee, were held as without the contains no absolute prohibition against the sale of
right to redeem the said property. No consent the property mortgaged but only requires the
having been secured from the mortgagee to the mortgagor to obtain the prior written consent of the
sale with assumption of mortgage by petitioners mortgagee before any such sale, Article 2130 is not
therein, the latter were not validly substituted as violated thereby.
debtors. It was further held that since their rights
were never recorded, the mortgagee was charged This observation takes a narrow and technical view
with the obligation to recognize the right of of the stipulation in question without taking into
redemption only of the original mortgagors-vendors. consideration the end result of requiring such prior
Without discussing the validity of the stipulation in written consent. True, the provision does not
question, the same was, in effect, upheld. absolutely prohibit the mortgagor from selling his
mortgaged property; but what it does not outrightly
On the other hand, in Tambunting v. prohibit, it nevertheless achieves. For all intents
RehabilitationFinanceCorporation, the validity of a and purposes, the stipulation practically gives the
similar provision was specifically raised and mortgagee the sole prerogative to prevent any sale
discussed and found as invalid. It was there of the mortgaged property to a third party. The
ratiocinated that the provision can only be mortgagee can simply withhold its consent and
construed as directed against subsequent thereby, prevent the mortgagor from selling the
mortgages or encumbrance, not to an alienation of property. This creates an unconscionable
advantage for the mortgagee and amounts to a 1381(3) of the Civil Code, a contract otherwise valid
virtual prohibition on the owner to sell his may nonetheless be subsequently rescinded by
mortgaged property. reason of injury to third persons, like creditors. The
status of creditors could be validly accorded by the
In other words, stipulations like those covered by Bonnevies for they had substantial interest that
paragraph 8 of the subject Deed of Real Estate were prejudiced by the sale of the subject property
Mortgage circumvent the law, specifically, Article to the Contract of Lease. In the case at bar,
2130 of the New Civil Code. Being contrary to law, PWHAS cannot claim ignorance of the right of first
paragraph 8 of the subject Deed of Real Estate refusal granted to L & R Corporation over the
Mortgage is not binding upon the parties. subject properties since the Deed of Real Estate
Accordingly, the sale made by the spouses Litonjua Mortgage containing such a provision was duly
to PWHAS, notwithstanding the lack of prior written registered with the Register of Deeds. As such,
consent of L & R Corporation, is valid. PWHAS is presumed to have been notified thereof
by registration, which equates to notice to the
While petitioners question the validity of paragraph whole world.
8 of their mortgage contract, they appear to be
silent insofar as paragraph 9 thereof is concerned. We note that L & R Corporation had always
Said paragraph 9 grants upon L & R Corporation expressed its willingness to buy the mortgaged
the right of first refusal over the mortgaged property properties on equal terms as PWHAS. Indeed, in
in the event the mortgagor decides to sell the its Answer to the Complaint filed, L & R
same. We see nothing wrong in this provision. Corporation expressed that it was ready, willing
and able to purchase the subject properties at
The right of first refusal has long been the same purchase price of P430,000.00, and
recognized as valid in our jurisdiction. The was agreeable to pay the difference between
consideration for the loan-mortgage includes such purchase price and the redemption price
the consideration for the right of first refusal. L of P249,918.77, computed as of August 13,
& R Corporation is, in effect, stating that it 1981, the expiration of the one-year period to
consents to lend out money to the spouses redeem. That it did not duly exercise its right of
Litonjua provided that in case they decide to first refusal at the opportune time cannot be
sell the property mortgaged to it, then L & R taken against it, precisely because it was not
Corporation shall be given the right to match notified by the spouses Litonjua of their
the offered purchase price and to buy the intention to sell the subject property and
property at that price. Thus, while the spouses thereby, to give it priority over other buyers.
Litonjua had every right to sell their mortgaged
property to PWHAS without securing the prior All things considered, what then are the relative
written consent of L & R Corporation, they had the rights and obligations of the parties? To
obligation under paragraph 9, which is a perfectly recapitulate:, the sale between the spouses
valid provision, to notify the latter of their intention Litonjua and PWHAS is valid, notwithstanding
to sell the property and give it priority over other the absence of L & R Corporation's prior written
buyers. It is only upon failure of L & R Corporation consent thereto. Inasmuch as the sale to PWHAS
to exercise its right of first refusal could the was valid, its offer to redeem and its tender of the
spouses Litonjua validly sell the subject properties redemption price, as successor-in-interest of the
to others, under the same terms and conditions spouses Litonjua, within the one-year period
offered to L & R Corporation. should have been accepted as valid by the L &
R Corporation. However, while the sale is,
What then is the status of the sale made to PWHAS indeed, valid, the same is rescissible because it
in violation of L & R Corporation's contractual right ignored L & R Corporation's right of first
of first refusal? The Contract of Sale was not refusal.
voidable but rescissible. Under Article 1380 to
v. Equitable Mortgage
Lanuza v. De Leon, 20 SCRA 369 The court ruled for Reyes and Navarro.
In Re: Petition for Consolidation of Title in the Vendees
of a House and the Rights to a Lot. Maria Bautista Vda. ISSUE:
de Reyes, et al., Rodolfo Lanuza Whether an unrecorded prior sale of a property is preferred
Vs. over a recorded subsequent mortgage. (YES)
Martin de Leon,
Whether a recorded subsequent mortgage is preferred over
G.R. No. L-22331, June 6, 1967 (20 SCRA 369) a prior equitable mortgage. (YES)

Rodolfo Lanuza and his wife Belen were the owners of a We are in accord with the trial court's ruling that a
two-story house built on a lot of the Maria Guizon conveyance of real property of the conjugal partnership
Subdivision in Tondo, Manila, which the spouses leased made by the husband without the consent of his wife is
from the Consolidated Asiatic Co. On January 12, 1961, merely voidable. This is clear from article 173 of the Civil
Lanuza executed a document entitled "Deed of Sale with Code which gives the wife ten years within which to bring
Right to Repurchase" whereby he conveyed to Maria an action for annulment. As such it can be ratified as
Bautista Vda. de Reyes and Aurelia R. Navarro the house, Lanuza's wife in effect did in this case when she gave her
together with the leasehold rights to the lot, a television set conformity to the extension of the period of redemption by
and a refrigerator in consideration of the sum of P3,000. signing the annotation on the margin of the deed. We may
When the original period of redemption expired, the parties add that actions for the annulment of voidable contracts can
extended it to July 12, 1961 by an annotation to this effect be brought only by those who are bound under it, either
on the left margin of the instrument. Lanuza's wife, who did principally or subsidiarily (Art. 1397), so that if there was
not sign the deed, this time signed her name below the anyone who could have questioned the sale on this ground
annotation. it was Lanuza's wife alone.

It appears that after the execution of this instrument, We also agree with the lower court that between an
Lanuza and his wife mortgaged the same house in favor of unrecorded sale of a prior date and a recorded mortgage of
Martin de Leon to secure the payment of P2,720 within one a later date the former is preferred to the latter for the
year. This mortgage was executed on October 4, 1961 and reason that if the original owner had parted with his
recorded in the Office of the Register of Deeds of Manila on ownership of the thing sold then he no longer had the
November 8, 1961 under the provisions of Act No. 3344. ownership and free disposal of that thing so as to be able to
mortgage it again. Registration of the mortgage under Act
As the Lanuzas failed to pay their obligation, De Leon filed No. 3344 would, in such case, be of no moment since it is
a petition for the extrajudicial foreclosure of the mortgage. understood to be without prejudice to the better right of third
On the other hand, Reyes and Navarro followed suit by parties. Nor would it avail the mortgagee any to assert that
filing in the Court of First Instance of Manila a petition for he is in actual possession of the property for the execution
the consolidation of ownership of the house on the ground of the conveyance in a public instrument earlier was
that the period of redemption expired on July 12, 1961 equivalent to the delivery of the thing sold to the vendee.
without the vendees exercising their right of repurchase.
The petition for consolidation of ownership was filed on But there is one aspect of this case which leads us to a
October 19. On October 23, the house was sold to De Leon different conclusion. It is a point which neither the parties
as the only bidder at the sheriff's sale. De Leon immediately nor the trial court appear to have sufficiently considered.
took possession of the house, secured a discharge of the We refer to the nature of the so-called "Deed of Sale with
mortgage on the house in favor of a rural bank by paying Right to Repurchase" and the claim that it is in reality an
P2,000 and, on October 29, intervened in court and asked equitable mortgage. Circumstances are clearly present that
for the dismissal of the petition filed by Reyes and Navarro indicate the existence of the equitable mortgage. The price
on the ground that the unrecorded pacto de retro sale could is grossly inadequate. There was no transmission of
not affect his rights as a third party. ownership to the vendees. There was a delay in the filing of
a petition for consolidation. Under these circumstances we If the Dumaraogs fail to pay the P1,500 within the specified
cannot but conclude that the deed in question is in reality a 20 days, Guanzon would be entitled to have execution
mortgage. This conclusion is of far-reaching consequences issue to collect the said amount from the properties of the
because it means not only that this action for consolidation Dumaraogs whereupon the deed of reconveyance would be
of ownership is improper as De Leon claims, but, what is executed by Guanzon.
more, that between the unrecorded deed of Reyes and
Navarro which we hold to be an equitable mortgage, and In no way can the judgment be construed to mean that
the registered mortgage of De Leon, the latter must be should the Dumaraogs fail to pay the money within the
preferred. Preference of mortgage credits is determined by specified period then the property would be conveyed by
the priority of registration of the mortgages, following the the sheriff to Guanzon. Any interpretation in that sense
maxim "Prior tempore potior jure" would contradict the declaration made in the same
(Hewhoisfirstintimeispreferredinright."). Under Article 2125 judgment that the contract between the parties was in fact a
of the Civil Code the equitable mortgage, while valid mortgage and not a pacto de retro sale.
between Reyes and Navarro, on the one hand, and the
Lanuzas, on the other, as the immediate parties thereto, The only right of a mortgagee in case of non-payment of a
cannot prevail over the registered mortgage of De Leon. debt secured by mortgage would be to foreclose the
mortgage and have the encumbered property sold to satisfy
Guanzon v. Argel, 33 SCRA 474 the outstanding indebtedness. The mortgagor’s default
Maria T. Guanzon does not operate to vest in the mortgagee the ownership of
vs. the encumbered property, for any such effect is against
Hon. Manuel Argel, Presiding Judge of CFI of Antique, public policy.
Juan, Ernesto, Estrella, Bartolome, Honorato, all
surnamed Dumaraog,
Ramirez v CA, 409 SCRA 133
G.R. No. L-27706, June 16, 1970 (33 SCRA 474) Carolina P. Ramirez, Ferdinand P. Ramirez, Francis P.
Ramirez, Frederic P. Ramirez, & the Intestate Estate of
FACTS: Francisco Ramirez, Jr.
Ines Flores executed a document entitled pacto de retro vs.
over a parcel of rice land situated in Inabasan, San Jose, CA, Hon. Juan A. Bigornia, Jr., in his capacity as
Antique in favor of Maria Guanzon. When Ines Flores was Presiding Judge of the RTC of Iligan, Isabela, Br. 18 &
unable to pay, Maria Guanzon consolidated her title over Sps. Loreto Claravall & Victoria H. Claravall,
the property. The children of Ines Flores, the Dumaraogs,
filed an action for the redemption of the land claiming that G.R. No. 133841, August 15, 2003 (409 SCRA 133)
the purported pacto de retro sale was actually an equitable
mortgage. FACTS:
On Dec. 29, 1965, spouses Loreto Claravall and
After trial, the court declared the document involved to be Victoria Claravall executed a deed of sale in favor
one of equitable mortgage and ordered Guanzon to execute of the spouses Francisco Ramirez, Jr. and Carolina
an instrument of reconveyance in favor of the Dumaraogs Ramirez covering a parcel of land, including
upon the payment of P1,500. Guanzon then filed this improvements thereon, situated in Ilagan, Isabela.
petition. On even date, another instrument was executed
granting the spouses Claravall an option to
ISSUE: repurchase the property within a period of two
Whether an equitable mortgagee’s title over the mortgaged years from December 29, 1965 but not earlier nor
property will be consolidated if the debtor fails to pay the later than the month of December, 1967. At the
loan. expiration of the two-year period, the Claravalls
failed to redeem the property, prompting them to
HELD: NO. Affirmed. file a complaint against the spouses Francisco
Ramirez, Jr. and Carolina Ramirez to compel the
latter to sell the property back to them. After trial, pactum commissorium, a forfeiture clause declared by this
judgment was rendered in favor of the spouses Court as contrary to good morals and public policy and,
Ramirez which was, on appeal, affirmed by the therefore, void.
Court of Appeals. On review, however, this Court,
finding that the Deed of Absolute Sale with option Before perfect title over a mortgaged property may thus be
to repurchase executed by private respondents in secured by the mortgagee, he must, in case of non-
favor of the spouses Ramirez was one of equitable payment of the debt, foreclose the mortgage first and
mortgage, reversed the decision of the appellate thereafter purchase the mortgaged property at the
court by Decision of October 15, 1990. The foreclosure sale.
decision of this Court having become final and
executory, possession of the property was turned In fine, the ownership of the property was not vested to the
over to private respondents after they settled their spouses Ramirez upon private respondents’ failure to pay
obligation to the spouses Ramirez. their indebtedness, the registration of the property in the
former’s names notwithstanding, absent any showing that
Following the death of Francisco Ramirez, Jr., the spouses they foreclosed the mortgage and purchased the property
Claravall filed a complaint for accounting and damages at a foreclosure sale.
against the intestate estate of Francisco Ramirez, his
widow and children. A motion to dismiss was filed alleging,
among other things, that the Ramirezes, as registered
owners of the lot prior to its redemption, were entitled to
collect rentals for the lot. The resolution of the motion to
dismiss was deferred. The Ramirezes filed a petition for
certiorari which was denied.

Whether the mortgagees of an equitable mortgage who
have been registered as the owners of the mortgaged
property can collect rent and other fruits from the said

HELD: NO. Affirmed.

The flaw in petitioners’ argument stems from their
submission that the spouses Ramirez, as “vendees,” were
the owners of the property after it was registered in their
names following the execution of the deed of sale in their

The declaration, however, by this Court in the first case that

the deed of sale with option to repurchase entered into by
the spouses Ramirez and private respondents was an
equitable mortgage necessarily takes the deed out of the
ambit of the law on sales and puts into operation the law on

It is a well-established doctrine that the mortgagor’s default

does not operate to vest the mortgagee the ownership of
the encumbered property and the act of the mortgagee in
registering the mortgaged property in his own name upon
the mortgagor’s failure to redeem the property amounts to