PEOPLE’S BANK V DAHICAN LUMBER is neither unlawful nor immoral, its obvious purpose being to maintain,
to the extent allowed by circumstances, the original value of the
FACTS
Dahican lumber company (DAMCO) obtained several loans
amounting to 250,000 pesos from People’s bank (BANK) and ,together
with DALCO, another loan amounting to $250,000 from Export-Import
bank secured by five promissory notes through people’s bank. In both
loans, DAMCO executed and registered respective mortgages with
inclusion of “after acquired properties”. DAMCO and DALCO failed to
satisfy the fifth promissory note in favor of Export bank so People’s
bank paid it and subsequently filed an action for the foreclosure of the
mortgaged properties of DAMCO including the after acquired
machinery, equipment and spare parts upon the latter's failure to fulfill
its obligation.
Contention of the Petitioner
People’s bank asserted that the “after acquired” machinery and
equipment of DAMCO are subject to the deed of mortgage executed by
DAMCO. Hence, these can be included in the foreclosure proceedings.
Contentions of the Respondent
DALCO argued that the mortgages were void as regards the after
acquired properties because they were not registered in accordance
with the chattel mortgage law. Moreover, provision of the fourth
paragraph of each of said mortgages did not automatically make
subject to such mortgages the "after acquired properties", the only
meaning thereof being that the mortgagor was willing to constitute a
lien over such properties.
I. ISSUES TO BE RESOLVED
Whether the “after acquired” machinery and equipment of DAMCO are
included as subject of the Real Estate mortgage, thus can be
foreclosed.
II. RULING OF THE SUPREME COURT
Judgment rendered in favor of Plaintiff People’s bank. The
after acquired machinery and equipment are included in the executed
mortgages.
It is not disputed in the case at bar that the "after acquired properties"
were purchased by DALCO in connection with, and for use in the
development of its lumber concession and that they were purchased in
addition to, or in replacement of those already existing in the premises
on July 13, 1950. In Law, therefore, they must be deemed to have
been immobilized, with the result that the real estate mortgages
involved herein — which were registered as such — did not have to be
registered a second time as chattel mortgages in order to bind the
"after acquired properties" and affect third parties.
Under the fourth paragraph of both deeds of mortgage, it is crystal
clear that all property of every nature and description taken in
exchange or replacement, as well as all buildings, machineries,
fixtures, tools, equipments, and other property that the mortgagor may
acquire, construct, install, attach; or use in, to upon, or in connection
with the premises — that is, its lumber concession — "shall
immediately be and become subject to the lien" of both mortgages in
the same manner and to the same extent as if already included therein
at the time of their execution. As the language thus used leaves no
room for doubt as to the intention of the parties, We see no useful
purpose in discussing the matter extensively. Suffice it to say that the
stipulation referred to is common, and We might say logical, in all
cases where the properties given as collateral are perishable or subject
to inevitable wear and tear or were intended to be sold, or to be used
— thus becoming subject to the inevitable wear and tear — but with
the understanding — express or implied — that they shall be replaced
with others to be thereafter acquired by the mortgagor. Such stipulation
1
properties given as security. Indeed, if such properties were of the
nature already referred to, it would be poor judgment on the part of the
creditor who does not see to it that a similar provision is included in the
contract.
Contracts; Mortgage; Inclusion of "after-acquired
properties"; Nature of stipulation.—The stipulation in a mortgage
contract that properties, which the mortgagor may acquire, construct,
install, attach or use in its lumber concession, shall be subject to the
mortgage lien is a common and logical provision in cases where the
original properties mortgaged are perishable or subject to inevitable
wear and tear or were intended to be sold or used but with the
understanding that they would be replaced with others to be thereafter
acquired by the mortgagor.
Such a stipulation is lawful and not immoral and is intended to
maintain, insofar as possible, the original value of the properties given
as security.
Same; Chattel Mortgage Law; Sufficiency of description.—The
provision in a deed of mortgage, that all property of every nature, and
description, taken in exchange or replacement, as well as all buildings,
machineries, fixtures, tools, equipment, and other property that may be
acquired by the mortgagor and installed or used in its lumber
concession, would be subject to the mortgage lien, is a sufficient
description under the Chattel Mortgage Law.
Property; Classification; When machinery is considered realty.—
The law considers as real property machinery, liquid containers,
instruments or replacements intended by the owner of any building or
land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of
such trade or industry.
Same; Machinery and fixtures that have become immobilized are
not subject to Chattel Mortgage Law.—Where the machinery and
fixtures installed by a lumber company in its concession had become
immobilized and were included in the registered real mortgage as
"after acquired properties", it was not necessary to register them a
second time as chattel mortgages in order to affect third persons/ The
fact that the lumber company is not the owner of the land is not
important since the parties to the mortgage had characterized the said
"after acquired properties" as real property. The mortgagor is estopped
to contend that the said properties had not become immobilized.
Same; Preference of credits; Vendor's lien.—Where persons
claiming to be the "unpaid suppliers" of mortgaged properties were
merely "financiers" who advanced the money for the purchase thereof
and one of them acted as buying agent in their purchase, and they
knew that said properties were covered by the mortgage, they have no
vendor's lien on said properties, superior to the mortgage lien.
Same; Obligations; Actions; When foreclosure action was not
premature.—The institution on February 12, 1953 of an action to
foreclose a mortgage obligation, which fell due on April 1, 1953, was
not premature where it appears that the mortgagor was insolvent and,
therefore, it lost the benefit of the term.
Same; Proof of insolvency.—The statement of the Chairman of the
Board of Directors of the mortgagor-corporation, that it was "without
funds, neither does it expect to have any funds in the foreseeable
future" is a proof of its insolvency.
Same; Exclusive right of mortgagee to proceeds of foreclosure
sale.—The proceeds of the foreclosure sale should be awarded to the
mortgagee, it appearing that the other claimants have not established
any lien on the mortgaged properties.
Contracts; Damages in case of fraudulent contracts; Quasidelicts.
—Creditors are protected in cases of contracts intended to defraud
them. Any third person, who induces another to violate his contract, is
liable for damages to the other contracting party. The act may be
considered also as a quasi-delict.
Same; New Civil Code; Retroactive effect of articles 20 and 21.—
Articles 20 and 21, of the New Civil Code which justify a creditor's
claim for damages against the debtor and third persons, who executed
contracts intended to defraud the creditors, have retroactive effect.
DIONISIO MOJICA, in behalf of Spouses LEONARDO MOJICA
(now deceased) and MARINA RUFIDO,petitioner,  payment was received by the defendant rural bank and
vs. HON. COURT OF APPEALS, and RURAL BANK OF YAWIT,
INC., respondents.
PARAS, J.:
FACTS:
 February 1, 1971, plaintiff Leonardo Mojica (now deceased)
contracted a loan of P20,000.00 from defendant Rural Bank
of Kawit, Inc. (now respondent) secured by a real estate
mortgage executed on the same date by the plaintiffs. REM
stated:
o ... agreement for the payment of the loan of
P20,000.00 and such other loans or other
advances already obtained or still to be obtained
by the mortgagors ...
o 2. ... but if the mortgagors shall well and truly fulfill
the obligation above stated according to the terms
thereof then this mortgage shall become null and
void.
 The loan of P20,000.00 by the plaintiffs spouses was fully
and completely paid.
 March 5, 1974, a new loan in the amount of P18,000.00 was
obtained by plaintiffs spouses from the defendant Rural Bank
which loan matured on March 5, 1975
 No formal deed of real mortgage was constituted over any
property of the borrowers, although the top of the promissory
note dated March 5, 1974, contained the following notation:
This promissory note is secured by a Real Estate Mortgage
executed before the Notary Public of the Municipality of
Kawit, Mrs. Felisa Senti under Doc. No. 62, Page No. 86,
Book No.__, Series of 1971. 9 (same REM which
guaranteed P20,000 loan)
 Spouses failed to pay their obligation after its maturity on
March 5, 1975. Rural bank extrajudicially foreclosed the real
estate mortgage on the justification that it was adopted as a
mortgage for the new loan of P18,000.00.
 The subject property was set for auction sale by the
Provincial Sheriff of Cavite for June 27, 1979. In that auction
sale, defendant rural bank was the highest bidder, and its bid
corresponded to the total outstanding obligation of plaintiffs
spouses Mojica and Rufido
 The proceeds from the sale of the piece of land of plaintiffs
spouses were applied to their outstanding obligation with
defendant bank.
 The corresponding certificate of sale in favor of defendant
bank was executed by the Provincial Sheriff also on June 27,
1979, and the instrument was recorded in the Office of the
Register of Deeds of Cavite on June 29, 1979. The one year
period for redemption elapses after June 1980 without
plaintiffs spouses having redeemed the foreclosure property
 July 19, 1980, Dionisio Mojica, the son of petitioners-
spouses, in an apparent attempt to pay the debt of
P18,000.00 made a partial payment in the amount of
P24,658.00 (P19,958.00 of this amount in check bounced)
which the defendant rural bank received and accepted with
the issuance of the defendant's official receipt No. 101 269,
2
ackowledging the payment as partial payment of 'past
due loan', together with the "interest on past due lose.
 August 11, 1980, another partial payment was made by
Dionisio Mojica in the amount of P9,958.00 in payment also
of 64 past due loan' plus "interest on past due loan which
acknowledged with the issuance of official receipt No.
101844. These payments were, however, considered by
the bank as deposit for the repurchase of the foreclosed
property.
 August 14, 1981, upon inquiry by Dionisio Mojica on the
unpaid balance of the loan, the respondent rural bank issued
a 'Computation Slip" indicating therein, that as of August 14,
1981, the outstanding balance plus interest computed from
March 5, 1975 was P21,272.50.
 November 10, 1981, said bank executed an affidavit of
consolidation of ownership, which it subsequently filed with
the Register of Deeds of Cavite. As a result, Transfer
Certificate of Title No. T-123964, covering the foreclosed
piece of land, was issued in its favor by the Register of
Deeds on January 19, 1982. After having consolidated its
ownership over the foreclosed property, defendant bank
scheduled the parcel of land to be sold at public auction on
February 26, 1982, pursuant to the requirement of the law
regarding the disposal by a bank of its acquired assets.
Dionisio Mojica and one Teodorico Rufido, brother-in-law of
plaintiff Leonardo Mojica, were notified of such auction sale
However, no sale was consummated during that scheduled
sale and the property concerned up to now still remains in
the possession of respondent bank
 The refusal of the same bank to allow Dionisio Mojica to pay
the unpaid balance of the loan as per the "Computation Slip"
amounting to P21,272.50, resulted in the filing of a
complaint.
 TC dismissed complaint. CA affirmed.
ISSUE: WON foreclosure valid
HELD: Yes. Petition dismissed.
RATIO:
 Contracts which are not ambiguous are to be interpreted
according to their literal meaning and should not be
interpreted beyond their obvious intendment. When clear
literal meaning will control. Correspondingly, stipulations in
the mortgage document constitute the law between the
parties, which must be complied with faithfully.
 REM expressly stipulates that it serves as guaranty —
... for the payment of the loan ... of P20,000.00 and such other loans
or other advances already obtained or still to be obtained by the
mortgagors as makers ...
 It has long been settled by a long line of decisions that
mortgages given to secure future advancements are valid
and legal contracts; that the amounts named as
consideration in said contract do not limit the amount for
which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and
other indebtedness can be gathered.
 A mortgage given to secure advancements is a
continuing security and is not discharged by repayment
of the amount named in the mortgage, until the full
amount of the advancements are paid. In fact, it has also
 been held that where the annotation on the back of a
certificate of title about a first mortgage states "that the
mortgage secured the payment of a certain amount of
money plus interest plus other obligations arising there
under' there was no necessity for any notation of the later
loans on the mortgagors' title. It was incumbent upon any
subsequent mortgagee or encumbrances of the property in
question to e e the books and records of the bank, as first
mortgagee, regarding the credit standing of the debtors.
 The evidence on record shows that the amounts of
P4,700.00 and P9,958.00 were accepted by the bank on July
19 and August 11, 1980 as deposits for conventional
redemption after the property covered by real estate
mortgage became the acquired asset of the bank and priced
at P85,000.00 and after petitioner had lost all rights
of legal redemption because more than one year had
already elapsed from June 29, 1979, the date the certificate
of sale was registered in the office of the Registry of Deeds
of Cavite. Indeed, the conventional redemption was subject
to be exercised up to March 3, 1982 and was extended up to
April 19, 1982 for a fixed amount of P85,000.00. The
respondent bank even favored the petitioner by giving them
the first preference to repurchase the property but they failed
to avail of this opportunity, although the bank "is certainly
disposed to release at anytime" the deposits.
 Property was auctioned on June 27, 1979. The only bidder
was the respondent bank which bid for P26,387.04. As the
highest bidder, the respondent bank can rightfully
consolidate its title over the property.
Civil Law; Contracts, Interpretation of; Contracts which are not
ambiguous are to be interpreted according to their literal meaning
and should not be interpreted beyond their obvious intendment.—
Contracts which are not ambiguous are to be interpreted according to
their literal meaning and should not be interpreted beyond their obvious
intendment (Plastic Town Center Corp. v. NLRC, 172 SCRA 580
[1989]). Thus, where the intent of the parties has been shown
unmistakably with clarity by the language used, the literal meaning
shall control (Paramount Surety & Ins. Co., Inc. v. Ago, 171 SCRA 481
[1989]). Correspondingly, stipulations in the mortgage document
constitute the law between the parties, which must be complied with
faithfully.
Same; Same; Mortgages; Mortgages given to secure future
advancements are valid and legal contracts.—lt has long been
settled by a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts; that the amounts named
as consideration in said contract do not limit the amount for which the
mortgage may stand as security if from the four corners of the ment the
intent to secure future and other indebtedness can be gathered A
mortgage given to secure advancements is a continuing security and is
not discharged by repayment of the amount named in the mortgage,
until the full amount of the advancements are paid.
Same; Same; Same; Same; Where the annotation on the back of a
certificate of title about a first mortgage states “that the Mortgage
secured the payment of a certain sum of money plus interest plus
other obligations arising thereunder” there was no necessity for
any notation of the later loans on the mortgagor’s title.—In fact, it
has also been held that where the annotation on the back of a
certificate of title about a first mortgage states “that the mortgage
secured the payment of a certain sum of money plus interest plus other
obligations arising thereunder” there was no necessity for any notation
of the later loans on the mortgagors’ title. It was incumbent upon any
subsequent mortgagee or encumbrance of the property in question to
examine the books and records of the bank, as first mortgagee,
regarding the credit standing of the debtors.
3
Santiago v. Pioneer Savings and Loan Bank 157 SCRA 100 (1968)
FACTS:
1.      Santiago, is the registered owner of a parcel of land situated at
Polo, Valenzuela, Metro Manila, with an area of approximately 39,007
square meters as the disputed property.
2.      She executed a Special Power of Attorney in favor of
Construction Resources Corporation of the Philippines (CRCP) to
borrow money and make, execute, sign and deliver mortgages of real
estate now owned by me and standing in my name and to make, sign,
execute and deliver any and all promissory notes necessary in the
premises.
3.      CRCP executed a Real Estate Mortgage over the Disputed
Property in favor of FINASIA Investment and Finance Corporation to
secure a loan of P1 million. The mortgage contract specifically
provided that in the event of default in payment, the mortgagee may
immediately foreclose the mortgage judicially or extrajudicially.
4.      Real Estate Mortgage by CRCP in favor of FINASIA executed in
favor of defendant-appellee, Pioneer Savings & Loan Bank, Inc.
(Defendant Bank, for brevity), an "Outright Sale of Receivables without
Recourse" including the receivable of P610,752.59 from CRCP.
5.      FINASIA executed a "Supplemental Deed of Assignment" in favor
of Defendant Bank confirming and ratifying the assignment in the
latter's favor of the receivable of P610,752.59 from CRCP and of the
mortgage constituted by CRCP over the disputed property.
6.      CRCP failed to settle its obligation and Defendant Bank opted for
extrajudicial foreclosure of the mortgage.
7.      On learning of the intended sale, plaintiff-appellant filed before
the Regional Trial Court of Valenzuela, Metro Manila, Branch CLXXII,
an action for declaration of nullity of the real estate mortgage with an
application for a Writ of Preliminary Injunction
8.      Defendant Bank opposed the application for Preliminary
Injunction and asserted its right to extrajudicially foreclose the
mortgage on the Disputed Property based on recorded public
documents.
9.      RTC granted the petition.
ISSUE: WON the notice of the scheduled sale of the land sent to the
agent (CRCP) is also Notice to the principal (Plaintiff Appellant), the
land owner.
RULING: YES, the notice is binding. The cases which plaintiff-
appellant cites express the general rule when there is no "documentary
evidence admitted by stipulation disclosing facts sufficient to defeat the
claim." Where, however, such evidence is before the Court and has
been stipulated upon, a Court can go "beyond the disclosure in the
complaint."
Moreover, the rule is explicit that "rules of procedure are not to be
applied in a very rigid, technical sense; rules of procedure are used
only to help secure substantial justice."
The evidence on record sufficiently defeats plaintiff-appellant's claim
for relief from extrajudicial foreclosure. Her Special Power of Attorney
in favor of CRCP specifically included the authority to mortgage the
Disputed Property. The Real Estate Mortgage in favor of FINASIA
explicitly authorized foreclosure in the event of default. Indeed,
foreclosure is but a necessary consequence of non-payment of a
mortgage indebtedness. Plaintiff-appellant, therefore, cannot rightfully
claim that FINASIA, as the assignee of the mortgagee, cannot
extrajudicially foreclose the mortgaged property. A mortgage directly
and immediately subjects the property upon which it is imposed to the
fulfillment of the obligation for whose security it was constituted. 
Remedial Law; Civil
Procedure; Actions; Pleadings; Determination of the sufficiency
of a cause of action must be limited to the facts alleged in the
complaint.—It is true that the determination of the sufficiency of a
cause of action must be limited to the facts alleged in the Complaint
and no other should be considered. In this case, however, a hearing
was held and documentary evidence was presented, not on the Motion
to Dismiss but on the question of granting or denying plaintiff-
appellant’s application for a Writ of Preliminary Injunction, Counsel for
plaintiff-appellant admitted all the evidence presented. That being so,
the Trial Court committed no reversible error in considering said
evidence in the resolution of the Motion to Dismiss.
Same; Same; Same; Same; General rule that there is no
documentary evidence admitted by stipulation disclosing facts
sufficient to defeat the claim; Exception, is where such evidence
is before the court and has been stipulated upon, a court can go
beyond the disclosure in the complaint.—While as contended by
plaintiff-appellant, some aspects of this case differ from those in Tan,
the doctrinal ruling therein, as quoted above, is squarely applicable to
the case at bar. The cases which plaintiff-appellant cites express the
general rule when there is no “documentary evidence admitted by
stipulation disclosing facts sufficient to defeat the claim.” Where,
however, such evidence is before the Court and has been stipulated
upon, a Court can go “beyond the disclosure in the complaint.”
Same; Same; Same; Technicality; Rules of procedure are not to
be applied in a very rigid and technical sense.—Moreover, the rule
is explicit that “rules of procedure are not to be applied in a very rigid,
technical sense; rules of procedure are used only to help secure
substantial justice.”
Civil Law; Mortgage; Property; Extrajudicial Foreclosure; An
assignment of a mortgage cannot extra-judicially foreclose the
mortgaged property; Nature of Mortgage.—The evidence on record
sufficiently defeats plaintiff-appellant’s claim for relief from extrajudicial
foreclosure. Her Special Power of Attorney in favor of CRCP
specifically included the authority to mortgage the Disputed Property.
The Real Estate Mortgage in favor of FINASIA explicitly authorized
foreclosure in the event of default. Indeed, foreclosure is but a
necessary consequence of non-payment of a mortgage indebtedness.
Plaintiff-appellant, therefore, cannot rightfully claim that FINASIA, as
the assignee of the mortgagee, cannot extrajudicially foreclose the
mortgaged property. A mortgage directly and immediately subjects the
property upon which it is imposed to the fulfillment of the obligation for
whose security it was constituted.
Same; Same; Same; A mortgage credit may be alienated or
assigned to a third person in whole or in part, with the formalities
required by law.—The assignment of receivables made by the original
mortgagee, FINASIA, to Defendant Bank was valid, since a mortgage
credit may be alienated or assigned to a third person, in whole or in
part, with the formalities required by law. Said formalities were
complied with in this case. The assignment was made in a public
instrument and proper recording in the Registry of Property was made.
While notice may not have been given to plaintiff-appellant personally,
the publication of the Notice of Sheriff’s Sale, as required by law, is
notice to the whole world.
Same; Same; Same; Recourse of plaintiff is against the party
whom she issued the power of attorney considering her
allegation that the party failed to observe their agreement.—
Plaintiff-appellant’s recourse is against CRCP, specially considering
her allegation that the latter had failed to observe their agreement.
Prudential Bank v. Alviar
GR # 150197 | July 28, 2005
4
Petition: Petition for review on certiorari under Rule 45 of the Rules of
Court
Petitioner: Prudential Bank
Respondent: Don A. Alviar and Georgia B. Alviar
FACTS
- Spouses Don A. Alviar and Georgia B. Alviar, are the owners
of a parcel of land in San Juan covered by Transfer
Certificate of Title (TCT) No. 438157
- They executed a deed of real estate mortgage in favor of
Prudential Bank to secure the payment of a loan worth
P250,000.00 and executed a promissory note (1st), PN
BD#75/C-252, covering the said loan and includes a dragnet
clause1.
- Don Alviar subsequently executed another promissory note
(2nd), PN BD#76/C-345 for P2,640,000.00, secured by a
hold-out on the mortgagors foreign currency savings account
with the bank.
- Spouses Alviar then executed for Donalco Trading, Inc.,
another promissory note (3rd) PN BD#76/C-430 covering
P545,000.000. The loan is secured by Clean-Phase out
which means that the temporary overdraft incurred by
Donalco Trading, Inc. with Prudential Bak is to be converted
into an ordinary loan in compliance with a Central Bank
circular.
- Prudential Bank then wrote Donalco Trading, Inc., informing
the latter of its approval of a straight loan of P545,000.00,
the proceeds of which shall be used to liquidate the
outstanding loan of P545,000.00 temporary overdraft.
- Spouses Alviar then paid Prudential Bank P2,000,000.00, to
be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate
mortgage. (separate loan)
- Prudential Bank moved for the extrajudicial foreclosure of the
mortgage on the property covered by TCT No. 438157 (1st
PN). Per the bank's computation, respondents had the total
obligation of P1,608,256.68, covering the three (3)
promissory notes, to wit: PN BD#75/C-252 for
P250,000.00, PN BD#76/C-345 for P382,680.83, and PN
BD#76/C-340 for P545,000.00, plus assessed past due
interests and penalty charges.
- Spouses Alviar filed a complaint for damages with a prayer
for the issuance of a writ of preliminary injunction with RTC
Pasig, claiming that they have paid their principal loan
secured by the mortgaged property, and thus the mortgage
should not be foreclosed.
- Prudential Bank averred that the payment of P2,000,000.00
was not a payment made by the spouses Alviar, but by G.B.
Alviar Realty and Development Inc., which has a separate
loan with the bank secured by a separate mortgage.
- RTC: Dismissed the complaint and ordered the Sheriff to
proceed with the extra-judicial foreclosure but upon
reconsideration, issued an order setting aside its earlier
decision and awarded attorneys fees to respondents.
- RTC found that only the P250,000.00 loan is secured by the
mortgage on the land covered by TCT No. 438157. On the
other hand, the P382,680.83 loan is secured by the foreign
currency deposit account of Don A. Alviar, while the
1
 P545,000.00 obligation was an unsecured loan, being a
mere conversion of the temporary overdraft.
- The blanket mortgage clause relied upon by the bank applies
only to future loans obtained by the mortgagors, and not by
parties other than the said mortgagors, such as Donalco
Trading, Inc.
- CA: Affirmed the Order of the trial court but deleted the
award of attorneys fees. It ruled that while a continuing loan
or credit accommodation based on only one security or
mortgage is a common practice in financial and commercial
institutions, such agreement must be clear and unequivocal.
- In the instant case, the parties executed different promissory
notes agreeing to a particular security for each loan. Thus,
the appellate court ruled that the extrajudicial foreclosure
sale of the property for the three loans is improper.
- The Court of Appeals, however, found that respondents have
not yet paid the P250,000.00 covered by PN BD#75/C-252
(1st) since the payment of P2,000,000.00 adverted to by
respondents was issued for the obligations of G.B. Alviar
Realty and Development, Inc.
ISSUE/S
1. W/N the blanket mortgage clause or the dragnet clause is valid
RULING & RATIO
1. YES (but not applicable to full extent in this case)
- A blanket mortgage clause, also known as a dragnet clause,
is one which is specifically phrased to subsume all debts of
past or future origins. Such clauses are carefully scrutinized
and strictly construed.
- The parties intended the real estate mortgage to secure not
only the P250,000.00 loan from the petitioner, but also future
credit facilities and advancements that may be obtained by
the respondents. The terms of the above provision being
clear and unambiguous, there is neither need nor excuse to
construe it otherwise.
- The subsequent loans obtained by the spouses Alviar were
secured by other securities.
- Under American jurisprudence, two schools of thought have
emerged on this question. One school advocates that a
dragnet clause so worded as to be broad enough to cover all
other debts in addition to the one specifically secured will be
construed to cover a different debt, although such other debt
is secured by another mortgage.
- The contrary thinking maintains that a mortgage with such a
clause will not secure a note that expresses on its face that it
is otherwise secured as to its entirety, at least to anything
other than a deficiency after exhausting the security
specified therein, such deficiency being an indebtedness
within the meaning of the mortgage, in the absence of a
special contract excluding it from the arrangement.
- The latter school represents the better position. The parties
having conformed to the blanket mortgage clause or dragnet
clause, it is reasonable to conclude that they also agreed to
an implied understanding that subsequent loans need not be
secured by other securities, as the subsequent loans will be
secured by the first mortgage. In other words, the sufficiency
of the first security is a corollary component of the dragnet
clause.
5
- But of course, there is no prohibition, as in the mortgage
contract in issue, against contractually requiring other
securities for the subsequent loans. Thus, when the
mortgagor takes another loan for which another security was
given it could not be inferred that such loan was made in
reliance solely on the original security with the dragnet
clause, but rather, on the new security given. This is the
reliance on the security test.
- Hence, based on the reliance on the security test, an inquiry
whether the second loan was made in reliance on the
original security containing a dragnet clause must be made.
- It has been held that in the absence of clear, supportive
evidence of a contrary intention, a mortgage containing a
dragnet clause will not be extended to cover future advances
unless the document evidencing the subsequent advance
refers to the mortgage as providing security therefor.
- It was therefore improper for petitioner in this case to seek
foreclosure of the mortgaged property because of non-
payment of all the three promissory notes. While the
existence and validity of the dragnet clause cannot be
denied, there is a need to respect the existence of the other
security given.
- The foreclosure of the mortgaged property should only be for
the P250,000.00 loan covered by PN BD#75/C-252, and for
any amount not covered by the security for the subsequent
promissory note.
- While the dragnet clause subsists, the security specifically
executed for subsequent loans must first be exhausted
before the mortgaged property can be resorted to.
- One other crucial point is that the mortgage contract, as well
as the promissory notes subject of this case, is a contract of
adhesion.
- The real estate mortgage in issue appears in a standard
form, drafted and prepared solely by the bank, and which,
according to jurisprudence must be strictly construed against
the party responsible for its preparation.
- If the parties intended that the blanket mortgage clause shall
cover subsequent advancement secured by separate
securities, then the same should have been indicated in the
mortgage contract.
- Even the promissory notes in issue were made on standard
forms prepared by the, and as such are likewise contracts of
adhesion. Being of such nature, the same should be
interpreted strictly against the bank.
- The bank however, is not without recourse. Both the Court of
Appeals and the trial court found that respondents have not
yet paid the P250,000.00, and gave no credence to their
claim that they paid the said amount when they paid
petitioner P2,000,000.00. Thus, the mortgaged property
could still be properly subjected to foreclosure proceedings
for the unpaid P250,000.00 loan, and for any deficiency after
subsequent securities has been exhausted, subject of
course to defenses which are available to the spouses.
DISPOSITION
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 59543 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Civil Law; Mortgages; Foreclosures; A “blanket mortgage
clause,” also known as a “dragnet clause” in American
jurisprudence, is one which is specifically phrased to subsume all
debts of past or future origins; Mortgages given to secure future
advancements are valid and legal contracts.—A “blanket mortgage
clause,” also known as a “dragnet clause” in American jurisprudence,
is one which is specifically phrased to subsume all debts of past or
future origins. Such clauses are “carefully scrutinized and strictly
construed.” Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known
or anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new transaction. A
“dragnet clause” operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their having to
execute additional security documents, thereby saving time, travel,
loan closing costs, costs of extra legal services, recording fees, et
cetera. Indeed, it has been settled in a long line of decisions that
mortgages given to secure future advancements are valid and legal
contracts, and the amounts named as consideration in said contracts
do not limit the amount for which the mortgage may stand as security if
from the four corners of the instrument the intent to secure future and
other indebtedness can be gathered.
Same; Same; Same; Any ambiguity in a contract whose terms are
susceptible of different interpretations must be read against the
party who drafted it.—If the parties intended that the “blanket
mortgage clause” shall cover subsequent advancement secured by
separate securities, then the same should have been indicated in the
mortgage contract. Consequently, any ambiguity is to be taken con tra
proferentum, that is, construed against the party who caused the
ambiguity which could have avoided it by the exercise of a little more
care. To be more emphatic, any ambiguity in a contract whose terms
are susceptible of different interpretations must be read against the
party who drafted it, which is the petitioner in this case.
CALTEX PHILIPPINES, INC., petitioner, vs. THE INTERMEDIATE
APPELLATE COURT and HERBERT MANZANA respondents.
Facts:
Herbert Manzana (respondent) purchased on credit petroleum
products from Caltex (petitioner). respondent’s indebtedness amounted
to P361,218.66. Manzana executed a Deed a First Mortgage in favor of
CALTEX over a parcel of land in the Province of Camarines Norte to
secure his debts. On various occassions, Caltex sent Manzana
statements of account and later demanded payment of his entire debts.
Because of Manzana's failure and refusal to pay, CALTEX filed a
complaint on August 17, 1970 before the trial court for the recovery of
the whole amount of P361,218.66.
Meanwhile, on September 15, 1970, CALTEX foreclosed extrajudicially
the mortgaged property. On October 30, 1970, the mortgaged property
was sold at auction to CALTEX, being the only bidder, for P20,000.00.
The foreclosure was allegedly known by Manzana only on October 4,
1980 when such fact was manifested by CALTEX in its reply to the
opposition of Manzana to the motion for execution pending appeal.
RTC: ordered Manzana to pay Caltex the amount of P353,218.66 after
deducting P8,000.00 paid by Traders Insurance and Surety Company
on its surety bond.
IAC (CA): affirmed RTC decision in toto
Manzana filed an MR.
Caltex’ comment to the MR: it prayed that the judgement be modified
deducting the amount of 20K (foreclosure amount) from P353,218.66,
thereby leaving a balance of P333,218.66.
IAC resolution (on MR): records are remanded to trial court for
purposes of determining the deficiency due to plaintiff. It also said that
the action in the trial court cannot be said for recovery for defeciency
because it was for the whole amount and not defeciency.
The MR filed by Caltex denied. Hence, the petition.
6
Issues:
1) whether CALTEX can avail at the same time of a personal action in
court for collection of a sum of money and the extrajudicial foreclosure
of the deed of first mortgage, (sub issue)which was only raised for the
first time on appeal;
2) Whether or not the mere filing of a collection suit for the recovery of
the debt secured by real estate mortgage constitutes waiver of the
other remedy of foreclosure;
3) Whether Caltex can still sue for a deficiency judgment P100,000.00
(secured debt of P120,000.00 less the foreclosure amount of
P20,000.00).
4) Whether or not the filing of the complaint for recovery of the amount
of indebtedness and the subsequent extrajudicial foreclosure of the
deed of first mortgage constitutes splitting of a single cause of action.
Held:
1. No. Where a debt is secured by a mortgage and there is a default in
payment on the part of the mortgagor, the mortgagee may:1)
foreclosure the mortgage; or 2) file an ordinary action to collect the
debt, but not both.
When the mortgagee chooses the foreclosure of the mortgage as a
remedy, he enforces his lien by the sale on foreclosure of the
mortgaged property. The proceeds of the sale will be applied to the
satisfaction of the debt. With this remedy, he has a prior lien on the
property. In case of a deficiency, the mortgagee has the right to claim
for the deficiency resulting from the price obtained in the sale of the
real property at public auction and the outstanding obligation at the
time of the foreclosure proceedings
On the other hand, if the mortgagee resorts to an action to collect the
debt, he thereby waives his mortgage lien. He will have no more
priority over the mortgaged property. If the judgment in the action to
collect is favorable to him, and it becomes final and executory, he can
enforce said judgment by execution. He can even levy execution on
the same mortgaged property, but he will not have priority over the
latter and there may be other creditors who have better lien on the
properties of the mortgagor.
Citing Bachrach Motor, Inc. v. Icarangal:
“in the absence of express statutory provisions, a mortgage
creditor may institute against the mortgage debtor either a personal
action for debt or a real action to foreclose the mortgage. In other
words, he may pursue either of the two remedies, but not both. By
such election, his cause of action can by no means be impaired, for
each of the two remedies is complete in itself. Thus, an election to
bring a personal action will leave open to him all the properties of the
debtor for attachment and execution, even including the mortgaged
property itself. And, if he waives such personal action and pursues his
remedy against the mortgaged property, an unsatisfied judgment
thereon would still give him the right to sue for a deficiency judgment,
in which case, all the properties of the defendant, other than the
mortgaged property, are again open to him for the satisfaction of the
deficiency. In either case, his remedy is complete, his cause of action
undiminished, and any advantages attendant to the pursuit of one or
the other remedy are purely accidental and are all under his right of
election. ...”
Subissue: on raising such issues for the first time in appeal
The presence of strong consideration of substantial justice
has led this Court to relax the well-entrenched rule that, except
questions on jurisdiction, no question will be entertained on appeal
unless it has been raised in the court below and it is within the issues
made by the parties in their pleadings 
2. The rule is that the mere act of filing a collection suit for the recovery
of a debt secured by a mortgage constitutes waiver of the other
remedy of foreclosure. In the case,  it is the collection suit which was
waived and/or abandoned, because the foreclosure proceedings ended
even before the decision in the collection suit was rendered, despite
the fact that the collection suit was filed ahead. Citing bachrach case:
..a rule that would authorize the plaintiff to bring a personal action
against the debtor and simultaneously or successively another action
against the mortgaged property, would result not only in multiplicity of
suits so offensive to justice and obnoxious to law and equity, but also
in subjecting the defendant to the vexation of being sued in the place of
his residence or of the residence of the plaintiff, and then again in the
place where the property lies.
3. No.
A deficiency judgment is in the nature of an ordinary money judgment,
may constitute a cause of action and is barred by the statute of
limitations (prescription) applicable to ordinary judgment. Under Art
1142 of NCC - A mortgage action prescribes after ten years. Art. 1144
– the following actions must be brought within 10 years: upon written
contact, obligation created by law, upon a judgement.
A suit for the recovery of the deficiency after the foreclosure of a
mortgage is in the nature of a mortgage action because its purpose is
precisely to enforce the mortgage contract; it is upon a written contract
and upon an obligation of Manzana to pay the deficiency which is
created by law. Therefore, since more than ten (10) years have
elapsed from the time the right of action accrued, CALTEX can no
longer recover the deficiency from Manzana.
The collection suit filed before the trial court cannot be considered as a
deficiency judgment because a deficiency judgment has been defined
as one for the balance of the indebtedness after applying the proceeds
of the sale of the mortgaged property to such indebtedness and is
necessarily filed after the foreclosure proceedings. The judgment
rendered by the trial court was for the full amount of the indebtedness
and the case was filed prior to the foreclosure proceedings.
4. CALTEX has only one cause of action against Manzana, that is,
non-payment of the debt although two choices of remedies are
available to it. As held in the Bachrach case, supra:
“For non-payment of a note secured by mortgage, the creditor has a
single cause of action against the debtor. This single cause of action
consists in the recovery of the credit with execution of the security. In
other words, the creditor in his action may make two demands, the
payment of the debt and the foreclosure of his mortgage. But both
demands arise from the same cause, the non-payment of the debt,
and, for that reason, they constitute a single cause of action. Though
the debt and the mortgage constitute separate agreements, the latter is
subsidiary to the former, and both refer to one and the same obligation.
Consequently, there exists only one cause of action for a single breach
of that obligation. Plaintiff, then, by applying the rule above stated,
cannot split up his single cause of action by filing a complaint for
payment of the debt, and thereafter another complaint for foreclosure
of the mortgage. If he does so, the filing of the first complaint will bar
the subsequent complaint. By allowing the creditor to file two separate
complaint simultaneously or successively, one to recover his credit and
another to foreclose his mortgage, we will, in effect, be authorizing him
plural redress for a single breach of contract at so much cost to the
courts and with so much vexation and oppression to the debtor.”
Resolution of IAC is set aside, decision of RTC is affirmed with a
modification that Manzana’s liability is only up to the extent of
P233,218.66 with interest.
Civil Procedure; Pleadings; Issues; Appeal; The well-entrenched
rule that only issues raised in the lower court and those which are
raised by their parties in their pleadings will be entertained on
appeal, may be relaxed in the interest of justice.—We rule that the
respondent court did not commit any error in taking cognizance of the
aforestated issues, although not raised before the trial court. The
presence of strong consideration of substantial justice has led this
Court to relax the well-entrenched rule that, except questions on
jurisdiction, no question will be entertained on appeal unless it has
been raised in the court below and it is within the issues made by the
parties in their pleadings (Cordero v. Cabral, G.R. No. L-36789, July 25
1983, 123 SCRA 532). The compassionate spirit behind this rule will
7
equally apply to the other allegation of CALTEX that Manzana’s
indebtedness of P361,218.66 was secured up to the extent of
P120,000.00 only although it appears that this issue is raised for the
first time in this present petition. Thus, the liberal application of the rule
will favor both parties.
Contracts; Interpretation Of; Specific provisions of a contract
shall prevail over general ones.—The Deed of First Mortgage seems
to contain provisions that contradict one another. However, considering
all the provisions together, the first condition cited by CALTEX is
actually a specific provision while the fourth paragraph and the fourth
condition cited by Manzana are general provisions. x x x We therefore
hold that Manzana’s indebtedness of P361,218.66 was secured up to
the extent of P120,000.00 only.
Civil Procedure; Appeals; Remand of the case to the lower court
for reception of evidence is not necessary if the Supreme Court
can resolve the case on the basis of the records before it.—
Remand of the case to the lower courts for reception of evidence is not
necessary if the Supreme Court can resolve the dispute on the records
before it. The common denominator in cases holding that remand of a
case is not necessary is the fact that the trial court had received all the
evidence intended to be presented by both parties (Hechanova v.
Court of Appeals, G.R. No. L-48787, November 14, 1986, 145 SCRA
550).
Obligations and Contracts; Mortgage; Remedies of a Mortgage
Creditor; In case of default in payment on the part of the
mortgagor, the mortgagee has a choice of one of two remedies
i.e. foreclosure of the mortgage or an ordinary suit for collection,
but he cannot have both.—Thus, where a debt is secured by a
mortgage and there is a default in payment on the part of the
mortgagor, the mortgagee has a choice of one (1) of two (2) remedies,
but he cannot have both. The mortgagee may: 1) foreclose the
mortgage; or 2) file an ordinary action to collect the debt. When the
mortgagee chooses the foreclosure of the mortgage as a remedy, he
enforces his lien by the sale on foreclosure of the mortgaged property.
The proceeds of the sale will be applied to the satisfaction of the debt.
With this remedy, he has a prior lien on the property. In case of a
deficiency, the mortgagee has the right to claim for the deficiency
resulting from the price obtained in the sale of the real property at
public auction and the outstanding obligation at the time of the
foreclosure proceedings (Soriano v. Enriquez, 24 Phil. 584; Banco de
Islas Filipinas v. Concepcion Hijos, 53 Phil. 86; Banco Nacional v.
Barreto, 53 Phil. 101). On the other hand, if the mortgagee resorts to
an action to collect the debt, he thereby waives his mortgage lien. He
will have no more priority over the mortgaged property. If the judgment
in the action to collect is favorable to him, and it becomes final and
executory, he can enforce said judgment by execution. He can even
levy execution on the same mortgaged property, but he will not have
priority over the latter and there may be other creditors who have better
lien on the properties of the mortgagor.
Same; Same; Same; Same; Mere filing of a collection suit for
recovery of a debt constitutes a waiver of the other remedy of
foreclosure.—The mere act of filing a collection suit for the recovery of
a debt secured by a mortgage constitutes waiver of the other remedy
of foreclosure. The rationale behind this was adequately explained in
the Bachrach case, supra: “x x x, a rule that would authorize the
plaintiff to bring a personal action against the debtor and
simultaneously or successively another action against the mortgaged
property, would result not only in multiplicity of suits so offensive to
justice (Soriano vs. Enriquez, 24 Phil. 584) and obnoxious to law and
equity (Osorio vs. San Agustin, 25 Phil. 404), but also in subjecting the
defendant to the vexation of being sued in the place of his residence or
of the residence of the plaintiff, and then again in the place where the
property lies.” In the present case, however, We shall not follow this
rule to the letter but declare that it is the collection suit which was
waived and/or abandoned. This ruling is more in harmony with the
principles underlying our judicial system. It is of no moment that the
collection suit was filed ahead, what is determinative is the fact that the
foreclosure proceedings ended even before the decision in the
collection suit was rendered. As a matter of fact, CALTEX informed the
trial court that it had already consolidated its ownership over the
property, in its reply to the opposition of Manzana to the motion for • Having long defaulted in the payment of their obligation, the
execution pending appeal filed by it. bank foreclosed the mortgage and bought the properties covered
thereby
Same; Same; Same; Same; Same; Deficiency
Judgment; Prescription; A suit for recovery of the deficiency after
foreclosure is in the nature of a mortgage action, and the same
prescribes in 10 years.—A suit for the recovery of the deficiency after • Ownership over the properties was later consolidated in the
the foreclosure of a mortgage is in the nature of a mortgage action bank on account of which new titles were issued
because its purpose is precisely to enforce the mortgage contract; it is
upon a written contract and upon an obligation of Manzana to pay the
deficiency which is created by law (see Development Bank of the
Philippines v. Tomeldan, et al., G.R. No. 51269, November 17, 1980, • Alleging non-payment of the balance of QGLC’s obligation
101 SCRA 171). Therefore, since more than ten (10) years have after the proceeds of the foreclosure sale were applied, the bank filed a
elapsed from the time the right of action accrued, CALTEX can no complaint for sum of money against petitioners.
longer recover the deficiency from Manzana.

Same; Same; Same; Same; Civil Procedure; Causes of Action; A

ISSUE/S: WON the bank can still collect the deficiency.
mortgage creditor has a single cause of action against the debtor
for non-payment of a note secured by a mortgage, hence, he
cannot split up his cause of action by filing a complaint for
payment of the debt, and thereafter, another complaint for RULING: NO
foreclosure.—CALTEX has only one cause of action against
Manzana, that is, non-payment of the debt although two choices of
remedies are available to it. As held in the Bachrach case, supra: “For
non-payment of a note secured by mortgage, the creditor has a single • Prescription of actions is interrupted when they are filed
cause of action against the debtor. This single cause of action consists before the court, when there is a written extrajudicial demand by the
in the recovery of the credit with execution of the security. In other creditors, and when there is any written acknowledgment of the debt by
words, the creditor in his action may make two demands, the payment the debtor.
of debt and the foreclosure of his mortgage. But both demands arise
from the same cause, the non-payment of the debt, and, for that
reason, they constitute a single cause of action. Though the debt and
the mortgage constitute separate agreements, the latter is subsidiary o The contention that the notices of foreclosure are "tantamount" to a
to the former, and both refer to one and the same obligation. written extrajudicial demand cannot be appreciated, the contents of
Consequently, there exists only one cause of action for a single breach said notices not having been brought to light
of that obligation. Plaintiff, then, by applying the rule above stated,
cannot split up his single cause of action by filing a complaint for
payment of the debt, and thereafter another complaint for foreclosure • the Bank seeks the recovery of the deficient amount of the
of the mortgage. If he does so, the filing of the first complaint will bar obligation after the foreclosure of the mortgage. Such suit is in the
the subsequent complaint. By allowing the creditor to file two separate nature of a mortgage action because its purpose is precisely to enforce
complaint simultaneously or successively, one to recover his credit and the mortgage contract. A mortgage action prescribes after ten years
another to foreclose his mortgage, we will, in effect, be authorizing him from the time the right of action accrued
plural redress for a single breach of contract at so much cost to the
courts and with so much vexation and oppression to the debtor.”

• The law gives the mortgagee the right to claim for the
deficiency resulting from the price obtained in the sale of the property
GONZALES V. CA at public auction and the outstanding obligation at the time of the
foreclosure proceedings
FACTS:

• the Bank, as mortgagee, had the right to claim payment of

• QGLC through its proprietor, Gonzales applied for credit
the deficiency after it had foreclosed the mortgage in 1965
accommodation with Republic Bank.

o the prescriptive period started to run against the Bank in 1965.

• The bank approved the application, they executed
documents • As it filed the complaint only on January 27, 1977, more than
ten years had already elapsed, hence, the action on its first to fifth
causes had by then prescribed.
o Agreement for credit in current account
Remedial Law; Actions; Prescription; Prescription of actions is
interrupted when they are filed before the court, when there is a written
extrajudicial demand by the creditors, and when, there is any written
o Application and agreement for commercial letter of credit acknowledgment of the debt by the debtor.—The Civil Code provides
that an action upon a written contract, an obligation created by law,
and a judgment must be brought within ten years from the time the
right of action accrues. x x x Prescription of actions is interrupted when
o Trust receipt they are filed before the court, when there is a written extrajudicial
demand by the creditors, and when, there is any written
acknowledgment of the debt by the debtor.
• The obligation was secured by a REM on 4 parcels of land Same; Same; Same; A mortgage action prescribes after ten years
from the time the right of action accrued.—With respect to the first to
the fifth causes of action, as gleaned from the complaint, the Bank

8
seeks the recovery of the deficient amount of the obligation after the
foreclosure of the mortgage. Such suit is in the nature of a mortgage
action because its purpose is precisely to enforce the mortgage
contract. A mortgage action prescribes after ten years from the time
the right of action accrued.
PINEDA V. CA
FACTS:
• Sps. Benitez mortgaged a house and lot in favor of Juanita
Pineda and Leila Sayoc
• The REM was not registered, but the Sps delivered the
owner’s duplicate to Pineda
• With consent of Pineda, Benitez sold the property to Mojica.
• Mojica filed a petition for the issuance of a 2 nd owner’s
duplicate alleging that she purchased a parcel of land and the owner’s
duplicate copy was lost
o TC granted, the RD issued the second owner’s duplicate copy in the
name of Sps Benitez
o Subsequently, a TCT was issued to Mojica
• Mojica obtained a loan from Teresita Gonzales, executing a
mortgage over the property in favor of Gonzales
o Gonzales registered the mortgage with the RD
• Pineda and Sayoc filed a complaint before the RTC seeking
for the cancellation of the 2nd owner’s duplicate
• During the pendency of the case, Pineda caused the
annotation of a notice of lis pendens on the OCT
ISSUE/S - RULING:
2nd Registration is VOID
• No valid transfer certificate of title can issue from a void TCT,
unless an innocent purchase for value has intervened
• Mojica was not purchaser in GF
9
o She procured the reconstitution of the 2 nd owner’s duplicate
through misrepresentation, hence not in good faith when she later
purchased the lot since she knew the irregularity in the reconstitution of
the second owner’s duplicate
Mojica is still entitled over the property
• what is void is the transfer certificate of title and not the title
over the Property. The title refers to the ownership of the Property
covered by the transfer certificate of title while the transfer certificate of
title merely evidences that ownership.
Sps Benitez can sell the property to Mojica
• A mortgage is merely an encumbrance on the property and
does not extinguish the title of the debtor who does not lose his
principal attribute as owner to dispose of the property
• The Sps Benitez were the undisputed owners of the
property, they could validly sell and deliver it to Mojica.
• Execution of the notarized deed of sale between Benitez and
Mojica had the legal effect of actual or physical delivery.
• Ownership already passed to Mojica
• Nullity of the 2nd owner duplicate did not affect the validity of
the sale between Benitez and Mojica
Mortgage to Gonzales is valid
• A mortgage annotated on a void title is valid if the mortgagee
registered the mortgage in GF
• Gonzales is in GF
o No actual notice of the prior unregistered
mortgage in favor of Pineda and Sayoc
o The fact the Mojica had actual notice of the unregistered
mortgage did not constitute actual notice to Gonzales
• When Mojica defaulted in paying her debt, Gonzales caused
the extrajudicial foreclosure of the mortgaged Property
• For Mojica’s failure to redeem the foreclosed Property within
the prescribed period, Gonzales consolidated her title to the Property

• Thus, the title or ownership of the Property passed from
Mojica to Gonzales. At this point, therefore, Gonzales became the
owner of the Property.
• The subsequent annotation of the lis pendens could not
defeat the rights of the mortgagee or the purchaser at the auction sale
who derived their rights under a prior mortgage validly registered.
Civil Law; Property; Land Titles; No valid transfer certificate of
title can issue from a void transfer certificate of title unless an
innocent purchaser for value has intervened.—Mojica registered
with the Register of Deeds the deed of sale executed by the Spouses
Benitez conveying the Property to her. Mojica also presented to the
Register of Deeds the second owner’s duplicate of TCT 8361. The
Register of Deeds cancelled TCT 8361 and issued on 14 December
1983 TCT 13138 in the name of Mojica. However, since TCT 13138 is
derived from the void second owner’s duplicate of TCT 8361, TCT
13138 is also void. No valid transfer certificate of title can issue from a
void transfer certificate of title, unless an innocent purchaser for value
has intervened.

Same; Same; Same; Title refers to the ownership of the Property

• auction sale retroacts to the date of the registration of the
mortgage,28 putting the auction sale beyond the reach of any
intervening lis pendens, sale or attachment.
• The earlier registration of the petitioners’ levy on preliminary
attachment gave them superiority and preference in rights over the
attached property as against respondents.
• The prior registered mortgage of Gonzales prevails over the
subsequent notice of lis pendens, even if the auction sale took place
after the notation of the lis pendens.
• The unregistered mortgage of Pineda and Sayoc was
extinguished upon foreclosure of Gonzales’ mortgage even assuming
for the sake of argument that the latter mortgage was unregistered.
Between two unregistered mortgagees, both being in good faith, the
first to foreclose his mortgage prevails over the other.
covered by the transfer certificate of title while the transfer
certificate of title merely evidences that ownership.—Therefore,
TCT 13138 issued in the name of Mojica is void. However, what is void
is the transfer certificate of title and not the title over the Property. The
title refers to the ownership of the Property covered by the transfer
certificate of title while the transfer certificate of title merely evidences
that ownership. A certificate of title is not equivalent to title as the Court
explained in Lee Tek Sheng v. Court of Appeals.
Same; Same; Mortgage; A mortgage is merely an encumbrance
on the property and does not extinguish the title of the debtor
who does not lose his principal attribute as owner to dispose of
the property; The law even considers void a stipulation forbidding
the owner of the property from alienating the mortgaged
immovable.—The prior mortgage of the Property by the Spouses
Benitez to Pineda and Sayoc did not prevent the Spouses Benitez, as
owners of the Property, from selling the Property to Mojica. A mortgage
is merely an encumbrance on the property and does not extinguish the
title of the debtor who does not lose his principal attribute as owner to
dispose of the property. The law even considers void a stipulation
forbidding the owner of the property from alienating the mortgaged
immovable.

Civil Law; Property; Land Titles; No valid transfer certificate of

title can issue from a void transfer certificate of title unless an
innocent purchaser for value has intervened.—Mojica registered
with the Register of Deeds the deed of sale executed by the Spouses
Benitez conveying the Property to her. Mojica also presented to the
Register of Deeds the second owner’s duplicate of TCT 8361. The
Register of Deeds cancelled TCT 8361 and issued on 14 December
1983 TCT 13138 in the name of Mojica. However, since TCT 13138 is
derived from the void second owner’s duplicate of TCT 8361, TCT
13138 is also void. No valid transfer certificate of title can issue from a
void transfer certificate of title, unless an innocent purchaser for value
has intervened.

Same; Same; Same; Title refers to the ownership of the Property

covered by the transfer certificate of title while the transfer
certificate of title merely evidences that ownership.—Therefore,
TCT 13138 issued in the name of Mojica is void. However, what is void
is the transfer certificate of title and not the title over the Property. The
title refers to the ownership of the Property covered by the transfer
certificate of title while the transfer certificate of title merely evidences
that ownership. A certificate of title is not equivalent to title as the Court
explained in Lee Tek Sheng v. Court of Appeals.

Same; Same; Mortgage; A mortgage is merely an encumbrance on

the property and does not extinguish the title of the debtor who
does not lose his principal attribute as owner to dispose of the
property; The law even considers void a stipulation forbidding the
owner of the property from alienating the mortgaged immovable.
—The prior mortgage of the Property by the Spouses Benitez to
Pineda and Sayoc did not prevent the Spouses Benitez, as owners of
the Property, from selling the Property to Mojica. A mortgage is merely
an encumbrance on the property and does not extinguish the title of
the debtor who does not lose his principal attribute as owner to dispose
of the property. The law even considers void a stipulation forbidding
the owner of the property from alienating the mortgaged immovable.

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