Real Estate Mortgage

Submitted to:
ASSISTANT SOLICITOR GENERAL MARISSA B. DELA CRUZ-GALANDINES
 Submitted By:

Areño, Kim Louise

Fernando, Gladen Guzman
Garcia, Adrian Lorenzo
Guerrero, Anna Charmaine
Guzman, Pat Jr.
Lubangco, Russel
Ressurreccion, Pauline
Reyes, Earl James
Reyes, Toni Patricia May
Roces, Suzanne

2G

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 Table of Contents
I. CONTRACT OF MORTGAGE DEFINED.................................................................................................. 4
a. KINDS OF MORTGAGE .............................................................................................................................. 4
b. CHARACTERISTICS OF MORTGAGE............................................................................................................ 5
c. PARTIES TO THE CONTRACT OF MORTGAGE ............................................................................................. 5
d. ESSENTIAL REQUITES OF MORTGAGE ....................................................................................................... 5
e. SUBJECT MATTER OF A REAL ESTATE MORTGAGE..................................................................................... 6
f. RIGHTS AND OBLIBATION OF MOTRGAGEE IN POSSESSION ...................................................................... 6
g. DOCTRINE OF MORTGAGEE IN GOOD FAITH............................................................................................. 8
h. RIGHTS IN CASE OF LEGAL MORTGAGES ................................................................................................... 9
i. REGISTRATION OF MORTGAGE................................................................................................................. 9
j. EFFECT OF MORTGAGES......................................................................................................................... 10
k. RIGHTS OF MORTGAGOR ....................................................................................................................... 11
l. EXTENT OF MORTGAGE.......................................................................................................................... 12
m. ALIENATION OR ASSIGNMENT OF MORTGAGE CREDIT ........................................................................... 14
n. RIGHT OF THE CREDITOR AGAINST TRANSFEREE OF MORTGAGE PROPERTY ........................................... 14
o. STIPULATION FORBIDDING ALIENATION OF MORTGAGED PROPERTY ..................................................... 15
p. LAWS GOVERNING MORTGAGE.............................................................................................................. 16
q. JUDICIAL FORECLOSURE OF REAL ESTATE MORTGAGE............................................................................. 17
a. NATURE OF JUDICIAL FORECLOSURE PROCEEDING .................................................................................. 17
b. JUDICIAL FORECLOSURE UNDER THE RULES OF COURT ............................................................................ 18
c. EQUITY OF REDEMPTION......................................................................................................................... 21
II. EXTRA-JUDICIAL FORECLOSURE ....................................................................................................... 23

a. NATURE OF EXTRA-JUDICIAL FORECLOSURE ............................................................................................ 23

b. PROCEDURE FOR EXTRA-JUDICAL FORECLOSURE ..................................................................................... 23
c. DISTRIBUTION OF PROCEEDS ................................................................................................................... 26
d. REMEDY OF AGGRIEVED PARTY BY FORECLOSURE .................................................................................... 26
e. PRETERMISSION OF HOLIDAY................................................................................................................... 26
f. INADEQUACY OF PRICE IN A FORECLOSURE SALE ...................................................................................... 27
g. RECOVERY OF DEFICIENCY ....................................................................................................................... 27
h. FORECLOSURE RETROACTS TO DATE OF REGISTRATION............................................................................ 28
i. RIGHT OF REDEMPTION ........................................................................................................................... 28
WHEN TO EXERCISE ................................................................................................................................. 28
WHO MAY EXERCISE REDEMPTION.......................................................................................................... 29
WHEN RIGHT NOT EXERCISED ................................................................................................................. 31
RIGHT OF REDEMPTION EFFECTED .......................................................................................................... 31
NATURE OF RIGHT OF REDEMPTION OF MORTGAGOR............................................................................. 31
REQUISITES FOR A VALID EXERCISE OF THE RIGHT OF REDEMPTION ........................................................ 32
PAYMENT OF REDEMPTION..................................................................................................................... 33
AMOUNT PAYABLE UPON REDEMPTION .................................................................................................. 33

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j. WRIT OF POSSESSION.............................................................................................................................. 35
III. RECONCILIATION OF JUDICIAL FORECLOSURE AND EXTRAJUDICIAL FORCLOSURE ON REAL
MORTGAGE ..................................................................................................................................... 36
IV. CONSOLIDATED CASES ..................................................................................................................... 39

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 ART. 2124. Only the following property may be the object of a
contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed
upon immovables.
Nevertheless, movables may be the object of a chattel
mortgage. (1874a)

Definition: a contract whereby the debtor secures to the creditor the fulfillment of a
principal obligation, specially subjecting to such security immovable property or real
rights over immovable property which obligation shall be satisfied with the proceeds of
the sale of said property or rights in case the said obligation is not complied with at the
time stipulated.

Þ A real estate mortgage is a contract whereby immovable property or real rights

over immovable property are given in order to secure the fulfillment of a principal
obligation. If the debtor defaults, the property given must be sold at a foreclosure
sale, and the proceeds thereof applied to the principal obligation.
Þ Its essence is that a property has been identified or set apart from the mass of the
property of the debtor- mortgagor as security for the fulfillment of his obligation in
case of default of payment.

Kinds of Mortgage:

Þ VOLUNTARY – one which is agreed to between the parties or constituted by the

will of the owner of the property on which it is created
Þ LEGAL – one required by law to be executed in 
favor of certain persons
Þ EQUITABLE – one which, although it lacks the proper formalities, words, or other
requisites of a mortgage required by law, nevertheless reveals the intention of the
parties to burden real property as security for an existing debt, and contains
nothing impossible contrary to law. (Arts. 1365, 1450, 1454, 1602-4, 1607 NCC)

¨ An equitable mortgage is not different from a Real Estate Mortgage (REM)

and the lien created thereby ought not to be defeated by requiring
compliance with the formalities necessary to the validity of a voluntary
REM.

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Characteristics:

1. Consensual
2. Unilateral
(it creates only an obligation on the part of the creditor who must free
the property from the encumbrance once the obligation is fulfilled)
3. Nominate

4. Subsidiary

5. Accessory

6. Gratuitous or Onerous
7. Formal

Parties To The Contract:

Þ MORTGAGOR – either a debtor or a third person but the mortgagor should be the
absolute owner of the thing mortgaged and must have free disposal of their
property or legally authorized to do so for such purpose
Þ MORTGAGEE – creditor in the principal obligation

Essential Requisites:

Þ Essential requisites of a contract (consent, object, cause)

¨ Since REM is an accessory contract, its consideration is the same as the

principal contract from which it receives its life, and without which it cannot
exist as an independent contract. Its validity would depend on the validity
of the debt secured by it, and its enforcement will depend on whether or
not there has been a violation of the principal obligation.

Þ The mortgage be constituted for the fulfillment of 
a principal obligation, the

mortgagor must be the absolute owner of the 
thing mortgaged, the mortgagor
must have free disposal of the 
property or in the absence thereof, should be
legally authorized for such purpose (See Art. 2085 NCC)

¨ REM is not a real contract thus, delivery of the property mortgaged to the
mortgagee is not required for the perfection of the contract
¨ It is also not an essential requisite of the mortgage contract that the
principal of the mortgage credit bears interest or that the interest as
compensation for the use of the principal and enjoyment of its fruits be in
the form of a certain percent thereof (the interest may be in the form of
fruits without the contract losing its character as a mortgage contract
which will subject the mortgagee the obligations of an antichretic creditor)
¨ However, if it is expressly agreed that the fruits shall be applied to the
payment of interest, if owing, then to the principal, such is considered
ANTICHRESIS

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Subject Matter of a Real Estate Mortgage:

1. Immovable property (See Art. 415 NCC)

2. Alienable real rights imposed upon immovables

¨ while a mortgage of land necessarily includes, in the absence of stipulation,

the improvements thereon, a building by itself may be mortgaged apart
from the land on which it is built

Future Property:

Þ Cannot be the object of a contract of mortgage

Þ The parties may agree that the mortgage will extend to future properties of the
mortgagor but such will only constitute an agreement to mortgage the future
properties (mortgagor could not legally mortgage any property he did not yet
own)
Þ To bring such property within the coverage of the mortgage, a mortgage
supplement must be executed by mortgagor after acquiring ownership of the
property or after it comes into existence
Þ Stipulations subjecting improvements of the mortgaged property to the mortgage
lien is valid. Execution of mortgage supplements are not needed since a
mortgage extends to the improvements of the mortgaged property, as provided
in Art. 2127.

Mortgage of Co-owned Property:

Þ A co-owner has the full ownership of his part and of the fruits and benefits
pertaining thereto, and he ma therefore mortgage his part, except when personal
rights are involved
Þ The effect of mortgage, with respect to the co-owners, is limited to the portion
which may be allotted to him in the division upon the termination of the co-
ownership

Possession of Mortgaged Property

Þ Mortgagor retains possession of the mortgaged property because the mortgagor-

debtor merely subjects the property to a lien but ownership thereof is not parted
with
Þ Thus, one’s status as mortgagee cannot be the basis of possession

Rights and Obligations of Mortgagee In Possession:

Þ MORTGAGEE in possession – “one who has lawfully acquired actual or constructive

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 possession of the premises mortgaged to him, standing upon his rights as
mortgagee and not claiming under another title , for the purpose of enforcing his
security upon such property or making its income help to pay his debt” (Diaz v
Mendezona, 48 Phil 666)
Þ He is entitled to retain such possession until the indebtedness is satisfied and the
property redeemed (same with an antichretic creditor)

¨ “right to collect the credit with interest from the fruits, returning to the
antichretic debtor, the balance, if any, after deducting the expense”
¨ mortgagee has to account for the fruits received

Þ He is not entitled to reimbursement for the value of the improvements introduced

to the mortgaged property upon redemption of the mortgage, as provided in Art.
2125 par. 2

Mortgage Executed by an Agent:

Þ a mortgage executed by an authorized agent who signed in his own name

without indicating that he acted for and on behalf of his principal binds only the
Agent and not the principal

Article 2125. In addition to the requisites stated in article 2085, it is

indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in
the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have
no other right than to demand the execution and the recording of
the document in which the mortgage is formalized. (1875a)

Other Requisites of Mortgage:

Þ It is indispensable for the mortgage’s validity that the document evidencing is

recorded in the Registry of Property

¨ A duly executed mortgage is presumed to be valid until the contrary is

shown
¨ As provided in Art. 1358, acts and contracts which have for their object the

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 creation of real rights over immovable property such as REM must appear
in a public document however, FAILURE to observe such rule does not
render the acts or contracts INVALID
¨ The form required under Art. 1358 is not ESSENTIAL to the validity or
enforceability of the transaction, but merely for CONVENIENCE

Þ NO VALID MORTGAGE – if the deed of mortgage is in a private document, and

therefore, not registered

¨ Creditor may recover the loan

¨ Creditor has the right to compel debtor to execute the mortgage in a
public instrument

Þ The mortgage is binding between PARTIES although the mortgage instrument is

not recorded

¨ registration only operates as a NOTICE of the mortgage to others and

neither affects its validity or invalidity

Þ The registration is without prejudice to the better right of third parties i.e.
unregistered pacto de retro sale against recorded mortgage

Doctrine of Mortgagee in Good Faith (Innocent Purchases for Value):

Þ The mortgagee has a right in good faith to rely on the certificate of title of the
mortgagor and in the absence of anything to excite suspicion is under no
obligation to loo beyond the certificate and investigate the title of the mortgagor
appearing on the face of the certificate.

¨ even if mortgagor is not the rightful owner of, or does not have a valid title,
the mortgagee in good faith is entitled to protection
¨ the rationale for the rule is that if the rule were otherwise, public confidence
in the CT would be impaired

Þ The doctrine, however, presupposes that the mortgagor, who is not the rightful
owner of the property, has already succeeded in obtaining a Torrens Title over the
property in his name, and that, after obtaining said title, he succeeds in
mortgaging the property to another who relies on what appears on said title
Þ INNOCENT PURCHASER FOR VALUE (IPFV) – one who purchases a titled land by
virtue of a deed executed by a registered owner
Þ The doctrine does not apply to a situation where the title is still in the name of the

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 rightful owner and the mortgagor is a different person pretending to be an owner
(in this case, the mortgagee is not innocent and the registered owner’s right shall
be protected and he will not lose his title)
Þ DUTY TO LOOK BEYOND THE CERTIFICATE OF TITLE (MIRROR DOCTRINE)

¨ GENERAL RULE: where there is nothing on the certificate of title to indicate

any cloud or vice in the ownership of the property, or any encumbrance
thereon, the purchaser is not required to explore further than what the
Torrents title upon its face indicates for any hidden defect
¨ EXCEPTION:
1. Where the mortgagee has knowledge of a defect or lack of title in the
vendor or the mortgagee does not directly deal with the registered owner
of real property
2. or that he was aware of sufficient facts to induce a reasonably prudent
man to inquire into the status of the property in question

Þ A mortgagor in good faith may not be a purchaser in good faith

¨ PURCHASER IN GOOD FAITH – one who buys a property without notice that
some other person has a right to, or interest in, the property and pays full
and fair price at the time of purchase or before he has notice of the claim
or interest of other persons in the property

Þ Mortgagee-banks or purchasers however, are required to exert a higher degree

of diligence, care, and prudence in handling real estate transactions because its
business is impressed with public interest

¨ A bank must undertake a careful examination of title to verify its

genuineness, to determine the real owner of the property as well as a
physical and on-the-spot investigation of the land itself offered as security
¨ Such diligence extends to persons regularly engaged in the business of
lending money secured by REMs

Right in case of Legal Mortgages:

Þ Such is in conformity with the rule established under the law on the form of
contracts which gives to the contracting parties the right to compel each other
to observe the form required by law like the execution of a document or other
special form provided the contract is valid and enforceable between them (Arts.
1357-8 NCC)
Þ Order of foreclosure cannot be refused on the ground that the mortgage was not
registered provided no innocent third parties are involved

Registration of Mortgage:

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 Þ REGISTRATION – the ministerial act by which a deed, contract, or instrument, is
inscribed in the records of the Office of the Register of Deeds and annotated on
the back of the Transfer Certificate of Title (TCT) covering the registered land. Such
act creates constructive notice to the whole world and binds third persons.
Þ Mortgagee is entitled to the registration of the mortgages as a matter of right
once it has been signed in due form
¨ By executing the mortgage, the mortgagor is understood to have given his
consent to its registration, and he cannot be permitted to unilaterally
revoke it as the validity or compliance of contracts can’t be left to the will
of one of the parties, as provided in Art. 1308 NCC

Þ A registered mortgage right over property previously sold is inferior to the buyer’s
unregistered right since if the original owner/seller had parted with his ownership
of the thing sold, then he no longer had ownership and free disposal of the thing
so as to be able to mortgage it
Þ A prior registration of a lien creates a preference, hence, the subsequent
annotation of an adverse claim cannot defeat the rights of the mortgagee or the
purchaser at the auction sale whose rights were derived from a prior mortgage
validly registered
Þ Registration is merely a declaration that the record of the title appears to be
burdened with the mortgaged described

Invalidity of mortgage on principal obligation:

Þ Principal obligation remain valid

¨ What is lost only is the right to foreclose the mortgage as a special remedy
for satisfying or settling the indebtedness

Þ Mortgage deed remains as an evidence of a personal obligation of the debtor

and the amount due to the creditor may be enforced in an ordinary personal
action

Article 2126. The mortgage directly and

immediately subjects the property upon
which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation
for whose security it was constituted.

Effect of mortgage:

Þ CREATES REAL RIGHT – a lien inseparable from the mortgaged property, which is a

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 against the whole world, affording specific security for the satisfaction of a debt

¨ It follows the property wherever it does and subsists notwithstanding

changes of ownership until it is discharged upon payment of the obligation
¨ If the mortgagor sells the property, the property remains subject to the
fulfillment of the obligation secured by it
¨ All subsequent purchasers must respect the mortgage, whether the transfer
to them be with or without the consent of the mortgagee. But the
mortgage must be registered or if not, the buyer must know of its existence;
such knowledge having the effect of registration as to him

Þ If a person is the first mortgagee over a property which was sold in an auction sale
by the second mortgagee, the only right left to him is to collect the mortgage
credit from the purchaser thereof during the sale conducted

¨ Such step need not be taken where the second mortgagee is also the first
mortgagee of the same property given as security by the same mortgagor
for two separate loans and it purchased the subject property with full
knowledge that it had a mortgage thereon (Merger extinguishes the rights
of the creditor and debtor as provided in Art. 1275 NCC)

Þ CREATES AN ENCUMBRANCE – a mortgage is merely a security for a debt and does

not affect nor extinguish the title or ownership of the mortgagor who does not lose
his principal attribute as owner, that is, the right to dispose

¨ A mortgage does not involve a transfer, cession or conveyance of property

but only constitutes a lien thereon
¨ The only right of the mortgagee in case of non-payment of a debt would
be to foreclose the mortgage and have the encumbered property sold to
satisfy the outstanding indebtedness
¨ The mortgagor’s default doesn’t operate to vest in the mortgagee the
ownership of the encumbered property

Ownership rights of mortgagor

1. RIGHT TO SELL – any stipulation forbidding the owner form alienating the property
mortgaged is considered VOID
2. RIGHT OF POSSESSION – this gives the mortgagee no right or claim to the possession
of the property mortgaged unless the mortgage should contain a stipulation to
that effect, much less vests title unless he purchases it at a public auction and is
not redeemed with the required period
3. RIGHT TO MORTGAGE – a mortgagor is allowed to take a subsequent mortgage
on a property already mortgaged subject to the prior rights of the previous
mortgagee since the mortgagor remains the absolute owner of the property and

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 has free disposal over it

¨ The first mortgagee has superior rights over subsequent mortgagees or

attaching creditors

Article 2127. The mortgage extends to the natural accessions, to

the improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public use,
with the declarations, amplifications and limitations established by
law, whether the estate remains in the possession of the mortgagor,
or it passes into the hands of a third person. (1877)

Extent of mortgage:

Þ It is not limited to the property itself but also extends to all ACCESSIONS,
IMPROVEMENTS, GROWING FRUITS and RENTS or INCOME as well as to the
PROCEEDS OF INSURANCE should the property be destroyed, or the
EXPROPRIATION VALUE of the property should it be expropriated unless there is
contrary stipulation

¨ Predicated on the presumption that the ownership of accessions and

accessories also belongs to the mortgagor as the owner of the principal

Þ The following are generally deemed included in a mortgage of real property:

1. New plantings
2. Fruits, except those collected before the obligation falls due, and those
removed and stored when it falls due
3. Accrued and unpaid rents as well as those which should have to be paid
while the credit remains wholly unsatisfied
4. Buildings, machinery and accessories belonging to the mortgage debtor
installed on a mortgaged sugar central
5. Improvements constructed by the mortgagor on the mortgaged parcel of
land
6. All objects permanently attached to a mortgaged land or building,
although they may have been placed there after the execution of the
mortgage
7. A more costly building erected on place of the mortgaged building which
was torn down by the debtor

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 ¨ If the mortgaged estate passes into the hands of a third person, the
mortgage does not extend to any machinery, object, chattel or
construction which may have brought or placed there and which such
third person may remove whenever it is convenient for him to do so

Stipulation including after-acquired properties

Þ VALID
Þ Its purpose is to maintain, to the extent allowed by the circumstances, the
ORIGINAL VALUE of the properties given as security
Þ The mortgage lien attaches and vests not at the time the improvements are made
but on the date of recording and registration of the mortgage deed

DRAGNET or BLANKET CLAUSE

GENERAL RULE: an action to foreclose a mortgage must be limited to the amount

mentioned in the mortgage

EXCEPTION: such amounts does not limit that which the mortgaged property may stand
as security if it can be deduced that there is intent to secure future loans or
advancements and other indebtedness

Þ This enables the parties to provide continuous dealings, and avoid the expense
and inconvenience of executing a new security on each new transaction
Þ 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, making them save time, travel, loan closing costs,
extra legal service costs, recording fees et al.
¨ This lowers the costs of loans to borrowers and makes the business of lending
profitable
¨ It is one which is specifically phrased to subsume all debts of past or future
origin
¨ Such clause is carefully scrutinized and strictly construed

Þ Where the plain terms of the mortgage evidence the intention of the mortgagor
to secure a larger amount, the action to foreclose may be for the latter, otherwise,
as in the case where two specific amounts were procured in a single instance, the
GENERAL RULE shall apply
Þ A mortgage given to secure future advancements is a continuing security and is
not discharged by the repayment of the amount named in the mortgage, until
the FULL AMOUNT of ALL loans or advancements obtained are paid

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 Article 2128. The mortgage credit may
be alienated or assigned to a third
person, in whole or in part, with the
formalities required by law. (1878)

ALIENATION OR ASSIGNMENT OF MORTGAGE CREDIT

Þ The mortgage credit or the right of the mortgagee is an alienable real right. Such
real right may be alienated or assigned to a third person, in whole or in part, by
the mortgagee.
Þ The alienation or assignment is valid even if it is not registered; registration is
necessary only to affect third persons.
Þ The assignee may then validly foreclose the mortgage in case of non-payment of
the mortgage indebtedness.

Article 2129. The creditor may claim from a third

person in possession of the mortgaged property, the
payment of the part of the credit secured by the
property which said third person possesses, in the
terms and with the formalities which the law
establishes.

RIGHT OF THE CREDITOR AGAINST TRANSFEREE OF MORTGAGED PROPERTY

Þ The mortgage on the property may still be foreclosed despite the transfer. The fact
of such transfer does not relieve the mortgagor of his obligation to pay the debt
to the mortgage-creditor in the absence of novation.
Þ The mortgage credit being a real right, which follows the property, the creditor
may demand from any possessor the payment only of the part of the credit
secured by said property. It is necessary, however, that prior demand for payment
must have been made on the debtor and the latter failed to pay.

Article 2130. A stipulation forbidding the owner from

alienating the immovable mortgaged shall be void.
(n)

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STIPULATION FORBIDDING ALIENATION OF MORTGAGED PROPERTY

Þ A stipulation forbidding the owner form alienating the immovable mortgaged shall
be void. However if the mortgagor alienated the property, the transferee is bound
to respect the encumbrance because being a real right, the property remains
subject to the fulfillment of the obligation for whose guaranty it was constituted.
Þ The mortgagor-owner’s sale of the property does not affect the right of the
registered mortgagee to foreclose on the same even if the ownership had been
transferred to another person who is bound by the registered mortgage.
Þ A stipulation prohibiting the mortgagor from selling his mortgaged property
without the mortgagee’s consent also violates Art. 2130. Such stipulation
practically gives the mortgagee the sole prerogative to prevent any sale of the
mortgaged property to a third party. The mortgagee could simply withhold his
consent and thereby prevent the mortgagor from selling the property.
Þ On the other hand, there is nothing wrong in a stipulation granting the mortgagee
the right of first refusal over the mortgaged property in the event the mortgagor
decides to sell the same. The right of first refusal has long been recognized as valid
in our jurisdiction.
Þ The consideration for the loan-mortgage may be said to include the consideration
for the right of first refusal. Thus, while the mortgagor has every right to sell the
mortgaged property without securing the consent of the mortgagee, he has the
obligation under a right of first refusal provision which is perfectly valid, to notify
the mortgagee of his intention to sell the property and give him priority over other
buyers.
Þ A sale made in violation of the mortgagee’s contractual right of first refusal is
rescissible. The buyer is presumed to have been notified thereof by the registration
of the mortgage deed containing such stipulation, which equates to notice to the
whole world. (Litonjua vs. L & R Corporation)

Article 2131. The form, extent and consequences of

a mortgage, both as to its constitution, modification
and extinguishment, and as to other matters not
included in this Chapter, shall be governed by the
provisions of the Mortgage Law and of the Land
Registration Law. (1880a)

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LAWS GOVERNING MORTGAGE

Þ As to other matters not included in Chapter 3, Title XVI, Book IV of the Civil Code,
the Property Registration Decree ( P.D. No. 1529) and the Revised Administrative
Code, more particularly Section 194, as amended by Act No. 3344, govern the
form, extent, and consequences of a mortgage, and also its constitution,
modification and extinguishment.
Þ As to aliens becoming mortgagees, the pertinent law is. Republic Act No. 4882.

¨ aliens may be a mortgagee-creditor because REM does not involve a

transfer of property but merely a lien
¨ they may also foreclose and bid subject to the rule that the property
acquired must be disposed within 5 years

PLEDGE REAL MORTGAGE

Constituted on movables Constituted on immovables

Delivery of subject property to pledgee Deliver is unnecessary

or to a third person, by common
consent, is necessary

Pledgor can sell thing pledged only with Mortgagor can sell the property
the consent of the pledgee mortgaged even without the consent
of the mortgagee

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 JUDICIAL FORECLOSURE OF REAL ESTATE MORTAGE

Judicial foreclosure of real estate mortgage is

governed by the provisions of Rule 68 of the Rules of
Court. It is like any ordinary civil action filed in court
that shall be proven by preponderance of evidence.

Under Section 1, Rule 4 of the Rules of Court, actions

affecting title or possession of real property, or
interest therein, shall be commenced and tried in the
proper court which has jurisdiction over the area
wherein the real property involved, or portion thereof
is situated.

Nature of Judicial Foreclosure Proceeding

1. It is an ACTION QUASI IN REM.

A proceeding for judicial foreclosure of real estate mortgage is an
action quasi in rem the reason being that it is based on a personal claim
against a specific property of the defendant. It’s purpose is to have the
property seized and sold by court order to the end that the proceeds
thereof be applied to the payment of plaintiff’s claim.

As discussed in the case of Heirs of Z. Espiritu vs. Landrito (520 SCRA

383 [2007]), a judgment ordering a foreclosure sale is conditioned upon a
finding on the correct amount of the unpaid obligation and the failure of
the debtor to pay the said amount.

2. It is a RESULT OR INCIDENT OF FAILURE TO PAY INDEBTEDNESS.

An action for foreclosure of mortgage seeks to reach the property
and subject it to the payment of a principal obligation. It must be noted
that money indebtedness is the principal thing, not the foreclosure of the
property which is the result or an incident of the failure to pay the
indebtedness.

3. It SURVIVES THE DEATH OF THE MORTGAGOR.

An action for foreclosure of a mortgage is an action which survives
the death of the mortgagor because the claim against him is not pure
money claim but an action to enforce an mortgage lien.
In the case of Testamentaria de Don AmadeoMatuteOlave vs.
Canlas(4 SCRA 463 [1962]), the Court ruled that an action to enforce a lien
on property may be prosecuted by the interested person against the
executor or administrator independently of the testate or intestate
proceedings "for the reason that such claims cannot in any just sense be
considered claims against the estate, but the right to subject specific

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property to the claim arises from the contract of the debtor whereby he
has during life set aside certain property for its payment, and such property
does not, except in so far as its value may exceed the debt, belong to the
estate.

Judicial Foreclosure under Rule 68 of Rules of Court

Step 1:Judicial action brought to the proper court having jurisdiction over
the mortgaged property

As provided in Rule 68 of the Rules

of Court, in order for a mortgage
to be judicially foreclosed, a
complaint must be filed in the
proper court having jurisdiction
over the matter. Such complaint
must contain the following as
provided in Section 1of the
aforementioned rule:

a. the date and due execution

of the mortgage;

b. its assignments, if any;

c. the names and residences of

the mortgagor and mortgagee;

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 d. description of the mortgaged
property;

e. a statement of the date of

the note or other documentary
evidence of the obligation
secured by the mortgage;

f. the amount claimed to be

unpaid thereon;

g. the names and residences of

all persons having or claiming
an interest in the property of
subordinate in right to that of
the holder of the mortgage ,
all of whom shall be made
defendant in the action.

Step 2:Order by the Court for Mortgagor to Pay Mortgage Debt

Upon finding that the statements in the complaint are true, Section 2 of the rule
provides that an order by the court must be given to the mortgagor to pay the
mortgage debt, including the interest and other charges and costs as may be
approved by the court, which shall be paid within the period of ninety (90) days
nor not more than one hundred twenty (120) days from the entry of judgment.

Step 3:Sale of the Mortgaged Property at Public Auction

If the mortgagor fails to pay the amount due on the specified

period, the mortgaged property shall be sold at a public auction
which shall not affect those rights of persons who have prior
encumbrances on the property or part thereof.

19
Step 4:Confirmation of the Sale

The confirmation of such sale shall operate to divest the

rights of all the parties to the action and vest their rights to
the purchaser (Sec. 3, Rule 68, Rules of Court). Prior to such
confirmation, the court retains control of the proceedings
by exercising a sound discretion in regard to it, either
granting or withholding confirmation as the rights and
interests of the parties and the ends of justice so require (Salazar vs. De Torres, G.
R. No. L-13711, May 25, 1960).The law may however allow such property to be
subject of redemption. But upon the expiration of the redemption period, the
purchaser shall have the right to possess such property (Sec. 3, Rule 68, Rules of
Court).

Step 5: Execution of Judgment

In the case of Piano vs. Cayanong (7 SCRA 397 [1963]), the Court held that no
judgment rendered in an action for foreclosure of mortgage can be executed,
otherwise than in the manner prescribed by the law on mortgages, for the reason
that parties to an action are not authorized to change the procedure which it
prescribes.

It bears stressing that the proper remedy to seek reversal of judgment in an action
for foreclosure of real estate mortgage is not a petition for annulment of judgment
but an appeal from the judgment itself or from the order confirming the sale of
the foreclosed real estate. After failed to avail of appeal without sufficient
justification, they cannot conveniently resort to the action for annulment for
otherwise they would benefit from their own inaction and negligence. (Agbada
vs. Inter-Urban Developers, 389 SCRA 430[2002])

Step 6: Application of the Proceeds of the Sale

The proceeds of the sale shall be applied to the payment of the:

1. Costs of sale;
2. Amount due to the mortgagee;
3. Claims of junior encumbrancers or persons holding subsequent mortgages
in the order of priority;
4. Balance after the payment, then to the mortgagor or his duly authorized
agent, or to the person entitled to it;

As held in the case of Sulit vs. Court of Appeals (268 SCRA 441[1997]), if the
mortgagee is retaining more of the proceeds of the sale than he is entitled

20
 to, this fact alone will not affect the validity of the sale but simply gives the
mortgagor a cause of action to recover such surplus. This is likewise in
harmony with the decisional rule that in suing for the return of the surplus
proceeds, the mortgagor is deemed to have affirmed the validity of the
sale since nothing is due if no valid sale has been made.

5. If there be balance due to the plaintiff after the sale of the property, a right
is given to him to claim such deficiency from the defendant.

Step 7: Execution of Sheriff’s Certificate.

As held in the case of the Development Bank of the Philippines vs. Zaragoza, In
judicial foreclosures, the "foreclosure" is not complete until the Sheriff's Certificate
is executed, acknowledged and recorded. In the absence of a Certificate of
Sale, no title passes by the foreclosure proceedings to the vendee. It is only when
the foreclosure proceedings are completed and the mortgaged property sold to
the purchaser that all interests of the mortgagor are cut off from the property.

To complete the judicial foreclosure, a certified copy of the final order of the court
regarding the sale must be registered in the registry of deeds. It shall cause the
cancellation of the certificate of title in the name of the mortgagor and issue a
new one in the name of the purchaser (Sec. 7, Rule 68, Rules of Court).
Equity of Redemption

- The right of the defendant to extinguish the mortgage and retain ownership
of the property by paying the secured debt within the period provided by
law.
- The right of mortgage in case of judicial foreclosure to redeem the mortgaged
property after his default in the performance of the conditions of the mortgaged
but before the confirmation of the sale of the mortgaged property.

Period to Exercise:

- In Judicial Foreclosure, the mortgagor may exercise his equity of redemption

before but not after the sale is confirmed by the court. Under Rule 68 of the Rules
of Court, there is only equity of redemption in favor of the mortgagor consisting in
the right to redeem the mortgaged property within the 90-day to 120-day period
from the entry of judgment. The period given is not merely a procedural
requirement. It is a substantive right granted to the mortgage debtor as the last
opportunity to pay the debt and save his mortgaged property from final
deposition at the foreclosure sale.

Exception:

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 There is no right of redemption from a judicial foreclosure sale after the
confirmation of the sale, except those granted by banks and financial institution
as provided by the General Banking Act.

Effect of Failure to redeem

Act No. 3135 provides that if the mortgagor or successors-in-interest fail to

redeem within the redemption period, the title over the property consolidates in
the purchaser.
Allowing redemption after the lapse of the statutory period, when the buyer at the
foreclosure sale does not object but even consents to the redemption, will uphold the
policy of the law which is to aid rather than defeat the right of redemption.

Persons Entitled to Exercise:

1. Mortgagor or one in privity of title with the mortgagor

2. Successors-in-interest

Payment of Redemption

It is made to the purchaser or redemptioner, or for him to the officer who made
the sale. It is paid in case or in check.

Writ of Possession

It is an order whereby the sheriff is commanded to place in possession, of

real or personal property, the person entitled thereto such as when a property is
extrajudicially foreclosed.

Before Expiration of Redemption Period

Possession can be availed of as long as ex parte motion under oath is filed

and a bond in accordance with section 7 of Act No. 3135 is posted.

After Lapse of Redemption Period

Purchaser is not obliged to bring a separate suit for possession. He must

invoke the aid of the courts and ask a writ of possession.

Options in Case of Death of Debtor

A secured creditor holding real estate mortgage has three distinct,

independent, and mutually exclusive remedies that can be alternatively pursued
in case the mortgagor dies:

1. To waive the mortgage claim the entire debt from the estate of the
mortgagor as an ordinary claim

22
 2. To foreclose the mortgage judicially and prove any deficiency as an
ordinary claim.
3. To rely on the mortgage exclusively, foreclosing the same at any time
before it is barred by prescription without the right to file a claim for any
deficiency

EXTRA-JUDICIAL FORECLOSURE

This is made in compliance with the provisions of Act No. 3135 in the
following cases:
1. Where there is stipulation in the mortgage NOTE: If there is no
contract that the mortgage may be foreclosed authority given to the
extra-judicially; or mortgagee the proper
2. Where such extra-judicial foreclosure sale is remedy is judicial
made under a special power of attorney (SPA) foreclosure
in the contract

NATURE OF POWER OF FORECLOSURE BY EXTRA-JUDICIAL SALE

1. Conferred for mortgagee’s protection
2. An ancillary stipulation supported by the same cause or consideration for
the mortgage forms an essential and inseparable part of the bilateral
agreement
3. A prerogative of the mortgagee

EXPRESS AUTHORITY TO SELL GIVEN TO MORTGAGEE

A real estate mortgage may be foreclosed extra-judicially where there is
inserted in the contract a clause giving the mortgagee the power, upon default
of the mortgagor-debtor, to foreclose the mortgage by an extra-judicial sale of
the mortgaged property.
An action for the foreclosure of a mortgage is an action which survives the
death of the mortgagor because the claim against him is not a pure money claim
but an action to enforce a mortgage lien. Being so, the judgment rendered
therein may be enforced by a writ of execution.

PROCEDURE FOR EXTRA-JUDICIAL FORECLOSURE

1. Filing of an application before the Executive Judge through the Clerk of
Court
In extra-judicial foreclosure of real estate mortgages in different
locations covering a single indebtedness, only one filing fee corresponding
to such shall be collected.

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2. Clerk of Court will examine whether the following requirements of the law
have been complied with
a. Posting of notice
Not less than 20 days in at least 3 public
NOTE: Notices are
places of the municipality or city where the
given to secure
property is situated.
bidders and to To be valid, the notice of a sheriff’s sale
prevent a sacrifice must contain the correct number of the
of the property certificate of title and the correct technical
description of the real property sold.
Failure to post a notice is not per se a ground for invalidating a
foreclosure sale provided that the
NOTE: Under R.A. 720,
notice thereof is duly published in a
newspaper of general circulation. posting of notice of the
Likewise, the lack of personal notice to foreclosure of the real
the mortgagor is not a ground to set estate mortgage must be
aside a foreclosure sale, unless the made also in the barrio
parties stipulate. Such notice is not where the land mortgage is
necessary as publication of notice in a situated during the 60-day
newspaper is more than sufficient period immediately
compliance. preceding the public
Notice to executing mortgagee- auction
creditor not provided by law because
it is the creditor who causes the mortgaged property to be sold and
the date of sale is fixed upon his instruction for it is he who causes the
sale and controls its details.
Certificate of posting is not required, much less considered
indispensable for the validity of a foreclosure sale. Such certificate is
significant only when it becomes necessary to prove compliance
with the required notice of posting.
The absence of such notice has been held as sufficient
cause to invalidate the foreclosure and auction sale. (Guanco
v. Antolo GR No. 150852)

NOTE: No right to waive the posting and publication requirement (PNB v. Nepomuceno
Productions Inc., G.R. No. 139479)

b. Publication
Once a week for at least 3 consecutive weeks in a newspaper
of general circulation in the city or municipality where the mortgage
property is situated
Failure to comply with the statutory requirements as to
publication of notice of auction sale constitutes a jurisdictional

24
 defect, which invalidates the sale. Lack of republication of notice of
foreclosure sale made subsequently after the original date renders
such sale void.

3. The application shall be raffled among different sheriffs

The indivisibility of a real estate mortgage is not violated by
conducting two separate foreclosure proceedings on mortgaged
properties located in different cities or municipalities as long as each parcel
land is answerable for the entire debt.
No sale a can be legally made outside the province in which the
property sold is situated. In case the place within said province in which sale
is to be made is stipulated, such sale shall be made in said place or in the
municipal building of the municipality in which the property or part thereof
is situated.

4. An auction sale may be had even with just one (1) participating bidder
The name/s of the bidder/s shall be
reported by the sheriff or the notary public, NOTE: A.M. No. 99- 10-05-0,
who conducted the sale to the Clerk of as amended, no longer
Court before the issuance of the certificate prescribes the requirement
of sale. of at least two bidders for
Where the highest bidder is the a valid auction sale
mortgagee and the amount of his bid
represented the total mortgage debt, it is not necessary for him to pay cash
although Act No. 3135 requires that the creditor must bid “under the same
condition as any other bidder”.
Surplus money arising from a sale of real property under foreclosure
stands in the same place of a land with respect to liens thereon or vested
therein. They are constructively, at least, real property and belong to the
mortgagor or his assigns.
NOTE: Notice to bidder of all bids offered at auction sale not required (Rural Bank of San
Mateo v. IAC 146 SCRA 205)

5. The Clerk of Court shall issue a certificate of payment

Must be indicated therein the amount of indebtedness, the filing fees
collected, the mortgages sought to be foreclosed, the description of the
real estates and their respective locations

6. The certificate of sale must be approved by the Executive Judge

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 The sale shall be made at public
NOTE: The construction
auction, between the hours of 9:00 a.m. and
of Act No. 3135 must be 4:00 p.m., and shall be under the direction of
equally and mutually the sheriff of the province, the justice or
beneficial to both auxiliary justice of the peace of municipality, or
parties notary public of said municipality.
Therefore, a sale at public auction held within the intervening
period provided by law (i.e., at any time from 9:00 a.m. until 4:00
p.m.) is valid, without regard to the duration or length of time it took
the auctioneer to conduct the proceedings. (Philippine National Bank
v. Sps. Cabatingan GR No. 167058. July 9, 2008)

7. After the redemption period has expired, the Clerk of Court shall archive
the records

DISTRIBUTION OF PROCEEDS
1. Costs of sale
2. Claim of the person foreclosing the mortgage
3. Claims of junior encumbrancers in the order of their priority
4. Balance, after all the above are paid, shall be paid to the mortgagor or his
agent

REMEDY OF PARTY AGGRIEVED BY FORECLOSURE

1. File a petition that the sale be set aside and that the writ of possession be
cancelled, specifying the damage to him
Causes:
a. The mortgage was not violated; and
b. The sale was not made in accordance with the provisions thereof

2. Ask annulment of foreclosure on the following grounds

a. Fraud, collusion, accident, mutual mistake, breach of trust or
misconduct by the purchaser
b. The sale has not been fairly and regularly conducted; or
c. The price was inadequate and the inadequacy was so great as to
shock the conscience of the court

PRETERMISSION OF HOLIDAY
Where the day, or the last day, for doing any act required or permitted by
law falls on holiday, the act may be done on the next succeeding business day.
However, in Rural Bank of Caloocan Inc. v. Court of Appeals G.R. L-32116,
it was held that the pretermission of holiday is not applicable to auction sales. It

26
does not apply to a day fixed by an office or officer of the government for an act
to be done.

EFFECT OF INADEQUACY OF PRICE IN A FORECLOSURE SALE

General rule: Where there is a right to redeem, inadequacy of price is
immaterial because the judgment debtor may reacquire the property easier at a
low price or sell his right to redeem
Exception: When the price is so inadequate as to
NOTE: The value of the
shock the conscience of the court taking into
consideration the peculiar circumstances attendant mortgaged property
thereto has no bearing on the
The property may be sold for less than its fair bid price at the public
market value upon the theory that the lesser the price auction provided that
the easier for the owner to effect the redemption so that the public auction was
the low price even works to his advantage. regularly and honestly
The fact that the mortgagee eventually acquired conducted
the mortgaged property and that the bid price was low
is not a valid reason for the mortgagor to refuse to pay the remaining balance of
the obligation for settled is the rule that a mortgage is simply a surety and not a
satisfaction of indebtedness.

RECOVERY OF DEFICIENCY
Act No. 3135 governing extrajudicial foreclosures of mortgage does not
give a mortgagee the right to recover deficiency after the public auction sale,
neither does it expressly or impliedly prohibit such recovery. To recover
deficiency, the extrajudicial foreclosure must be valid.
The mortgagee may institute either a personal
NOTE: When a third
action for debt or a real action to foreclose the
person is the
mortgage. In either case, he is entitled to obtain a
mortgagor, he is not deficiency judgment for whatever sum might be due
liable for any after the liquidation of the property covered by the
deficiency in the mortgage. Correlatively, the mortgagor has the
absence of a contrary corresponding obligation created by law to pay such
stipulation deficiency. This remedy, however, is alternative not
cumulative or successive.
An independent civil action for the recovery of deficiency may be filed
even during the period of redemption.

A secured creditor holding a real estate mortgage has three (3) distinct,
independent, and mutually exclusive remedies that can be alternatively pursued
by him for the satisfaction of his credit in case the mortgagor dies, to wit:
a. to waive the mortgage and claim the entire debt from the estate
of the mortgagor as an ordinary claim;

27
 b. to foreclose the mortgage judicially and prove any deficiency
as an ordinary claim; and
c. to rely on the mortgage exclusively, foreclosing the same at any
time before it is barred by prescription without right to file a claim
for any deficiency
The action to recover a deficiency after foreclosure prescribes after ten (10)
years from the time the right of action accrues as provided in Article 1144(2) of
the Civil Code.

FORECLOSURE RETROACTS TO DATE OF REGISTRATION

A foreclosure sale retroacts to the date of the registration of the mortgage

and that a person who takes a mortgage in good faith and for valuable
consideration, the record showing clear title to the mortgagor, will be protected
against equitable claims on the title in favor of third persons of which he had no
actual or constructive notice.
A notice of adverse claim by a third party annotated after the registration
of the mortgage but before the foreclosure and sale at public auction of the
property subject thereto cannot affect the rights of the mortgagee

RIGHT OF REDEMPTION

The right of redemption is the right of the mortgagor in case of extrajudicial

foreclosure to redeem the mortgaged property within a certain period and after
it was sold for the satisfaction of the mortgaged debt.

When to exercise right

In cases of extrajudicial sale, the mortgagor may redeem property at any

time within the time of one year and after the date of sale (Act No. 3135). The
filing of an action of his right to redeem does not suspend the running of the
statutory period to redeem the property, nor bar the purchaser at public auction
from procuring a writ of possession after the period has lapsed, without prejudice
to the final outcome of the action to enforce the right of redemption.

28
? A certificate of land was The right of redemption may be exercised
regardless of whether or not the mortgagee has
registered on April 24, 2018.
subsequently conveyed the property to some
Following Article 13 of the
other property.
Civil Code, a year is
understood to be 365 days….
In computing a period, the
The one-year period for the exercise of the right of
first day shall be excluded,
redemption is subject to the provisions of special
and the last day included.
laws. It is directory and can be extended by an
Thus, the one-year
agreement of the parties but two requisites must
redemption period will expire
be established: (1) Voluntary agreement of the
on April 25, 2019 parties to extend the redemption period; and (2)
the debtor’s commitment to pay the redemption
price on a fixed date.

An amendment of RA 8791 or the General Banking law of 2000 provides that

Juridical mortgagors like partnerships and corporations are barred from the right
of redemption of mortgaged property sold pursuant to an extrajudicial
foreclosure, after the registration of the certificate of foreclosure with the
applicable Register of Deeds. The redemption period in this law, limits redemption
to only three months, to begin from the date of foreclosure sale but not after the
registration of the certificate of foreclosure sale whichever comes first.

Who can exercise right of redemption

1) Mortgagor or one in privity of the title with the mortgagor- The matter of
redemption is wholly statutory.

Note: Only such persons can redeem are as authorized to do so by statute. As a

general principle, if one is in privity of title with the mortgagor, and he has such
an interest that he would be a loser by the foreclosure, he may redeem.

29
2) Successors-in-Interest – Like any other property right, the right of redemption
may be transferred or assigned by its owner. Such successor-in-interest is
subrogated to the position of the debtor-mortgagor and is bound by
exactly the same conditions that bound the latter

NOTE: The term “successor-in-interest” includes:

(a) one to whom the debtor has transferred his right of redemption; or
(b) one to whom the debtor has conveyed his interest in the property for the
purpose of redemption; or
(c) one who succeeds to the interest of the debtor by operation of law; or
(d) one or more joint debtors who were joint owners of the property sold; or
(e) one with a joint interest in the property, or his spouse, or heirs.

?“If a mortgage, whose property has been extrajudicially foreclosed and sold at a
corresponding foreclosure sale, may validly execute a mortgage contract over the
same property in favor of a third party during the period of redemption?”
YES.

As held by Regalado, J in MEDIDA v. CA AND SPS. ANDRES DOLINO AND PASCUALA

DOLINO:

It is undisputed that the real estate mortgage in favor of petitioner bank was
executed by respondent spouses during the period of redemption. During the said
period it cannot be said that the mortgagor is no longer the owner of the foreclosed
property since the rule up to now is the right of a purchaser of a foreclosure sale is
merely inchoate until after the period of redemption has expired without the right
being exercised. The title to the land sold under mortgage foreclosure remains in the
mortgagor or his grantee until the expiration of the redemption period and the
conveyance of the master deed. The mortgagor remains as the absolute owner of
the property during the redemption period and has the free disposal of his property,
there would be compliance with Article. 2085 of the Civil Code for the constitution
of another mortgage on the property. To hold otherwise would create an
inequitable situation wherein the mortgagor would be deprived of the opportunity,
which may be his last recourse, to raise funds to timely redeem his property through
another mortgage right of a purchaser of a foreclosure sale is merely inchoate until
after the period of redemption has expired without the right being exercised. The
title to the land sold under mortgage foreclosure remains in the mortgagor or his
grantee until the expiration of the redemption period and the conveyance of the
master deed.

30
 3) (a) The judgement debtor, or his successor in interest in whole or in any
part of the property
(b) A creditor having a lien by attachment, or mortgage on the property
sold or some part thereof, subsequent to the judgement under which the
property was sold.

When right is not exercised

The title to the property sold under a mortgage foreclosure remains with the
mortgagor or his grantee until the expiration of the redemption period. The
mortgagee’s right is merely inchoate until after the period of redemption has
expired without the right being exercised. Act 3135 provides that if the mortgagor
or successor in interest fails to redeem within the redemption period, the title over
the property consolidates in the purchaser. If no redemption is made within the
prescribed period, the purchaser becomes the absolute owner of the property.

A sale of a mortgagor to a third party of the mortgaged property during

the period for redemption transfers only the right to redeem the property and the
right to possess, use and enjoy the same during the said period. Debtor cannot
make a conveyance of the ownership of the property as said ownership belongs
to the purchaser at the the foreclosure.

When the Right of Redemption is effected

The redemption by the debtor eliminates but from his title the lien created
by the levy or attachment or judgment or registration of the mortgage thereon.
The redemption defeats the inchoate right of the purchaser and restores the
property to the same condition as if no sale had been made. It does not give the
mortgagor a new title but merely restores to him the title freed of the
encumbrance of the lien foreclosed.

NOTE: An extrajudicial
Nature of the mortgagor’s Right of Redemption
foreclosure effected with
fraud is null and void ab initio.

(1) An absolute privilege – The exercise of this right is entirely dependent upon
the will and the discretion of the redemptioner. Should the mortgagor
choose not to exercise it, nobody can compel him to do so nor will such

31
 choice give rise to a cause in favor of the purchaser at the auction sale.
The relationship between the purchaser and redemption is not a creditor
and debtor.

What constitutes the exercise of the right of redemption is either a formal

offer to redeem or the filing of an action in court together with the
consignation of the redemption price within the reglementary period.

(2) A mere statutory privilege – It must be exercised in the mode and within the
period prescribed by the statute. This right is effected by manifestation of
his right of redemption plus an actual and simultaneous tender of payment.
The filing of an action for redemption within the period prescribed is
equivalent to a formal offer and the redemptioner should pay the amount
already determined

(3) Construed liberally in favor or the original owner of the power – This policy
of law is to aid him in his right of redemption and to look upon redemption
with favor and interpret liberally the rule on the redemption.

(4) Involves title to foreclosed property – If the action is seasonably made, it

seeks to erase from the title of the judgment or mortgage debtor the lien
created by registration of the mortgage and sale. If not made seasonably,
it may seek to recover ownership to the property since the purchaser’s
inchoate title to the property becomes consolidated after expiration of the
redemption period.

Requisites of a Valid Exercise of the Right of Redemption

Pursuant to Section 28, Rule 39 of the Rules of Court and Sec 6, Art No
3135, and subject to the provisions of special laws.

(1) Payment must be made within 12 months from the date of registration
of the sale in the Office of the Registry of Property;
(2) Payment of the purchase price of the property involved, plus 1% of the
interest per month thereon, together with the amounts or assessments of
the taxes thereon, if any, paid by the purchaser and the amount of his
prior lien, if any, with the same rate of interest computed from the date
of registration of sale up to the time of redemption.
[Purchase price + 1% interest per month + taxes paid by purchaser (if
any) + prior lien with interest computed from the date of registration until
redemption]

32
 (3) Written notice of the redemption must be served on the officer who
made the sale and a duplicate with the proper Register of Deeds.
(4) Tender of payment within the prescribed period to make redemption
valid

Payment of Redemption

Payment of redemption money “may be made to the purchaser or the

redemptioner or for him to the officer who made the sale.”

The medium of payment may be in money or check. Payment may be lawfully

made in money, but in accepting a check, he places himself in a position where
he can be held liable to the purchaser at the public auction if any damage has
been suffered by the latter as a result of the medium in which payment was valid

Amount Payable upon redemption

Mortgagee is NOT a bank Mortgagee is a bank

(Act No. 3135, and Rule 39 of the Rules (RA 8791 or the General Banking Law)
of Court)
1) Purchase Price of the property; 1)Amount due in the mortgage deed
2) 1% Interest per month from the 2) Interest
date of registration of the 3) Cost & Expenses
certificate sale up to the time of
redemption rather than the
interest stipulated in the
contract of loan.
3) Necessary expenses incurred by
the purchaser/taxes – Purchaser
is entitled to the reimbursement
of the reasonable cost of
improvements made by him to
preserve the property during the
period of redemption.
4) Taxes paid and the amount of
the purchaser’s prior lien, if any,
with the same rate of interest
computed from the date of
registration of the sale, up to the
time of redemption.

Section 34 is now Section 32 which explicitly provides that the purchaser or

33
redemptioner shall not be entitled to receive the rents, earnings and income of
the property sold on execution, or the value of the use and occupation thereof
when such property is in the possession of a tenant which rents, etc. “shall belong
to the judgment obligor until the expiration of the period of redemption.”

Registration of transfer of right of redemption

The transfer of the right of redemption from the original debtor-mortgagor

need not be registered with the Register of Deeds to enable the transferee or
assignee to exercise the same. The purchaser at the foreclosure sale cannot
refuse to allow the same, considering that his right over the property is purely
inchoate until after the period of redemption has elapsed without the right being
exercised by those allowed by law.

Vendee’s right to possession of mortgaged property sold

Contingent — Before the expiration date of the redemption period, the

vendee’s right to possession

Final — After the redemption period is terminated, the right to redeem is

barred, the mortgagor is divested of his rights to the mortgaged property
sold, and the vendee’s right of possession of the property becomes final.

In case of non-redemption, the purchaser at the foreclosure sale shall file

with the Register of Deeds either a final deed of sale executed by the person
authorized by virtue of the power of attorney embodied in the deed of mortgage
or his sworn statement attesting to the fact of non-redemption.

Rights of persons with subordinate interests

(1) Mortgagor’s equity of redemption before foreclosure. — A second or junior

mortgagee acquires only the equity of redemption vested in the mortgagor, and
his rights are strictly subordinate to the superior lien of the first mortgagee

(2) Mortgagor’s right of redemption after foreclosure. — Any person having a lien
on the property subsequent to the mortgage may redeem the same at any time
within the term of one year from and after the date of sale. After the foreclosure
sale, there remains in the second mortgagee a mere right of redemption; and
only this right passes to him by virtue of the second mortgage.

(3) Payment of his credit from excess of proceeds of auction sale. — Aside from
the right of repurchase, the second mortgagee is entitled, under the mortgage
constituted in his favor, to the payment of his credit the excess of the proceeds of
the auction sale, after covering the mortgagor’s obligations to the first mortgagee

34
(4) Where persons with subordinate interest not made defendants. — All persons
having or claiming an interest in the mortgaged property subordinate in right to
that of the holder of the mortgage should be made defendants in the action for
the foreclosure of the mortgage.

NOTE: The effect of the failure of the mortgagee to implead a subordinate lien-holder
or subsequent purchaser or both is to render the foreclosure ineffective as against
them, with the result that there remains in their favor the unforeclosed equity of
redemption.

NOTE: A second mortgagee merely takes what is called an “equity of redemption’’

and thus, a second mortgagee has to wait until after the debtor’s obligation to the
first mortgagee has been fully settled. The rights of a second mortgagee are strictly
subordinate to the superior lien of the first mortgagee.

(5) Where irregularities attended foreclosure. — Upon a proper foreclosure of a

first mortgage, all liens subordinate to the mortgage are likewise foreclosed, and
the purchaser at public auction held pursuant thereto acquires title free from the
subordinate liens.

Writ of Possession

A writ of possession is generally understood to be an order by a court

whereby the sheriff is commanded to place in possession of real or personal
property the person entitled thereto such as when a property is extrajudicially
foreclosed.

The issuance of the writ to a purchaser in an extrajudicial foreclosure is

merely a ministerial function. The law and jurisprudence are clear that both during
and after the period of redemption, the purchaser at the foreclosure sale is
entitled as of right to a writ of possession, regardless of whether or not there is a
pending suit for annulment of the mortgage or the foreclosure. When it appears
that there is a third party in possession of foreclosed property is claiming a right
adverse to the debtor-mortgagor and is a stranger to the foreclosure proceedings
in which ex parte writ of possession was applied.

When Writ of Possession Not Available

1. Where mortgaged property under lease previously registered in the Registry

of Property or despite non-registration, the mortgage has prior knowledge
of the existence and duration of the lease.

35
 2. Where the mortgagor refuses to surrender property sold, the remedy is to
file an ordinary action for the recovery of possession, in order that the
mortgagor may be given opportunity to be heard.
3. When third party is in actual possession adverse to the judgment debtor.

RECONCILIATION OF JUDICIAL FORECLOSURE AND EXTRAJUDICIAL FORCLOSURE

ON REAL MORTGAGE

1. On the governing law. Extrajudicial foreclosure is governed by the provisions

of Act 3135, as amended, while judicial foreclosure is by the provisions of
Rule 68 of the Rules of Court.

2. On the publication requirement. In extrajudicial foreclosure, the auction

sale shall be published once a week for three (3) consecutive weeks in a
newspaper of general circulation; in judicial foreclosure, the publication
shall only be for two (2) consecutive weeks.

3. On filing of an action. A judicial foreclosure involves the filing of an

independent action; an extrajudicial judicial foreclosure does not require
filing of an action because the right to foreclose is granted in the
mortgagee in the
(a)contract of real estate mortgage or in a (b) separate instrument.

4. On how to initiate proceedings. In judicial foreclosure, it is filed in court by

the mortgagee-creditor against the mortgagor-debtor or any other persons
claiming subordinate interest in the property intended to secure
performance of the principal obligation by directly going after the
mortgaged property; while in extrajudicial foreclosure, it is initiated by
merely filing a petition with the executive judge, through the clerk of court,
also the ex-officio sheriff.

5. On the notice requirement. Personal notice to the mortgagor is not required

in extrajudicial foreclosure as a rule, UNLESS stipulated upon; in judicial
foreclosure, written notice to the judgment obligor at least three (3) days
before the auction sale is required.

36
 6. On redemption. There is a right of redemption in extrajudicial foreclosure,
which is one year from registration of the certificate of sale. If the mortgagor
is a juridical person the redemption period is until, but not after, the
registration of the certificate of foreclosure sale with the applicable Register
of Deed which in no case shall be more than three (3) months after the
foreclosure, whichever is earlier; in judicial foreclosure, there is no right of
redemption but only equity of redemption, unless the mortgagee is a bank or
banking institution. In the latter instance, the redemption period shall be one (1)
year from the date of registration of the certificate of sale.

7. On period of redemption. The period of redemption starts from the finality of the
judgment until order of confirmation in judicial foreclosure; while in extrajudicial
foreclosure, the period to redeem starts from the date of registration of the
certificate of sale.

8. On judgment for deficiency. In a judicial foreclosure, there could be a deficiency

judgment rendered by the court; there can be no judgment for a deficiency in an
extrajudicial foreclosure because there is no judicial proceeding, although
recovery of the deficiency is allowed.

9. On recovery of deficiency. In a judicial foreclosure, recovery of the deficiency can

be done by mere motion for a deficiency judgment; in an extrajudicial
foreclosure, the recovery of the deficiency is through an independent action and
although nothing about the recovery of the deficiency is provided in Act No. 3135,
there is no prohibition either.

10. On the right to appeal. In judicial foreclosure, the decisions are appealable; in an
extrajudicial foreclosure, the decisions are immediately executory and not
appealable.

11. On the cutting off of right. In judicial foreclosure, the order of the Court cuts off all
rights of the parties impleaded; while in extrajudicial foreclosure, the rights of the
parties involved will not be cut off by foreclosure.

12. On the necessity of a special power of attorney. There is no need for a special
power of attorney in the contract of mortgage in judicial foreclosure; while a
special power of attorney in favor of the mortgagee is necessary in extrajudicial
foreclosure.

EDITOR’S OPINION:

37
I think extrajudicial foreclosure can be more advantageous to both the mortgagor and
the mortgagee than the judicial foreclosure.

If the foreclosure was extra-judicially made, you have the right to redeem the real
property within one year from the registration of the sale of the property. On the other
hand, if the foreclosure was judicially made, then your right would depend on whether
the mortgagee is a bank. If the mortgagee is a bank, you can redeem the property within
one year from the registration of the sale. If not, you only have equity of redemption or
the right to pay the debt before the confirmation of the sale.

Note, however, that the amount you need to pay to redeem the property will not be
equal to your unpaid obligation. In extra-judicial foreclosure, you may redeem the
property by paying the purchase price paid by the buyer and any assessments or taxes
that the buyer may have paid on the property after the purchase, with interest of one
percent per month in accordance with Sec. 30, Rule 39 of the Rules of Court (PNB vs.
Court of Appeals, 140 SCRA 360). In case of judicial foreclosure by a bank, you may
redeem the property by paying the amount due under the mortgage deed, with interest
at the rate specified in the mortgage, and all the costs and expenses incurred by the
bank or institution from the sale and custody of said property less the income derived
therefrom (Sec. 47, RA 8791).

38
 CONSOLIDATED CASES

REAL ESTATE MORTGAGE

CHINA BANKING CORPORATION vs . COURT OF APPEALS

[G.R. No. 121158. December 5, 1996.]

FACTS: Petitioner China Banking Corporation (China Bank) extended several loans to
respondent Native West International Trading Corporation (Native West) and to private
respondent So Ching, Native West's president. Native West in turn executed promissory
notes in favor of China Bank. So Ching, additionally executed two real estate mortgages
over their two parcels of land in Cubao, Quezon City, and in Mandaluyong, executed on
July 27, 1989 and August 10, 1989, respectively. When respondents defaulted in payment
of the promissory notes, China Bank filed petitions for the extra-judicial foreclosure of the
mortgaged properties.

Eight days before the foreclosure sale, the private respondents filed a complaint with the
Regional Trial Court for accounting with damages and with temporary restraining order
against petitioners. The RTC ruled in their favor. Upon appeal, the CA accordingly
dismissed the petition, as well as petitioners' subsequent motion for reconsideration.

Petitioners aver that the additional loans extended in favor of private respondents in
excess of P6,500,000.00 and P3,500,000.00 — amounts respectively stipulated in the July
27, 1989 and August 10, 1989 mortgage contracts — are also secured by the same
collaterals or real estate properties of the mortgage contracts. Private respondents for
their part argue that the additional loans are clean loans.

39
ISSUES:

(1) whether or not the loans in excess of the amounts expressly stated in the mortgage
contracts can be included as part of the loans secured by the real estate mortgages

(2) whether or not petitioners can extrajudicially foreclose the properties subject of the
mortgages

HELD:

(1) YES. It is well settled that mortgages given to secure future advancements or loans
are valid and legal contracts, and that 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.

Indeed, Article 1374 of the Civil Code states that "the various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly." Applying the rule, we find that the parties intent is to
constitute the real estate properties as continuing securities liable for future obligations
beyond the amounts of P6.5 million and P3.5 million respectively stipulated in the July 27,
1989 and August 10, 1989 mortgage contracts.

The "whereas" clause of the mortgage contracts provides that "the mortgagee had
required the mortgagor(s) to give collateral security for the payment of any and all
obligations heretofore contracted/incurred and which may thereafter be
contracted/incurred by the mortgagor(s) and/or debtor(s), or any one of them, in favor
of the mortgagee." Similarly, the second paragraph provides that "the mortgagee may
take further advances and all sums whatsoever advanced by the mortgagee shall be
secured by this mortgagee…" Again, under the third paragraph, it is provided that "the
mortgagee may from time to time grant the mortgagor(s)/debtor(s) credit facilities
exceeding the amount secured by this mortgage . . ." The fourth paragraph, in addition,
states that ". . . all such withdrawals, and payments, whether evidenced by promissory
notes or otherwise, shall be secured by this mortgage"

(2) YES. The essence of a contract of mortgage indebtedness is that a property has been
identified or set apart from the mass of the property of the debtor-mortgagor as security
for the payment of money or the fulfillment of an obligation to answer the amount of
indebtedness, in case of default of payment. It is a settled rule that in a real estate
mortgage when the obligation is not paid when due, the mortgagee has the right to

40
foreclose the mortgage and to have the property seized and sold in view of applying the
proceeds to the payment of the obligation.

A mortgage given to secure advancements, we repeat, 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.

PRUDENTIAL BANK vs . DON A. ALVIAR and GEORGIA B. ALVIAR

[G.R. No. 150197. July 28, 2005.]

FACTS: Respondent spouses Alviar executed a promissory note in favor of petitioner

Prudential Bank to cover their P250,000.00 loan they have obtained for the latter. The
note was secured by a deed of real estate mortgage over their land in San Juan which
they executed in favor of petitioner on 10 July 1975.

On 22 October 1976, Don Alviar executed another promissory note for P2,640,000.00, and
which was secured by a "hold-out" on the mortgagor's foreign currency savings account
with the bank.

On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., a

promissory note, PN BD#76/C-430, covering P545,000.000. The loan

is secured by "Clean-Phase out TOD CA 3923.

On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the

mortgage on the property

Respondents filed a complaint for damages with a prayer for the issuance of a writ of
preliminary injunction with the RTC of Pasig, claiming that they have paid their principal
loan secured by the mortgaged property, and thus the mortgage should not be
foreclosed.

For its part, petitioner averred that the payment of P2,000,000.00 made on 6 March 1979
was not a payment made by respondents, but by G.B. Alviar Realty and Development
Inc., which has a separate loan with the bank secured by a separate mortgage.

41
The trial court dismissed the complaint and ordered the Sheriff to proceed with the extra-
judicial foreclosure. It found that only the P250,000.00 loan is secured by the mortgage
on the land, and that the "blanket mortgage clause" relied upon by petitioner applies
only to future loans obtained by the mortgagors, and not by parties other than the said
mortgagors, such as Donalco Trading, Inc., for which respondents merely signed as
officers thereof. The Court of Appeals affrmed the Order of the trial court

Petitioner posits that such security is not exclusive, as the "dragnet clause" of the real
estate mortgage covers all the obligations of the respondents, not only the P250,000.00
under PN BD#75/C-252, but also the two other promissory notes included in the
application for extrajudicial foreclosure of real estate mortgage.

For their part, respondents claim that the "dragnet clause" cannot be applied to the
subsequent loans extended to Don Alviar and Donalco Trading, Inc. since these loans
are covered by separate promissory notes that expressly provide for a different form of
security.

ISSUE: Whether or not the whether the "blanket mortgage" clause applies even to
subsequent advancements for which other securities were intended, or particularly, to
PN BD#76/C-345.

HELD: NO. 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,
etcetera. 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.

Under American jurisprudence, two schools of thought have emerged on this

42
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."
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."

Indeed, in some instances, 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.

In the case at bar, the subsequent loans obtained by respondents were secured by other
securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by a "holdout" on
his foreign currency savings account, while PN BD#76/C-430, executed by respondents
for Donalco Trading, Inc., was secured by "Clean-Phase out TOD CA 3923" and eventually
by a deed of assignment on two promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel
mortgage on various heavy and transportation equipment.

At this point, it is important to note that one of the loans sought to be included in the
"blanket mortgage clause" was obtained by respondents for Donalco Trading, Inc
Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco Trading,
Inc. and not in their personal capacity. PN BD#76/C-430, being an obligation of Donalco
Trading, Inc., and not of the respondents, is not within the contemplation of the "blanket
mortgage clause."

43
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 for PN BD#76/C-345. 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 second promissory note. This
is recognition that while the "dragnet clause" subsists, the security specifically executed
for subsequent loans must first be exhausted before the mortgaged property can be
resorted to.

44
 JUDICIAL FORECLOSURE

HEIRS OF ZOILO ESPIRITU AND PRIMITIVA ESPIRITU vs. SPOUSES MAXIMO LANDRITO
AND PAZ LANDRITO, Represented by ZOILO LANDRITO, as their Attorney-in-Fact
[G.R. NO. 169617 : April 4, 2007]

Doctrine: A judgment ordering a foreclosure sale is conditioned upon a finding on

the correct amount of the unpaid obligation and the failure of the debtor to pay
the said amount.

Facts:

On 5 September 1986, Spouses Landrito loaned from the Spouses Espiritu the
amount of ₱350,000.00 payable in three months secured by a real estate
mortgage over a five hundred forty (540) square meter lot located in Alabang,
Muntinlupa, in favor of the latter. The Spouses Landrito however received only an
amount of ₱325,000.00 after deducting from the original loan, interest for the first
month which was equivalent to five percent of the principal debt, and ₱7,500.00
as service fee. The agreement, however, provided that the principal
indebtedness earns "interest at the legal rate."

When their debt became due and demandable, the Spouses Landrito were
unable to pay the principal, and had not been able to make any interest
payments other than the amount initially deducted from the proceeds of the
loan. Thus, the loan agreement was renewed for four more times increasing the
principal to ₱874,125.00.However as testified by Zoilo Espiritu, the increase in the
principal in each amendment of the loan agreement did not correspond to the
amount delivered to the Spouses Landrito. Rather, the increase in the principal
had been due to unpaid interest and other charges.

Still, the debt remained unpaid. This prompted Spouses Espiritu to foreclose the
mortgaged property on 31 October 1990 wherein they were able to purchase
said property giving the Spouses Landrito until 8 January 1992 to redeem the
property.

The Spouses Landrito failed to redeem the subject property although they alleged
that they negotiated for the redemption of the property as early as 30 October
1991. The Spouses Landrito alleged that they tendered two manager’s checks
and some cash, totaling₱1,800,000.00 to the Spouses Espiritu on 13 January 1992,
but the latter refused to accept the same. They also alleged that the Spouses
Espiritu increased the amount demanded to ₱2.5 Million and gave them until July
1992 to pay the said amount. However, the Spouses Espiritu had already
executed an Affidavit of Consolidation of Ownership and registered the
mortgaged property in their name, and a certificate of title was issued in their

45
name. Thus, Spouses Landrito, represented by their son ZoiloLandrito, filed an
action for annulment or reconveyance of title, with damages against the Spouses
Espiritu before Branch 146 of the Regional Trial Court of Makati alleging that
Spouses Espiritu, as creditors and mortgagees, "imposed interest rates that are
shocking to one’s moral senses."

The Regional Trial Court dismissed their petition. Upon appeal, the Court of
Appeals reversed the lower court’s decision.

Issue: Whether or not the foreclosure proceeding was valid?

Held: No

Since the Spouses Landrito, the debtors in this case, were not given an opportunity
to settle their debt, at the correct amount and without the iniquitous interest
imposed, no foreclosure proceedings may be instituted. A judgment ordering a
foreclosure sale is conditioned upon a finding on the correct amount of the unpaid
obligation and the failure of the debtor to pay the said amount. In this case, it has
not yet been shown that the Spouses Landrito had already failed to pay the
correct amount of the debt and, therefore, a foreclosure sale cannot be
conducted in order to answer for the unpaid debt. The foreclosure sale
conducted upon their failure to pay ₱874,125 in 1990 should be nullified since the
amount demanded as the outstanding loan was overstated; consequently it has
not been shown that the mortgagors – the Spouses Landrito, have failed to pay
their outstanding obligation. Moreover, if the proceeds of the sale together with
its reasonable rates of interest were applied to the obligation, only a small part of
its original loans would actually remain outstanding, but because of the
unconscionable interest rates, the larger part corresponded to said excessive and
iniquitous interest.

As a result, the subsequent registration of the foreclosure sale cannot transfer any
rights over the mortgaged property to the Spouses Espiritu. The registration of the
foreclosure sale, herein declared invalid, cannot vest title over the mortgaged
property. The Torrens system does not create or vest title where one does not have
a rightful claim over a real property. It only confirms and records title already
existing and vested. It does not permit one to enrich oneself at the expense of
another. Thus, the decree of registration, even after the lapse of one (1) year,
cannot attain the status of indefeasibility.

Significantly, the records show that the property mortgaged was purchased by
the Spouses Espiritu and had not been transferred to an innocent purchaser for
value. This means that an action for reconveyance may still be availed of in this
case.

46
 TESTAMENTARIA DE DON AMADEO MATUTE OLAVE vs.PATERNO R. CANLAS, ET AL
[G.R. No. L-12709 : February 28, 1962]

Doctine: Under the same theory, an action to recover real or personal property
from the estate, or to enforce a lien thereon, may be prosecuted by the
interested person against the executor or administrator independently of the
testate or intestate proceedings.

Facts:

Amadeo Matute Olave engaged the services of Atty. Paterno R. Canlas for the
probate of his will and the settlement of his estate of the civil case Civil Case No.
14208 in the Court of Manila. They entered into an agreement whereby the former
agreed to pay the latter as attorney's fees an amount equivalent to 20% of the
market value of the property in litigation payable upon the final termination of
the case. The court dismissed the complaint on the ground of res judicata.
Plaintiffs appealed the case to the Supreme Court where the case was
compromised and the appeal was eventually withdrawn.

On August 4, 1953, Atty. Canlas filed in Civil Case No. L-14208 of the Court of First
Instance of Manila a motion praying that his claim for attorney's fees for the
services he has rendered to defendant Matute be established as a charging lien,
which was later supplemented by another motion, wherein he recited the
services he had rendered and the amount of fees he was entitled to wherein the
court granted his motion ordering that Atty. Canlas' claim for attorney's fees "on
the P100,000.00 balance of the deposit still with the Clerk of Court of this Court
and on all the other properties, real and personal, involved in this case." The court
also ordered the lien to be annotated on the titles of all the real properties involved
in the case.

On May 23, 1955, Atty. Canlas filed in the same Civil Case No. 14208 an urgent
motion praying that the amount of P85,000.00 that remained deposited with the
clerk of court be ordered delivered to him in full settlement of his attorney's fees.
It was at this instance that the administrator of the estate of Matute filed an
opposition to the motion contending that the court of first instance taking
cognizance of Civil Case No. 14208 had no jurisdiction to act thereon because,
the motion involving a money claim, the same shall be submitted to the probate
court which is the one authorized by law to settle claims against estates of
deceased persons.

In the meantime, the court acting in Civil Case No. 14208 granted Atty. Canlas
authority to withdraw partial payments from said deposit totalling around
P50,000.00. Then on April 30, 1957, it issued an order holding that it had authority
to entertain Canlas' claim for attorney's fees. To nullify this order, the administrator

47
of the estate has interposed the present petition for certiorari alleging abuse of
discretion on the part of the trial court.

Issue: Having AmadeoMatuteOlave died before the attorney's fees he agreed to

pay to his counsel Paterno R. Canlas had been fully paid and after the claim of
the latter for attorney's fees had been established as a charging lien in the
ordinary civil case, which court shall entertain the payment of the balance of said
claim? Is it the court in the ordinary case or the probate court that takes
cognizance of the estate of the deceased? It is the court in the ordinary case.

Held:

It is the court taking cognizance of Civil Case No. 14208 in view of the provisions
of Section 7, Rule 87 and Section 1, Rule 88, of the Rules of Court, which we quote:
.

Sec. 7. Mortgage debt due from estate. — A creditor holding a claim

against the deceased secured by mortgage or other collateral security,
may abandon the security and prosecute his claim in the manner provided
in this rule, and share in the general distribution of the assets of the estate; or
he may foreclose his mortgage or realize upon his security, by ordinary
action in court, making the executor or administrator a party
defendant, and if there is a judgment for a deficiency, after the sale of the
mortgaged premises, or the property pledged, in the foreclosure or other
proceeding to realize upon the security, he may claim his deficiency
judgment in the manner provided in the preceding section; or he may rely
upon his mortgage or other security alone, and foreclose the same at any
time within the period of statute of limitations, and in that event he shall not
be admitted as a creditor, and shall receive no share in the distribution of
the other assets of the estate; but nothing herein contained shall prohibit
the executor or administrator from redeeming the property mortgaged or
pledged, by paying the debt for which it is held as security, under the
direction of the court, if the court shall adjudge it to be for the best interest
of the estate that such redemption shall be made. (Emphasis supplied).

SECTION 1. Actions which may and which may not be brought against
executor administrator. — No action upon a claim for the recovery of
money or debt or interest thereon shall be commenced against the
executor or administrator; but actions to recover real or personal property
from the estate, or to enforce a lien thereon, and actions to recover
damages for an injury to person or property, real or personal, may be
commenced against him." (Emphasis supplied) .

48
It is clear that a creditor holding a claim against the deceased secured by
mortgage or other collateral security may foreclose his mortgage or realize upon
his security by ordinary action in court making the executor or administrator a
party defendant, and need not file his claim before the probate court to share in
the general distribution of the assets of the estate. Under the same theory, an
action to recover real or personal property from the estate, or to enforce a lien
thereon, may be prosecuted by the interested person against the executor or
administrator independently of the testate or intestate proceedings. And it cannot
be gainsaid that a charging lien established on the property in litigation to secure
the payment of the attorney's fees of Atty. Canlas partakes of the nature of a
collateral security or of a lien on real or personal property within the meaning of
the provisions of our rules.

GREGORIO SALAZAR vs.JUSTINIANA DE TORRES, ET AL.

[G.R. No. L-13711: May 25, 1960]

Doctrine: A foreclosure sale is not complete until it is confirmed, and before said
confirmation, the court retains control of the proceedings by exercising the sound
discretion in regard to it, either granting or withholding confirmation as the rights
and interests of the parties and the ends of justice may require. From this
standpoint, the order of November 21, 1957 which neither set aside nor confirmed
the foreclosure sale was merely interlocutory in character.

Facts:

Respondent Justiniana de Torres, et al., filed an action against petitioner Gregorio

Salazar to foreclose a real estate mortgage. The parties however, entered into a
compromise agreement wherein Gregorio Salazar will pay unto the respondent
the sum of P2,896.50 as follows: (a) P1,830.00 on or before October 31, 1956; and
(b) P1,038.50 on or before January 15, 1957 and failure to pay entitled to them
immediate execution of the full amount of P2,896.50 and to foreclose the
mortgage.

Petitioner Salazar paid only P1,030.00, failing to pay the balance of P1,866.50
which resulted to the foreclosure and sale at public auction on February 25,1957
of the mortgaged property to three of the four respondents in the sum of P2,034.00
to satisfy the balance of the judgment in the amount of P1,866.50, plus the sheriff's
fees and costs incurred in the sale, amounting to P167.50. The trial court however
denied the motion to confirm the Sheriff's sale upon objection of petitioner on the
ground that the sale had been made to only three of the four respondents, and
that there was no proof that the fourth respondent, Bonifacia de Torres, had been
paid her share of the proceeds of the sale. The court also ordered that the
property be sold anew at public auction.

49
On the second auction sale, petitioner submitted a written bid which he handed
to the Sheriff, in the amount of P2,069.00 but the latter returned petitioner's bid
after respondents had made their bid for P2,257.34, representing the balance of
the judgment, the Sheriff's fees and the costs of the sale at public auction, which
the Sheriff considered to be the highest bid. A deed of sale was subsequently
issued to respondents, without requiring them to pay down the amount of the bid
for the reason that they were the judgment creditors. On October 1, 1957,
respondent moved to confirm the second sale. Thereafter, petitioner filed two
motions: one dated October 3, 1957, to declare the judgment debtor (himself),
as the highest bidder and to set aside the sale; and the other dated October 4,
1957, to stay confirmation of the sale until after his motion to annul the same had
been acted upon. Petitioner contended that although respondents' bid was
higher than his, nevertheless, the former was void since respondents did not
actually paid down or offer to pay the amount of their bid of P2,257.34; that
Bonifacia de Torres' participation in the bid was illegal and unauthorized, she
having previously waived whatever cause or causes of action she had against
him; that his bid of P2,069.00 representing the judgment credit of P1,866.50 and
the costs of the second sale amounting to P202.50 fully satisfied the obligation
and so should have been accepted as the highest bid.

The trial court held the motion of respondents to confirm the sale, in abeyance.
Subsequently, the trial court rendered a decision alternatively gaving petitioner
an unextendible period of two days within which to pay the amount of his bid of
P2,069.00 to the Sheriff, otherwise, the plaintiffs-respondents were equally given
an unextendible period of two days within which to pay to the Sheriff the sum of
P167.50, representing the excess over the balance of the judgment, including the
lawful Sheriff's fees and costs chargeable to the defendants, after which the sale
would be confirmed.

The petitioner, instead of complying with the lower court’s filed a notice of
appeal. In the meantime, respondents paid the sum of P167.50 to the Sheriff and
on December 3, 1957, upon third motion, the trial court confirmed the Sheriff sale
of property in question.

Issue: WON appeal filed by the petitioner is proper?

Held: No

It will be observed that the appealed order of November 21, 1957 neither set aside
nor confirmed the foreclosure sale of September 27, 1957, but it held confirmation
in abeyance so as to give petitioner an opportunity to pay to the Sheriff the
amount of his bid. The same opportunity was alternatively given to the
respondents to pay to the Sheriff the excess of their bid over the judgment credit.
But even after the payment by respondent of the said amount because of the

50
failure of petitioner to take advantage of the opportunity accorded to him by the
court, still, the proceedings were not ended for the reason that the court had yet
to confirm the sale, which would have been the final act to consumate and
complete the foreclosure sale.

In the case of Philippine Sugar Estates Development Co. vs. Camps, 34 Phil., 426,
this Court said:

. . . the sale of the property under the foreclosure procedure must be

confirmed by the court. .. a sale by the sheriff does not have the effect of
transferring the property sold until the same is confirmed by a decree of the
court. Thus it appears that the confirming of the sale is a very important
order. The title of the property cannot pass to the purchaser until the sale is
confirmed. The court may decline to confirm the sale for good cause
shown, and the same set aside and order a new sale. While the court may
or may not confirm the sale within his discretion, we are of the opinion that,
whatever his order is, the interested parties may appeal therefrom if they
feel themselves aggrieved.

A foreclosure sale is not complete until it is confirmed, and before said

confirmation, the court retains control of the proceedings by exercising the sound
discretion in regard to it, either granting or withholding confirmation as the rights
and interests of the parties and the ends of justice may require. From this
standpoint, the order of November 21, 1957 which neither set aside nor confirmed
the foreclosure sale was merely interlocutory in character.

Until confirmed the sale is in fieri — the highest bidder proposes to the court
to buy the lands at a specified price, which the court may acceptor reject.

The final act which consummates a decretal sale is an order confirming the
sale, and only when that order is entered can there be an appeal.

CANDIDA PIANO vs.GENEROSA CAYANONG, REGALADO BELLONES and

FRANCISCO PILAPIL
[G.R. No. L-1860: February 28, 1963]

Doctrine: No judgment rendered in an action for foreclosure of mortgage can be

executed, otherwise than in the manner prescribed by the law on mortgages, for
the reason that parties to an action are not authorized to change the procedure
which it prescribes.

Facts:

51
RepondentsGenerosaCayanong and RegaladoBellones commenced an action
to foreclose a mortgage executed by the petitioner in favor of the latter upon a
parcel of land situated at sitioIpil, Margen, Ormoc City. The parties entered into a
compromise agreement wherein the petitioner promised to pay Php 20,000.00
within 30 days and failure of which places the property at the disposal of the court.

The defendant failed to pay the obligation within the period set by the Court so
the property in question was sold at public auction to the plaintiffs, they being the
only bidders for P2,475. The certificate of sheriff's sale contained the provision that
the said property is subject "to redemption within one year from the date hereof
in the manner provided by the law applicable to the case." The sale was
confirmed by the Court on March 21, 1953. Thereafter, the plaintiffs filed a petition
for writ of possession; by virtue of such petition the court adjudicated possession
to the plaintiffs on Aug. 15, 1953. On Aug. 20, 1953, the deputy clerk issued the writ
of possesion prayed for by the plaintiffs..

On Jan. 26, 1954, petitioner deposited with the court the sum of P2,783.93, P2,772
of which was in the concept of redemption deposit to be delivered to
GenerosaCayanong and her husband, and P11.93 for consignation fees.
Respondents informed the court that on Jan. 27, 1954, in Albuera, Leyte, a junior
encumbrancer, Francisco Pilapil, had redeemed the property by paying them
the amount of P2,772, one day after the defendant deposited with the court her
redemption money. The instrument of redemption is Exh. I, Redemption of a Lien
Holder of a Foreclosed Mortgage. The oppositor Francisco Pilapil, on Feb. 11, 1954,
filed an opposition to the defendants' motion of Jan. 26, 1954, claiming that the
property, subject of foreclosure, having been sold at a judicial foreclosure sale,
was not subject to redemption after the judicial sale was confirmed, title thereto
having been fully vested and consolidated in favor of Cayanong and Bellones,
their assignees and successors-in-interest.

Petitioner filed another motion questioning the adequacy of the accounting filed
by the respondents and reiterated her prayer for the reconveyance to her of the
property in question. The court a quo issued an order denying the petitioner the
right to redeem the property in dispute.

Issue: WON the petitioner has the right to redeem the property under litigation?

Held: No

As to the execution of judgment:

Petitioner next maintains that the decision of the trial court based upon the
compromise agreement should be enforced by execution as an ordinary
judgment under Rule 39 of the Rules of Court and not under Rule 70. It is argued

52
that Article 2037 of the New Civil Code on compromise agreements does not
make any distinction between ordinary civil actions and foreclosure proceedings,
and since the procedure under Rule 70 is strict, in that it grants only an equity of
redemption of 90 days, whereas Rule 39 grants a one year period of redemption,
the latter rule should prevail, the intention of the law apparently being to give
clemency or leniency to the debtor who earnestly submits to a compromise and
spares the court of a lengthy trial.

The contention is untenable. An examination of the complaint filed in the lower

court will reveal that the action filed by the plaintiffs, respondents herein, is one
for foreclosure of mortgage. It is a settled rule that the purpose of an action or suit
and the law to govern it, including the period of prescription, are to be
determined not by the claim of the party filing the action, made in his argument
or brief, but rather by the complaint itself, its allegations and prayer for relief. The
mere silence of Article 2037 (supra), as to whether the compromise refers to an
ordinary civil action or a foreclosure proceedings, does not justify execution under
Rule 39 when the case directly falls under Rule 70. No judgment rendered in an
action for foreclosure of mortgage can be executed, otherwise than in the
manner prescribed by the law on mortgages, for the reason that parties to an
action are not authorized to change the procedure which it prescribes.

As whether the insertion in certificate of sale providing for a one year period of
redemption as a permissible agreement between the parties: (or right to redeem
under judicial foreclosure)

The petitioner also maintains that the appellate court erred in not considering the
insertion made by the Sheriff in the certificate of sale providing for a one year
period of redemption, as a permissible agreement between the parties who
abide by said period, considering that the court a quo approved and confirmed
the sale and respondents did not move to have said insertion stricken out.

The argument cannot be sustained. In a foreclosure of mortgage under Rule 70 of

the Rules of Court, there is no right of redemption after the sale is confirmed,
although there is an equity of redemption in favor of the mortgagor or junior
encumbrancer, consisting in the right to redeem the mortgaged property within
the 90-day period, or even thereafter, but before the confirmation of the sale. It is
only in cases of foreclosures of mortgages in favor of banking and credit
institutions (Sec. 76, General Banking Act [Rep. Act 337]), to the Philippine
National Bank (Acts Nos. 2747, and 2938), and in extrajudicial foreclosures (Act
3135 as amended by Act 4118), where, by express provision, the law allows
redemption. In all other foreclosure cases, there is no legal redemption. The sheriff,
therefore, has no authority to grant or insert a period of redemption in the
certificate of sale, when the same is conducted pursuant to Rule 70 and, wanting
in said authority, any insertion therein has no validity and effect. Once the judicial

53
sale is confirmed by the court, the rights are vested in the purchaser (Sec. 3, Rule
70). From all that appears on the record, the insertion referred to is, as the
appellate court correctly declared, "a surplussage and must be disregarded".

SPOUSES GUILLERMO AGBADA and MAXIMA AGBADA vs. INTER-URBAN

DEVELOPERS, INC., and REGIONAL TRIAL COURT-BR. 105, QUEZON CITY
[G.R. No. 144029 :September 19, 2002]

Doctrine: It bears stressing that the proper remedy to seek reversal of judgment in
an action for foreclosure of real estate mortgage is not a petition for annulment
of judgment but an appeal from the judgment itself or from the order confirming
the sale of the foreclosed real estate. Since petitioner-spouses failed to avail of
appeal without sufficient justification, they cannot conveniently resort to the
action for annulment for otherwise they would benefit from their own inaction and
negligence.

Facts:

Petitioner-spouses Guillermo Agbada and Maxima Agbada borrowed

P1,500,000.00 from respondent Inter-Urban Developers, Inc. through its president,
Simeon L. Ong Tiam secured by Deed of Real Estate Mortgage over a parcel of
land and the improvements thereon situated in Tandang Sora, Quezon City
owned by the spouses. The loan was payable within six (6) months from 21
February 1991 at three percent (3%) interest per month, otherwise, failure to
discharge the loan within the stipulated period would entitle Inter-Urban
Developers, Inc. to foreclose the mortgage judicially or extra-judicially. The
spouses failed to pay the loan within the six-month period despite several out-of-
court demands made by respondent Inter-Urban Developers, Inc.

On 10 December 1993 Inter-Urban Developers, Inc. filed with the Regional Trial
Court of Quezon City, Branch 105, a complaint for foreclosure of real estate
mortgage. On 13 January 1995 the trial court promulgated its Summary Judgment
in favor of respondent Inter-Urban Developers, Inc. It held that Simeon OngTiam,
compadre of petitioner-spouses and then president of Inter-Urban Developers,
Inc. could not have obligated his principal by contemporaneous agreement
amending the maturity of the loan from six (6) months to five (5) years and the
interest rate from three percent (3%) per month to the default or statutory rate,
much less interest-free, since the undertaking was contrary to the express
provisions of the duly executed loan and mortgage contract. 14 The trial court
awarded Inter-Urban Developers, Inc. the amounts of "P1.5 million with monthly
interest of 3% from February 21, 1991 until fully paid plus attorney’s fees of
P10,000.00 including the real estate taxes and registration expenses. In case of
failure of defendants to do so within ninety (90) days from finality, the decree of
foreclosure shall issue."

54
Petitioner-spouses did not appeal the Summary Judgment nor did they pay the
judgment debt. From motion for a decree of foreclosure to the confirmation of
the sale in favour of Inter-Urban Developers, Inc. the spouses never opposed to
the foreclosure proceedings. The spouses only filed a motion for reconsideration
of the confirmation order insisting on the inadequacy of the purchase price but
the trial court denied the motion. On 27 October 1997, for the second time, the
spouses moved for reconsideration of the order denying their first motion for
reconsideration but the trial court denied the motion. Petitioner-spouses did not
appeal the order of confirmation of the sale nor any of the subsequent orders.

Petitioner-spouses filed with the Court of Appeals a motion for extension of time
to file a petition for review of a subject matter they did not identify. Yet again, the
spouses moved for a second extension of the period to file their petition for review
but the Court of Appeals denied with finality and recorded entry of judgment of
the denial. On 29 January 1998 Inter-Urban Developers, Inc. moved for the
issuance of a writ of possession over the foreclosed real estate.

On 26 February 1999 the petitioner-spouses filed a Motion to Tender the Full

Obligation of the Defendant Spouses alleging that they had paid their obligation
worth P6,307,532.66 32 in the form of cashier’s check which they left with the maid
of the counsel of record for Inter-Urban Developers, Inc but the trial court denied
the motion. On 23 March 1999 for the first time since Summary Judgment had
been rendered against them, petitioner-spouses filed with the trial court a Motion
to Cancel Certificate of Sale for being Signed by an Unauthorized Officer/Person
and to Recall Summary Judgment for Lack of Jurisdiction which was denied on
20 July 1999. On 21 July 1999 the trial court issued a writ of possession in favor of
respondent Inter-Urban Developers, Inc. over the subject real property.

On 10 August 1999 petitioner-spouses Guillermo Agbada and Maxima Agbada

filed with the Court of Appeals a petition for annulment of judgment with prayer
for preliminary injunction. The petition sought the annulment of the Summary
Judgment for alleged violation of their right to due process arising from the
absence of a full-blown trial on a genuine issue of fact that the loan and
mortgage would mature only on the fifth year following its execution on 21
February 1991. The petition did not question compliance with legal requirements
of the foreclosure proceedings or any part thereof. The Court of Appeals
dismissed the petition and held that the subject matter thereof was barred by res
judicata.

Issue: WON the petitioner-spouses were deprived of due process?

Held: No

55
The petition has no merit. As explained quite frequently, a party may be barred
from raising questions of jurisdiction where estoppel by laches has set in. In a
general sense, estoppel by laches is failure or neglect for an unreasonable and
unexplained length of time to do what, by exercising due diligence, ought to
have been done earlier, warranting a presumption that the party entitled to assert
it has either abandoned to defend it or has acquiesced to the correctness and
fairness of its resolution. The doctrine is based on grounds of public policy which
for peace of society requires the discouragement of stale claims and, unlike the
statute of limitations, is not a mere question of time but is principally an issue of
inequity or unfairness of permitting a right or claim to be enforced or espoused.
Verily, after voluntarily submitting a cause, it is too late for the loser to question the
jurisdiction or power of the court just so he could escape an adverse decision on
the merits.

In the instant case, the allegation of deprivation of due process took more than
four (4) years of hibernation, so to speak, from 13 January 1995 when the trial court
promulgated its Summary Judgment only to resurrect after failed attempts to
thwart the transfer of title over the foreclosed real estate in favor of respondent
Inter-Urban Developers, Inc. Evidently, petitioner-spouses are barred by laches
from assailing the regularity of the Summary Judgment as shown not only by their
silence when they should have defended their alleged right to establish their
understanding of the interest rate and maturity of the loan and mortgage
contract, but also by their full and knowing participation in the proceedings, with
the assistance of counsel, leading to the confirmation of the foreclosure sale in
favor of respondent Inter-Urban Developers, Inc.

During the period of their obtrusive reticence, instead of pushing for a full-blown
trial where they could have ventilated their affirmative defense, petitioner-
spouses merely disagreed with the finding of the trial court regarding the
appraised value of the foreclosed property, thus strongly implying their
acquiescence to the due and demandable loan, and in fact attempted to write
off the loan completely and recover the foreclosed lot and improvements
thereon by filing a Motion to Tender the Full Obligation of the Defendant Spouses
in the form of a cashier’s check worth P6,307,532.66 which the trial court denied
in due time for obvious lack of merit.

The foregoing circumstances also show that the due process routine vigorously
pursued only now by petitioner-spouses is a clear-cut afterthought meant to
delay the settlement of an otherwise uncomplicated property dispute. Aside from
clogging court dockets, the strategy is deplorably a common curse resorted to
by losing litigants in the hope of evading manifest obligations —

A natural question is why anyone should want to plead groundlessly when he

should know that he will not be able to make his pleading good when proof is

56
called for. Unfortunately, there are reasons. A defendant from whom payment is
sought . . . often wants delay. Indeed, that may well be the very reason why suit
had to be brought. And defendant can have delay by the simple device of
denying the debt, and perhaps gilding the lily by adding pleas of payment and
breach of warranty — a trilogy known in the trade as the last refuge of the
deadbeat.

It bears stressing that the proper remedy to seek reversal of judgment in an action
for foreclosure of real estate mortgage is not a petition for annulment of judgment
but an appeal from the judgment itself or from the order confirming the sale of the
foreclosed real estate. Since petitioner-spouses failed to avail of appeal without
sufficient justification, they cannot conveniently resort to the action for annulment
for otherwise they would benefit from their own inaction and negligence.

Granting arguendo that the assailed Summary Judgment is properly brought

before this Court, we nonetheless find nothing irregular in its promulgation to justify
its nullification or reversal. Summary judgment or accelerated judgment is a
procedural technique to promptly dispose of cases where the facts appear
undisputed and certain from the pleadings, depositions, admissions and affidavits
on record, or for weeding out sham claims or defenses at an early stage of the
litigation to avoid the expense and loss of time involved in a trial. Its object is to
separate what is formal or pretended in denial or averment from what is genuine
and substantial so that only the latter may subject a party in interest to the burden
of trial. In the instant case, it is our conclusion that there is no basis for protesting
the Summary Judgment since the trial court faithfully adhered to the proper
function of accelerated judgment by adjudicating only the character of the
issues raised in the pleadings as genuine, sham or fictitious, and only upon clear
determination thereof did the court a quo proceed to render verdict.

Since the civil action before the trial court was for foreclosure of real estate
mortgage, the material issues were the existence of the debt and its
demandability. Petitioner-spouses admitted the existence of the debt in favor of
respondent Inter-Urban Developers, Inc. as well as the authenticity and due
execution of the deed of real estate mortgage. The mortgage deed, which the
spouses duly signed and acknowledged before a notary public, pegged the
loan’s maturity date at six (6) months from 21 February 1991 at three percent (3%)
interest per month. In effect, by the admission of the due execution of the loan
and mortgage deed, petitioner-spouses confessed that they voluntarily signed it,
and by the admission of the genuineness of the document, they also
acknowledged that at the time it was signed it was in the words and figures
exactly as set out in the pleading of respondent Inter-Urban Developers, Inc.

CESAR SULIT vs.COURT OF APPEALS and ILUMINADA CAYCO

[G.R. No. 119247 :February 17, 1997]

57
Doctrine: The better rule is that if the mortgagee is retaining more of the proceeds
of the sale than he is entitled to, this fact alone will not affect the validity of the
sale but simply gives the mortgagor a cause of action to recover such surplus. This
is likewise in harmony with the decisional rule that in suing for the return of the
surplus proceeds, the mortgagor is deemed to have affirmed the validity of the
sale since nothing is due if no valid sale has been made.

Facts:

IluminadaCayco executed a Real Estate Mortgage (REM) over Lot 2630 which is
located in Caloocan City in favor of petitioner Cesar Sulit, to secure a loan of P4
Million. Upon private respondent's failure to pay said loan within the stipulated
period, petitioner resorted to extrajudicial foreclosure of the mortgage as
authorized in the contract. Hence, in a public auction conducted by Notary
Public Felizardo M. Mercado the lot was sold to the mortgagee, petitioner, who
submitted a winning bid of P7 Million. As stated in the Certificate of Sale executed
by the notary public (Annex B, petition), the mortgaged property was sold at
public auction to satisfy the mortgage indebtedness of P4 Million but Sulit did not
pay the bid price.

Cayco filed a Motion to have the auction sale of the mortgaged property set
aside and to defer the issuance of the writ of possession on the ground procedural
infirmities in the said proceeding and further questioned the sufficiency of the
amount of bond. In the same Motion Cayco prayed as an alternative relief that
private respondent be directed to pay the sum of P3 Million which represents the
balance of his winning bid of P7 Million less the mortgage indebtedness of P4
Million This Motion was opposed by Sulit who contended that the issuance of a
writ of possession upon his filing of a bond was a ministerial duty on the part of
respondent Judge to which Opposition petitioner submitted a Reply. The trial
court denied petitioner's Motion and directed the issuance of a writ of possession
and its immediate enforcement by deputy sheriff DaniloNorberte.

Upon appeal, the Court of Appeals rendered a decision ordering to pay unto
Cayco, through the notary public, the balance or excess of his bid of P7 Million
after deducting therefrom the sum of P4,365,280 which represents the mortgage
debt and interest up to the date of the auction sale (September 23, 1993), as well
as expenses of foreclosure based on receipts which must be presented to the
notary public.

Issue:

1) WON it is ministerial upon the court to issue a writ of possession after the
foreclosure sale and during the period of redemption? NO

58
 2) WON the sale was invalid by reason of non-payment of the surplus of the
proceeds of the sale? NO

Held:

1) The governing law thus explicitly authorizes the purchaser in a foreclosure

sale to apply for a writ of possession during the redemption period by filing an ex
parte motion under oath for that purpose in the corresponding registration or
cadastral proceeding in the case of property with Torrens title. Upon the filing of
such motion and the approval of the corresponding bond, the law also in express
terms directs the court to issue the order for a writ of possession.

No discretion appears to be left to the court. Any question regarding the regularity
and validity of the sale, as well as the consequent cancellation of the writ, is to
be determined in a subsequent proceeding as outlined in Section 8, and it cannot
be raised as a justification for opposing the issuance of the writ of possession since,
under the Act, the proceeding for this is ex parte. Such recourse is available to a
mortgagee, who effects the extrajudicial foreclosure of the mortgage, even
before the expiration of the period of redemption provided by law and the Rules
of Court.

The rule is, however, not without exception. Under Section 35, Rule 39 of the Rules
of Court, which is made applicable to the extrajudicial foreclosure of real estate
mortgages by Section 6 of Act 3135, the possession of the mortgaged property
may be awarded to a purchaser in the extrajudicial foreclosure "unless a third
party is actually holding the property adversely to the judgment debtor."

Thus, in the case of Barican, et al. vs. Intermediate Appellate Court,

et al. this Court took into account the circumstances that long before the
mortgagee bank had sold the disputed property to the respondent therein, it was
no longer the judgment debtor who was in possession but the petitioner spouses
who had assumed the mortgage, and that there was a pending civil case
involving the rights of third parties. Hence, it was ruled therein that under the
circumstances, the obligation of a court to issue a writ of possession in favor of the
purchaser in a foreclosure of mortgage case ceases to be ministerial.

In forced sales low prices are generally offered and the mere inadequacy of the
price obtained at the sheriff's sale, unless shocking to the conscience, has been
held insufficient to set aside a sale. This is because no disadvantage is caused to
the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price
because he possesses the right of redemption. When there is the right to redeem,
inadequacy of price becomes immaterial since the judgment debtor may
reacquire the property or sell his right to redeem, and thus recover the loss he
claims to have suffered by reason of the price obtained at the auction sale.

59
However, also by way of an exception, in Cometa, et al. vs. Intermediate
Appellate Court, et al. where the properties in question were found to have been
sold at an unusually lower price than their true value, that is, properties worth at
least P500,000.00 were sold for only P57,396.85, this Court, taking into
consideration the factual milieu obtaining therein as well as the peculiar
circumstances attendant thereto, decided to withhold the issuance of the writ of
possession on the ground that it could work injustice because the petitioner might
not be entitled to the same.

The case at bar is quite the reverse, in the sense that instead of an inadequacy in
price, there is due in favor of private respondent, as mortgagor, a surplus from the
proceeds of the sale equivalent to approximately 40% of the total mortgage
debt, which excess is indisputably a substantial amount. Nevertheless, it is our
considered opinion, and we so hold, that equitable considerations demand that
a writ of possession should also not issue in this case.

2) In case of a surplus in the purchase price, however, there is jurisprudence

to the effect that while the mortgagee ordinarily is liable only for such surplus as
actually comes into his hands, but he sells on credit instead of for cash, he must
still account for the proceeds as if the price were paid in cash, and in an action
against the mortgagee to recover the surplus, the latter cannot raise the defense
that no actual cash was received.

We cannot simply ignore the importance of surplus proceeds because by their

very nature, surplus money arising from a sale of land under a decree of
foreclosure stands in the place of the land itself with respect to liens thereon or
vested rights therein. They are constructively, at least, real property and belong
to the mortgagor or his assigns. Inevitably, the right of a mortgagor to the surplus
proceeds is a substantial right which must prevail over rules of technicality.

Surplus money, in case of a foreclosure sale, gains much significance where there
are junior encumbrancers on the mortgaged property. Jurisprudence has it that
when there are several liens upon the premises, the surplus money must be
applied to their discharge in the order of their priority. A junior mortgagee may
have his rights protected by an appropriate decree as to the application of the
surplus, if there be any, after satisfying the prior mortgage. His lien on the land is
transferred to the surplus fund. And a senior mortgagee, realizing more than the
amount of his debt on a foreclosure sale, is regarded as a trustee for the benefit
of junior encumbrancers.

Upon the strength of the foregoing considerations, we cannot countenance the

apparent paltriness that petitioner persistently accords the right of private
respondent over the surplus proceeds. It must be emphasized that petitioner
failed to present the receipts or any other proof of the alleged costs or expenses

60
incurred by him in the foreclosure sale. Even the trial court failed or refused to
resolve this issue, notwithstanding the fact that this was one of the grounds raised
in the motion filed by private respondent before it to set aside the sale. Since it
has never been denied that the bid price greatly exceeded the mortgage debt,
petitioner cannot be allowed to unjustly enrich himself at the expense of private
respondent.

Section 4 of Rule 64, hereinbefore quoted, merely provides that where there is a
balance or residue after payment of the mortgage, the same shall be paid to the
mortgagor. While the expedient course desired by respondent court is
commendable, there is nothing in the cited provision from which it can be inferred
that a violation thereof will have the effect of nullifying the sale. The better rule is
that if the mortgagee is retaining more of the proceeds of the sale than he is
entitled to, this fact alone will not affect the validity of the sale but simply gives the
mortgagor a cause of action to recover such surplus. This is likewise in harmony
with the decisional rule that in suing for the return of the surplus proceeds, the
mortgagor is deemed to have affirmed the validity of the sale since nothing is due
if no valid sale has been made.

DEVELOPMENT BANK OF THE PHILIPPINES vs.JOVENCIO A. ZARAGOZA and

AVELINA E. ZARAGOZA
[G.R. No. L-23493 :August 23,1978]

Doctrine:I n judicial foreclosures, the "foreclosure" is not complete until the Sheriff's
Certificate is executed, acknowledged and recorded. In the absence of a
Certificate of Sale, no title passes by the foreclosure proceedings to the vendee. It
is only when the foreclosure proceedings are completed and the mortgaged
property sold to the purchaser that all interests of the mortgagor are cut off from
the property. This principle is applicable to extrajudicial foreclosures.

Similarly, it cannot be concluded that the creditor loses his right given him under
the Mortgage Law and recognized in the Rules Of Court, to take action for the
recovery of any unpaid balance on the principal obligation, simply because he
has chosen to foreclose his mortgage extra-judically pursuant to a special Power
of attorney given him by the mortgagor in the mortgage contract.

Facts:

Respondents obtained a loan of P30,000 from the petitioner bank which was
secured by a real estate mortgage. It was stipulated that upon failure of
respondents to pay the amortization due, according to the terms and conditions

61
thereof, the bank shall have the authority to foreclose extrajudicially the
mortgaged property, pursuant to Republic Act No. 3135, as amended.
Conformably to this stipulation, upon breach of the conditions of the mortgage,
petitioner foreclosed extrajudicially the mortgage on December 10, 1952, and the
Provincial Sheriff of Pangasinan posted the requisite notice of the sale at public
auction of the mortgaged property.

The property was sold at public auction to the petitioner, being the highest bidder
therein, for the sum of P21,035.00. After applying the proceeds of the sale to satisfy
the outstanding balance of the indebtedness in the amount of P28,914.36, it was
found that respondents still owed the bank in the amount of P7,779.36. Suit for the
deficiency with preliminary attachment was filed by petitioner bank against
respondents but the latter averred that after an extrajudicial foreclosure of
property, no deficiency judgment would lie and that from the date of the
foreclosure to the sale of said property, the mortgagor is no longer liable for the
interest on the loan. The trial court rendered a decision in favor of the petitioner
bank.

Issue: Whether or not additional interests are properly chargeable on the balance
of the indebtedness during the period from notice of sale to actual sale. YES

Held:

Respondents argue that since the petitioner bank held in abeyance the sale of
the property for a period of four (4) years, they alone should suffer the
consequences of such delay. It was further contended that the debtor's liability
in judicial foreclosures is limited to the amount due at the time of the foreclosure
and, therefore, such should also apply to extrajudicial foreclosures. By way of
refutation petitioner bank explained that the seemingly long interval between the
date of issuance of the Sheriff's Notice of Sale and the date of sale was due to
the numerous transfers made of the date of the sale upon requests of the
appellants themselves. Each transfer is covered by a corresponding agreement
for postponement, executed jointly by respondents and petitioner. Certainly,
under such circumstances, respondents cannot take advantage of the delay
which was their own making, to the prejudice of the other party. Apart from this
consideration, it must be noted that a foreclosure of mortgage means the
termination of all rights of the mortgagor in the property covered by the
mortgage. It denotes the procedure adopted by the mortgagee to terminate the
rights of the mortgagor on the property and includes the sale itself. In judicial
foreclosures, the "foreclosure" is not complete until the Sheriff's Certificate is
executed, acknowledged and recorded. In the absence of a Certificate of Sale,
no title passes by the foreclosure proceedings to the vendee. It is only when the
foreclosure proceedings are completed and the mortgaged property sold to the
purchaser that all interests of the mortgagor are cut off from the property. This

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principle is applicable to extrajudicial foreclosures. Consequently, in the case at
bar, prior to the completion of the foreclosure, the mortgagor is, therefore, liable
for the interest on the mortgage.

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 EXTRAJUDICIAL FORECLOSURE

RIGHT OF REDEMPTION

Manuel Medida vs Court of Appeals and Sps Dolino

G.R. No. 98334
May 8, 1992

Facts: On October 10, 1974 plaintiff spouses Dolino, alarmed of losing their right of
redemption over lot 4731 of the Cebu City Cadastre from Mr. Juan Gandioncho,
purchaser of the aforesaid lot at the foreclosure sale of the previous mortgage in favor
of Cebu City Development Bank, went to Teotimo Abellana, president of defendant
Association, to obtain a loan of P30,000.00. Prior thereto or on October 3, 1974, their son
Teofredo Dolino filed a similar loan application for Twenty-Five Thousand Pesos with lot
No. 4731 offered as security for the Thirty Thousand (Pesos loan from defendant
association. Subsequently, they executed a promissory note in favor of defendant
association. Both documents indicated that the principal obligation is for Thirty Thousand
(P30,000.00) Pesos payable in one year with interest at twelve (12%) percent per annum.

When the loan became due and demandable without plaintiff paying the same,
defendant association caused the extrajudicial foreclosure of the mortgage on March
16, 1976. After the posting and publication requirements were complied with, the land
was sold at public auction on April 19, 1976 to defendant association being the highest
bidder. The certificate of sale was issued on April 20, 1976 and registered on May 10, 1976
with the Register of Deeds of Cebu.
"On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT No.
14272 was cancelled and in lieu thereof TCT No. 68041 was issued in the name of
defendant association."

On October 18, 1979, private respondents filed the aforestated Civil Case for the
annulment of the sale at public auction conducted on April 19, 1976, as well as the
corresponding certificate of sale issued pursuant thereto.
In their complaint, private respondents, as plaintiffs therein, assailed the validity of the
extrajudicial foreclosure sale of their property, claiming that the same was held in
violation of Act No. 3135, as amended, and prayed, inter alia, for the cancellation of
Transfer Certificate of Title No. 68041 issued in favor of therein defendant City Savings
Bank and one of the petitioners herein.

In its answer, the defendant association therein denied the material allegations of the
complaint and averred, among others, that the present private respondent spouses may
still avail of their right of redemption over the land in question.

RTC: Upheld the validity of the loan and the real estate mortgage, but annulling the
extrajudicial foreclosure sale inasmuch as the same failed to comply with the notice
requirements in Act No. 3135, as amended.

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CA: Promulgated its decision modifying the decision of the lower court, declaring as void
and ineffective the real estate mortgage executed by plaintiffs in favor of defendant
association.
Respondent court declared the real estate mortgage in question null and void for the
reason that the mortgagor spouses, at the time when the said mortgage was executed,
were no longer the owners of the lot, having supposedly lost the same when the lot was
sold to a purchaser in the foreclosure sale under the prior mortgage.

Issue: Whether or not a mortgagor, whose property has been extrajudicially foreclosed
and sold at the corresponding foreclosure sale, may validly execute a mortgage
contract over the same property in favor of a third party during the period of redemption

Held: YES. A redemptioner is defined as a creditor having a lien by attachment, judgment

or mortgage on the property sold, or on some part thereof, subsequent to the judgment
under which the property was sold. While in extrajudicial foreclosure, the sale
contemplated is not under a judgment but the proceeding pursuant to which the
mortgaged property was sold, a subsequent mortgage could nevertheless be legally
constituted thereafter with the subsequent mortgagee becoming and acquiring the
rights of a redemptioner, aside from his right against the mortgagor.

In either case, what bears attention is that since the mortgagor remains as the absolute
owner of the property during the redemption period and has the free disposal of his
property, there would be compliance with the requisites of Article 2085 of the Civil Code
for the constitution of another mortgage on the property. To hold otherwise would create
the inequitable situation wherein the mortgagor would be deprived of the opportunity,
which may be his last recourse, to raise funds wherewith to timely redeem his property
through another mortgage thereon.

It is undisputed that the real estate mortgage in favor of petitioner bank was executed
by respondent spouses during the period of redemption. We reiterate that during said
period it cannot be said that the mortgagor is no longer the owner of the foreclosed
property since the rule up to now is that the right of a purchaser at a foreclosure sale is
merely inchoate until after the period of redemption has expired without the right being
exercised. The title to land sold under mortgage foreclosure remains in the mortgagor or
his grantee until the expiration of the redemption period and conveyance by the master's
deed. To repeat, the rule has always been that it is only upon the expiration of the
redemption period, without the judgment debtor having made use of his right of
redemption, that the ownership of the land sold becomes consolidated in the purchaser.

Parenthetically, therefore, what actually is effected where redemption is seasonably

exercised by the judgment or mortgage debtor is not the recovery of ownership of his
land, which ownership he never lost, but the elimination from his title thereto of the lien
created by the levy on attachment or judgment or the registration of a mortgage
thereon. The American rule is similarly to the effect that the redemption of property sold
under a foreclosure sale defeats the inchoate right of the purchaser and restores the
property to the same condition as if no sale had been attempted. Further, it does not
give to the mortgagor a new title, but merely restores to him the title freed of the
encumbrance of the lien foreclosed.

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WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the
judgment of the trial court, is REVERSED and SET ASIDE. The judgment of said trial court is
hereby REINSTATED

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 Spouses Yap vs Spouses Dy, Spouses Maxino, Provincial Sherrif of Negros Oriental and
Dumaguete Rural Bank
G.R. No. 171868
July 27, 2011

Facts: The spouses Tomas Tirambulo and Salvacion Estorco (Tirambulos) are the registered
owners of several parcels of land located in Ayungon, Negros Oriental, registered under
Transfer Certi cate of Title (TCT) Nos. T-14794, T-14777, T-14780, T- 14781, T-14783 and T-
20301. In 1976, they executed a Real Estate Mortgage over Lots 1,4,5,6 and 8 in favor of
Rural Bank of Dumaguete, Inc. to secure a P105,000 loan. Later, they obtained a second
loan for P28,000 and also executed a Real Estate Mortgage over Lots 3 and 846 in favor
of the same bank. Subsequently, the Tirambulos sold all the mortgaged properties to Sps.

Dy and Sps. Maxinos without the consent of DRBI. Upon default of the Tirambulos to pay
their loans to DRBI, the latter extrajudicially foreclosed the first mortgage and sold Lots
1,4,5,6 and 8 at public auction, wherein the DRBI was proclaimed the highest bidder and
bought said lots for P216,040.93. The Certificate of Sale states that the sale is subject to
the rights of redemption of the mortgagor(s) or any other persons authorized by law to
do so, within a period of one (1) year from registration hereof. However, the Certificate
of Sale was not registered until almost a year later, or on June 24, 1983. Days after the
registration, the DRBI sold Lots 1, 3 and 6 to Sps. Yap under a Deed of Sale with Agreement
to Mortgage. In August 1983 (within the redemption period), the Sps. Yap filed a Motion
for Writ of Possession alleging that have acquired all the rights and interests of DRBI over
the foreclosed and the immediate possession of the same because the 1-yr redemption
period had lapsed without any redemption being made. However, 3 days later, the Yaps
again filed the said motion, which was granted by the trial court, consequently, a Writ of
Possession over Lots 1, 3 and 6 was issued in favor of the Yaps.

Before the expiration of the redemption period, the Dys and Maxinos attempted to
redeem Lots 1, 3 and 6 for P40,000 but DRBI and Yaps refused, contending that the
redemption should be for the full amount of the winning bid of P216,040.93 plus interest
for all the foreclosed properties. Thus, the Dys and the Maxinos went to the office of the
sheriff and paid P50,625.29 (40,000 principal + 10,625.29 interests and sheriffs commission)
to effect the redemption. A Certificate of Redemption was issued for Lots 1 and 6 only
stating that Lot 3 is not included in the foreclosure proceedings. Atty. Diputado (Clerk of
Court and Provincial Sheriff) duly notified the Yaps of the said redemption and the non-
inclusion of Lot 3 among the foreclosed properties. However, in a letter to Atty. Diputado
from the Yaps, they refused to take delivery of the redemption price arguing that one of
the characteristics of a mortgage is its indivisibility and that one cannot redeem only
some of the lots foreclosed because all the parcels were sold for a single price at the
auction sale.
The Dys and the Maxinos filed a complaint for accounting, injunction, declaration of
nullity (for Lot 3) of the Deed of Sale with Agreement to Mortgage, and damages against
the Yaps and DRBI. Thereafter, the Dys and the Maxinos consigned to the trial court an
additional sum of P83,850.50 + commission fee of P419.25 representing the remaining

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balance of the purchase price that the Yaps still owed DRBI by virtue of the sale to them
by the DRBI of Lots 1, 3 and 6.

Meanwhile, the Yaps told DRBI that no redemption has been made by the Tirambulos or
their successors-in-interest and requested DRBI to consolidate its title over the foreclosed
properties by requesting the Provincial Sheriff to execute the final deed of sale in favor of
the bank so that the latter can transfer the titles of the two foreclosed properties to them.
On the same date, they wrote the Maxinos that they were formally turning over the
possession of Lot 3 to the Maxinos, and informed them that they intended to consolidate
ownership over Lots 1 and 6 since there was no redemption as contemplated by law.
Included in the letter was a liquidation of the copra proceeds harvested for Lots 1, 3 and
6.

Later, the Yaps filed a case for consolidation of ownership, annulment of certificate of
redemption, and damages against the Dys, the Maxinos, the Provincial Sheriff and DRBI.
Both cases were tried jointly. The Yaps, through counsel, filed a motion to withdraw from
the provincial sheriff the redemption money amounting to P50,373.42, which was granted
by the court after presentation of the SPA executed by Francisco Yap in favor of his
brother, Valiente Yap to receive the redemption money.

RTC: rendered judgment in favor of the Yaps, dismissing the compliant of Dy and Maxino
spouses as well as the counterclaim of the bank and the Yaps for lack of factual and
legal basis, while the Yaps case was granted, declaring them as the exclusive owners of
Lot 1 and 6, for failure of the Dys and the Maxinos to redeem the properties within 1 year
from the auction sale; and directing the provincial sheriff to execute the Final Deed of
Sale in favor of the bank, and the latter to transfer the subject properties to the Yaps.
Upon motion of the DRBI, the trial court amended the aforesaid decision declaring as null
and void the Certificate of Redemption, the Deed of Sale made by Tirambulo and
Estorco in favor of the Dys and the Maxinos covering all the 7 parcels of land in question;
and declaring the Yaps as the exclusive owners of Lot 1 and 6, for failure of the Dys and
the Maxinos to redeem the properties within 1 year from the auction sale.

CA: Reversed the amended decision of the trial court, holding that the sale with respect
to Lot 3 was null and void; the redemption made by the Dys and the Maxinos as valid;
ordering the Yaps to deliver possession and ownership to the Dys and Maxinos and to
tender and deliver the corresponding amount of income out of the 3 parcels until finality
of judgment; and for DRBI to pay damages to the Dys and the Maxinos. Further, the CA
also ruled that there is no necessity in discussing the validity of the redemption. It found
that the bank was in bad faith and therefore cannot insist on the protection of the law
regarding the need for compliance with all the requirements for a valid redemption while
estoppel and unjust enrichment operate against the Yaps who had already withdrawn
the redemption money.

On MR of the Yaps, the CA amended its decision deleting the delivery of possession and
ownership to the Dys and the Maxinos, and the tendering of corresponding amount of
income from the said parcels of land. Hence, the consolidated petitions assailing the
appellate court’s decision.

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Issue: Whether or not persons to whom several mortgaged lands were transferred without
the knowledge and consent of the creditor redeem only several parcels if all the lands
were sold together for a single price at the foreclosure sale?

Held: YES.

The requisites for a valid redemption are: (1) the redemption must be made within twelve
(12) months from the time of the registration of the sale in the Office of the Register of
Deeds;
(2) payment of the purchase price of the property involved, plus 1% interest per month
thereon in addition, up to the time of redemption, together with the amount of any
assessments or taxes which the purchaser may have paid thereon after the purchase,
also with 1% interest on such last named amount; and
(3) written notice of the redemption must be served on the of cer who made the sale
and a duplicate filed with the Register of Deeds of the province.

There is no issue as to the first and third requisites. It is undisputed that the Dys and the
Maxinos made the redemption within the 12-month period from the registration of the
sale. The Dys and Maxinos effected the redemption on May 24, 1984, when they
deposited P50,373.42 with the Provincial Sheriff, and on June 19, 1984, when they
deposited an additional P83,850.50. Both dates were well within the one-year redemption
period reckoned from the June 24, 1983 date of registration of the foreclosure sale.
Likewise, the Provincial Sheriff who made the sale was properly notified of the redemption
since the Dys and Maxinos deposited with him the redemption money after both DRBI
and the Yaps refused to accept it.

The second requisite, the proper redemption price, is the main subject of contention of
the opposing parties.

The Yaps argue that P40,000.00 cannot be a valid tender of redemption since the
amount of the auction sale was P216,040.93. They further contend that the mortgage is
indivisible so in order for the tender to be valid and effectual, it must be for the entire
auction price plus legal interest.

We cannot subscribe to the Yaps' argument on the indivisibility of the mortgage. As held
in the case of Philippine National Bank v. De los Reyes, the doctrine of indivisibility of
mortgage does not apply once the mortgage is extinguished by a complete foreclosure
thereof as in the instant case. The Court held:
The parties were accordingly embroiled in a hermeneutic disparity on their aforesaid
contending positions. Yet, the rule on the indivisibility of mortgage finds no application to
the case at bar. The particular provision of the Civil Code referred to provides:
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided
among the successors in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or
cancel the mortgage, to the prejudice of the other heirs who have not been paid.

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From these provisions is excepted the case in which, there being several things given in
mortgage or pledge, each one of these guarantees only a determinate portion of the
credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specially answerable is
satisfied.

From the foregoing, it is apparent that what the law proscribes is the foreclosure of only
a portion of the property or a number of the several properties mortgaged corresponding
to the unpaid portion of the debt where before foreclosure proceedings partial payment
was made by the debtor on his total outstanding loan or obligation. This also means that
the debtor cannot ask for the release of any portion of the mortgaged property or of one
or some of the several lots mortgaged unless and until the loan thus, secured has been
fully paid, notwithstanding the fact that there has been a partial fulfillment of the
obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot
ask for the proportionate extinguishment of the mortgage as long as the debt is not
completely satisfied.
That the situation obtaining in the case at bar is not within the purview of the aforesaid
rule on indivisibility is obvious since the aggregate number of the lots which comprise the
collaterals for the mortgage had already been foreclosed and sold at public auction.
There is no partial payment nor partial extinguishment of the obligation to speak of. The
aforesaid doctrine, which is actually intended for the protection of the mortgagee,
specifically refers to the release of the mortgage which secures the satisfaction of the
indebtedness and naturally presupposes that the mortgage is existing. Once the
mortgage is extinguished by a complete foreclosure thereof, said doctrine of indivisibility
ceases to apply since, with the full payment of the debt, there is nothing more to secure.
Nothing in the law prohibits the piecemeal redemption of properties sold at one
foreclosure proceeding. In fact, in several early cases decided by this Court, the right of
the mortgagor or redemptioner to redeem one or some of the foreclosed properties was
recognized.

WHEREFORE, the petitions for review on certiorari are DENIED for lack of merit.

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REFERENCES:

• De Leon, H. (2016). Comments and Cases on Credit Transactions.

Manila, PH: REX Book Store
• Rules of Court, Section 39.
• Rules of Court, Section 68.
• A.M. No. 99- 10-05-0
• Paras, E. (2014), Civil Law Commentaries and Cases. Manila, PH:
REX Book Store
• Act 3135 An Act to Regulate the Sale of Property under Special
Powers Inserted in or Annexed to Real Estate Mortgages
• RA 8791 or the General Banking law of 2000

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