1. BPI v.

IAC
August 19, 1988

FACTS: Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and
a peso current account. An application for a dollar draft was accomplished by Virgilio V. Garcia,
Assistant Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon
in the amount of $1,000.00. In the application, Garcia indicated that the amount was to be
charged to Dollar Savings account of the Zshornacks; the charges for commission, documentary
stamp tax and others were to be charged to the current account of the Zshornacks. There was
no indication of the name of the purchaser of the dollar draft.

On the same date, COMTRUST, under the signature of Virgilio V. Garcia, issued a check payable
to the order of Leovigilda D. Dizon in the sum of US $1,000 to be charged to Dollar Savings
account of the Zshornacks.

When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an
explanation from the bank. In answer, COMTRUST claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, when he (Ernesto)
encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking
Corporation payable to Ernesto.

ISSUE: Whether the contract between BPI and respondent a deposit

RULING: Yes, the contract between BPI and respondent is a deposit.

The document which embodies the contract states that the US$3,000.00 was received by the
bank for safekeeping. The subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later
time, Thus, Zshornack demanded the return of the money.

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping of
the thing delivered is not the principal purpose of the contract, there is no deposit but some
other contract.

As earlier stated, the document and the subsequent acts of the parties show that they intended
the bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his
complaint that he is a Philippine resident. The parties did not intended to sell the US dollars to
the Central Bank within one business day from receipt. Otherwise, the contract of depositum
would never have been entered into at all.
 2. ROMAN CATHOLIC BISHOP OF JARO v. DE LA PEÑA
November 21, 1913

FACTS: Father De la Peña, as trustee, showed that he had on hand as such trustee the sum of
P6,641, collected by him for the charitable purposes. In the same year he deposited in his
personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and
during the war of the revolution, Father De la Peña was arrested by the military authorities as a
political prisoner, and while thus detained made an order on said bank in favor of the United
States Army officer under whose charge he then was for the sum thus deposited in said bank.
The arrest of Father De la Peña and the confiscation of the funds in the bank were the result of
the claim of the military authorities that he was an insurgent and that the funds thus deposited
had been collected by him for revolutionary purposes. The money was taken from the bank by
the military authorities by virtue of such order, was confiscated and turned over to the
Government.

ISSUE: Whether Father De la Peña is liable for the loss of the funds

RULING: No, Father De la Peña is not liable for the loss of the funds.

Although the Civil Code states that "a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also
provides, following the principle of the Roman law, major casus est, cui humana infirmitas
resistere non potest, that "no one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the exception of the cases expressly
mentioned in the law or those in which the obligation so declares." (Art. 1105.)

By placing the money in the bank and mixing it with his personal funds De la Peña did not
thereby assume an obligation different from that under which he would have lain if such
deposit had not been made, nor did he thereby make himself liable to repay the money at all
hazards. If it had been forcibly taken from his pocket or from his house by the military forces of
one of the combatants during a state of war, it is clear that under the provisions of the Civil
Code he would have been exempt from responsibility. The fact that he placed the trust fund in
the bank in his personal account does not add to his responsibility. Such deposit did not make
him a debtor who must respond at all hazards.

There was no law prohibiting him from depositing it as he did and there was no law which
changed his responsibility be reason of the deposit. While it may be true that one who is under
obligation to do or give a thing is in duty bound, when he sees events approaching the results of
which will be dangerous to his trust, to take all reasonable means and measures to escape or, if
unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in
choosing between two means equally legal, he is culpably negligent in selecting one whereas he
would not have been if he had selected the other.
 3. CA AGRO-INDUSTRIAL DEVELOPMENT CORPORATION v. CA AND SECURITY BANK
March 3, 1993

FACTS: Petitioner and the spouses Pugao entered into an agreement whereby the former
purchased from the latter two (2) parcels of land. Among the terms and conditions of the
agreement were that the titles to the lots shall be transferred to the petitioner upon full
payment of the purchase price and that the owner's copies of the certificates of titles shall be
deposited in a safety deposit box of any bank. The same could be withdrawn only upon the
joint signatures of a representative of the petitioner and the Pugaos upon full payment of the
purchase price. Petitioner and the Pugaos then rented Safety Deposit Box of Security Bank. For
this purpose, both signed a contract of lease which contains the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith.

After the execution of the contract, two (2) renter's keys were given to the renters — one to
the petitioner and the other to the Pugaos. A guard key remained in the possession of the
respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the
other for the renter's key, and can be opened only with the use of both keys. Petitioner claims
that the certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2). Mrs.
Ramos demanded the execution of a deed of sale which necessarily entailed the production of
the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to
the respondent Bank to open the safety deposit box and get the certificates of title. However,
when opened in the presence of the Bank's representative, the box yielded no such certificates.
Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to
purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the
expected profit. Hence, the latter filed a complaint for damages against the respondent Bank.

ISSUE: Whether the contractual relation between Security Bank and another party in the
contract of rent of a safety deposit box is one of bailor and bailee - YES

RULING: The contract for the rent of the safety deposit box is not an ordinary contract of lease
as defined in Article 1643 of the Civil Code. However, we do not fully subscribe to its view that
the same is a contract of deposit that is to be strictly governed by the provisions in the Civil
Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643 because the full and absolute
possession and control of the safety deposit box was not given to the joint renters — the
petitioner and the Pugaos. The guard key of the box remained with the respondent Bank;
without this key, neither of the renters could open the box. On the other hand, the respondent
Bank could not likewise open the box without the renter's key. In this case, the said key had a
duplicate which was made so that both renters could have access to the box.

We agree with the petitioner that the prevailing rule in American Jurisprudence is that the
relation between a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire and mutual
benefit.

Note that the primary function is still found within the parameters of a contract of deposit, i.e.,
the receiving in custody of funds, documents and other valuable objects for safekeeping. The
renting out of the safety deposit boxes is not independent from, but related to or in
conjunction with, this principal function.

The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the
tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed. Hence, any stipulation exempting
the depositary from any liability arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary to law and public policy.

4. JAVELLANA v. LIM
August 24, 1908

FACTS: The Lims executed a contract in favor of Javellana stating that the former has received
from Javellana, as a deposit without interest, a sum of money, which will be returned on a date
specified therein.

When the obligation became due, the Lims begged Javellana for an extension of time for the
payment thereof, building themselves to pay interest at the rate of 15% on the amount of their
indebtedness, to which the Javellana acceded.

ISSUE: Whether the contract is a loan or deposit

RULING: The contract is a deposit.

Article 1767 of the Civil Code provides that — The depository can not make use of the thing
deposited without the express permission of the depositor. Otherwise he shall be liable for
losses and damages.

Article 1768 also provides that — When the depository has permission to make use of the thing
deposited, the contract loses the character of a deposit and becomes a loan or bailment. The
permission shall not be presumed, and its existence must be proven.
The debtors were lawfully authorized to make use of the amount deposited, which they have
done, as subsequent shown when asking for an extension of the time for the return thereof,
inasmuch as, acknowledging that they have subjected the letter, their creditor, to losses and
damages for not complying with what had been stipulated, and being conscious that they had
used, for their own profit and gain, the money that they received apparently as a deposit, they
engaged to pay interest to the creditor from the date named until the time when the refund
should be made. Such conduct on the part of the debtors is unquestionable evidence that the
transaction entered into between the interested parties was not a deposit, but a real contract
of loan.

5. EQUITABLE PCI BANK v. NG SHEUNG NGOR

December 19, 2007

FACTS: Respondents Ng Sheung Ngor, Ken Appliance and Go filed an action for annulment
and/or reformation of documents and contracts against petitioner Equitable PCI Bank
(Equitable) and its employees. They claimed that Equitable induced them to avail of its peso
and dollar credit facilities by offering low interest rates so they accepted Equitable's proposal
and signed the bank's pre-printed promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained identical escalation clauses granting
Equitable authority to increase interest rates without their consent. Equitable, in its answer,
asserted that respondents knowingly accepted all the terms and conditions contained in the
promissory notes. In fact, they continuously availed of and benefited from Equitable's credit
facilities for five years.

The RTC upheld the validity of the promissory notes but invalidated the escalation clause
contained therein.

ISSUE: Whether the promissory notes were valid

RULING: Yes, the promissory notes were valid despite the respondent’s assertion that those
documents were contracts of adhesion.

A contract of adhesion is a contract whereby almost all of its provisions are drafted by one
party. The participation of the other party is limited to affixing his signature or his "adhesion" to
the contract. For this reason, contracts of adhesion are strictly construed against the party who
drafted it.

Contracs of adhesion are not invalid per se. They are, on the contrary, as binding as ordinary
contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes void
only when the dominant party takes advantage of the weakness of the other party, completely
depriving the latter of the opportunity to bargain on equal footing.
That was not the case here. As the trial court noted, if the terms and conditions offered by
Equitable had been truly prejudicial to respondents, they would have walked out and
negotiated with another bank at the first available instance. But they did not. Instead, they
continuously availed of Equitable's credit facilities for five long years.

The escalation clause violated the principle of mutuality of contracts. Escalation clauses are not
void per se. However, one "which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an
important modification in the agreement" is void. Clauses of that nature violate the principle of
mutuality of contracts. Article 130867 of the Civil Code holds that a contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them.

There was no extraordinary deflation. Extraordinary inflation exists when there is an unusual
decrease in the purchasing power of currency (that is, beyond the common fluctuation in the
value of currency) and such decrease could not be reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the obligation. Extraordinary deflation,
on the other hand, involves an inverse situation. Despite the devaluation of the peso, the BSP
never declared a situation of extraordinary inflation.

6. PHIL. DEPOSIT INSURANCE CORP. v. CA, ABAD

April 30, 2003

FACTS: On May 22, 1987, the Monetary Board (MB) of the Central Bank of the Philippines, now
Bangko Sentral ng Pilipinas, issued Resolution 505 prohibiting MBC to do business in the
Philippines, and placing its assets and affairs under receivership. The Resolution was only
served to MBC on May 26, 1987. Prior to May 22, 1997, respondents had, individually or jointly
with each other, 71 certificates of time deposits denominated as "Golden Time Deposits" (GTD)
with an aggregate face value of P1,115,889.96.

On May 25, 1987, respondent Jose Abad was at the MBC at 9:00 a.m. for the purpose of pre-
terminating the 71 aforementioned GTDs and re-depositing the fund represented thereby into
28 new GTDs in denominations of P40,000.00 or less. Of the 28 new GTDs, Jose Abad pre-
terminated 8 and withdrew the value thereof in the total amount of P320,000.00.

Thereafter, respondents filed their claims for the remaining 20 insured GTDs. PDIC paid
respondents the value of 3 claims in the total amount of P120,000.00. PDIC, however, withheld
payment of the 17 remaining claims due to a submitted report to the PDIC that there was
massive conversion and substitution of trust and deposit accounts on May 25, 1987. PDIC filed a
petition for declaratory relief for a judicial declaration determination of the insurability of
respondent’s GTDs. The respondents filed a counterclaim against PDIC asking for payment of
their insured deposits.

ISSUE: Whether MBC is liable for the 20 GTDs of respondents

RULING: Yes, MBC is liable for the 20 GTDs of respondents.

Under its charter, PDIC (hereafter petitioner) is liable only for deposits received by a bank "in
the usual course of business."

That no actual money in bills and/or coins was handed by respondents to MBC does not mean
that the transactions on the new GTDs did not involve money and that there was no
consideration therefor. For the outstanding balance of respondents' 71 GTDs in MBC prior to
May 26, 1987 in the amount of P1,115,889.15 as earlier mentioned was re-deposited by
respondents under 28 new GTDs. Admittedly, MBC had P2,841,711.90 cash on hand — more
than double the outstanding balance of respondent's 71 GTDs — at the start of the banking day
on May 25, 1987. Since respondent Jose Abad was at MBC soon after it opened at 9:00 a.m. of
that day, petitioner should not presume that MBC had no cash to cover the new GTDs of
respondents and conclude that there was no consideration for said GTDs.

Petitioner having failed to overcome the presumption that the ordinary course of business was
followed, this Court finds that the 28 new GTDs were deposited "in the usual course of
business" of MBC.

7. SERRANO v. CENTRAL BANK

February 14, 1980

FACTS: On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one
year with 6% interest, of P150,000.00 with the respondent Overseas Bank of Manila.
Concepcion Maneja, who also made a time deposit of P200,000.00 with the same respondent
Overseas Bank of Manila, assigned and conveyed to petitioner Serrano, her time deposit.

Notwithstanding series of demands for encashment of the aforementioned time deposits from
the respondent Overseas Bank of Manila, not a single one of the time deposit certificates was
honored by respondent Overseas Bank of Manila.

In another case, respondent Overseas Bank of Manila sought to prevent respondent Central
Bank from closing, declaring the former insolvent, and liquidating its assets. The petition was
granted and respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the
Overseas Bank of Manila to participate in clearing, direct the suspension of its operation, and
ordering the liquidation of said bank) were annulled and set aside. Because of the above
decision, petitioner in this case filed a motion for judgment in this case, praying for a decision
on the merits, adjudging respondent Central Bank jointly and severally liable with respondent
Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter
bank, with all interests due therein; and declaring all assets assigned or mortgaged by the
respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as
trust funds for the benefit of petitioner and other depositors.
Hence, petitioner filed a Petition for mandamus and prohibition, with preliminary injunction,
that seeks the establishment of joint and solidary liability to the amount of P350,000, with
interest, against respondent Central Bank of the Philippines and Overseas Bank of Manila and
its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time
deposits made by petitioner and assigned to him, on the ground that respondent Central Bank
failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to
protect depositors and the general public.

ISSUE: Whether there was a breach of trust arising from depositary’s failure to return the
subject matter deposit

RULING: No, there was no breach of trust in the failure of depositary bank to return the subject
deposit.

As opposed to the claim of petitioner, bank deposits are in the nature of irregular deposits.
They are really loans because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the law on loans. Current
and savings deposit are loans to a bank because it can use the same. The petitioner here in
making time deposits that earn interests with respondent Overseas Bank of Manila was in
reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn
a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay
its obligation as a debtor and not a breach of trust arising from depositary's failure to return the
subject matter of the deposit.

8. DURBAN APARTMENTS CORP. v. PIONEER INSURANCE CORP. AND SURETY CORP.

January 12, 2011

FACTS: See arrived and checked in at the City Garden Hotel in Makati corner Kalayaan Avenues,
Makati City before midnight, and its parking attendant got the key to said Vitara from See to
park it. At about 1:00 o’clock in the morning, See was awakened in his room by a telephone call
informing him that his Vitara was carnapped while it was parked unattended at the parking
area of Equitable PCI Bank along Makati Avenue between the hours of 12:00 am and 1:00 am.
Respondent paid the ₱1,163,250.00 money claim of See and mortgagee ABN AMRO Savings
Bank, Inc. as indemnity for the loss of the Vitara.

Pioneer Insurance and Surety Corporation by right of subrogation, filed a Complaint for
Recovery of Damages against Durban Apartments Corporation as the insurer for loss and
damage of Jeffrey See’s 2001 Suzuki Grand Vitara. Respondent alleged that the Vitara was lost
due to the negligence of Durban Apartments and it was discovered during the investigation that
this was the second time that a similar incident of carnapping happened in the valet parking
service of Durban Apartments and no necessary precautions were taken to prevent its
repetition, and that petitioner failed and refused to pay respondent’s valid, just and lawful
claim despite written demands.

ISSUE: Whether Durban Apartments is liable for the loss of See’s vehicle

RULING: Yes, Durban Apartments is liable for the loss of See’s vehicle.

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and returning the same. If the safekeeping of
the thing delivered is not the principal purpose of the contract, there is no deposit but some
other contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as
necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided
that notice was given to them, or to their employees, of the effects brought by the guests and
that, on the part of the latter, they take the precautions which said hotel-keepers or their
substitutes advised relative to the care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for
safekeeping with petitioner, through the latter’s employee. In turn, the employee issued a claim
stub to See. Thus, the contract of deposit was perfected from See’s delivery, when he handed
over the keys to his vehicle, which the parking attendant received with the obligation of safely
keeping and returning it. Ultimately, petitioner is liable for the loss of See’s vehicle.

9. YHT REALTY CORP. v. CA

February 17, 2005

FACTS: McLoughlin arrived from Australia and registered with Tropicana. He rented a safety
deposit box as it was his practice to rent a safety deposit box every time he registered at
Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by
Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened
through the use of two keys, one of which is given to the registered guest, and the other
remaining in the possession of the management of the hotel. When a registered guest wished
to open his safety deposit box, he alone could personally request the management who then
would assign one of its employees to accompany the guest and assist him in opening the safety
deposit box with the two keys.

He found out that some of his money in the safety deposit box were missing. He immediately
confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the
key assigned to him. McLoughlin went up to his room where Tan was staying and confronted
her. Tan admitted that she had stolen McLoughlin's key and was able to open the safety deposit
box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that Tan stole
the key assigned to McLoughlin while the latter was asleep.

The respondent filed a complaint against the Petitioner. Petitioner contented that the waiver
signed by the Respondent exonerate them from liabilities. The RTC found the Management of
the Hotel negligent for allowing a third person to open the safety deposit box which the
Respondent rented from them.

ISSUES:
1. Whether the Petitioner Committed Gross Negligence for the stolen property of the Private
Respondent?
2. Whether the “Undertaking For The Use of Safety Deposit Box” executed by the Private
Respondent to exonerate the hotel prom liability is null and void?

RULING:

1. Yes. The evidence reveals that two keys are required to open the safety deposit boxes of
Tropicana. One key is assigned to the guest while the other remains in the possession of the
management. If the guest desires to open his safety deposit box, he must request the
management for the other key to open the same. In other words, the guest alone cannot
open the safety deposit box without the assistance of the management or its employees.
With more reason that access to the safety deposit box should be denied if the one
requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of
any item deposited in the safety deposit box, it is inevitable to conclude that the
management had at least a hand in the consummation of the taking, unless the reason for
the loss is force majeure.

As to who shall bear the burden of paying damages, Article 2180, (4) of the same Code
provides that the owners and managers of an establishment or enterprise are likewise
responsible for damages caused by their employees in the service of the branches in which
the latter are employed or on the occasion of their functions. Also, this Court has ruled that
if an employee is found negligent, it is presumed that the employer was negligent in
selecting and/or supervising him for it is hard for the victim to prove the negligence of such
employer. Thus, given the fact that the loss of McLoughlin's money was consummated
through the negligence of Tropicana's employees in allowing Tan to open the safety deposit
box without the guest's consent, both the assisting employees and YHT Realty Corporation
itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to
Article 2193.

2. Yes. Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices
to the effect that he is not liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the responsibility of the former as set
forth in Articles 1998 to 2001 is suppressed or diminished shall be void.
 Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New
Civil Code for they allow Tropicana to be released from liability arising from any loss in the
contents and/or use of the safety deposit box for any cause whatsoever. Evidently, the
undertaking was intended to bar any claim against Tropicana for any loss of the contents of
the safety deposit box whether or not negligence was incurred by Tropicana or its
employees. The New Civil Code is explicit that the responsibility of the hotel-keeper shall
extend to loss of, or injury to, the personal property of the guests even if caused by servants
or employees of the keepers of hotels or inns as well as by strangers, except as it may
proceed from any force majeure. It is the loss through force majeure that may spare the
hotel-keeper from liability. In the case at bar, there is no showing that the act of the thief or
robber was done with the use of arms or through an irresistible force to qualify the same as
force majeure.

10. REPUBLIC v. LIM

June 29, 2005

11. LITONJUA v. L&R CORP.

December 9, 1999

FACTS: This stems from loans obtained by the spouses Litonjua from L&R Corporation in the
aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the
remaining P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage
constituted by the spouses upon their two parcels of land and the improvements thereon. The
mortgage was duly registered with the Register of Deeds.

Spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels of land
they had previously mortgaged to L & R Corporation for the sum of P430,000.00. Meanwhile,
with the spouses Litonjua having defaulted in the payment of their loans, L & R Corporation
initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. The
mortgaged properties were sold at public auction to L & R Corporation as the only bidder for
the amount of P221,624.58.

On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register
of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without its
consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2)
that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed
properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal
personality or capacity to redeem the same.

On the other hand, the spouses Litonjua asked the Register of Deeds to annotate their
Certificate of Redemption as an adverse claim on the titles of the subject properties on account
of the refusal of L & R Corporation to surrender the owner’s duplicate copies of the titles to the
subject properties. With the refusal of the Register of Deeds to annotate their Certificate of
Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R Corporation for
the surrender of the owner’s duplicate of Transfer Certificates of Title No. 197232 and 197233
before the then CFI.

ISSUE: WON there was a Valid and enforceable stipulation granting the mortgagee the right of
first refusal.

HELD: While petitioners question the validity of paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L
& R Corporation the right of first refusal over the mortgaged property in the event the
mortgagor decides to sell the same. We see nothing wrong in this provision. The right of first
refusal has long been recognized as valid in our jurisdiction.

The consideration for the loan-mortgage includes the consideration for the right of first refusal.
L & R Corporation is in effect stating that it consents to lend out money to the spouses Litonjua
provided that in case they decide to sell the property mortgaged to it, then L & R Corporation
shall be given the right to match the offered purchase price and to buy the property at that
price. Thus, while the spouses Litonjua had every right to sell their mortgaged property to
PWHAS without securing the prior written consent of L & R Corporation, it had the obligation
under paragraph 9, which is a perfectly valid provision, to notify the latter of their intention to
sell the property and give it priority over other buyers. It is only upon failure of L & R
Corporation to exercise its right of first refusal could the spouses Litonjua validly sell the subject
properties to others, under the same terms and conditions offered to L & R Corporation.

It was then held that the Contract of Sale there, which violated the right of first refusal, was
rescissible.

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R
Corporation over the subject properties since the Deed of Real Estate Mortgage containing such
a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to
have been notified thereof by registration, which equates to notice to the whole world.

That it did not duly exercised its right of first refusal at the opportune time cannot be taken
against it, precisely because it was not notified by the spouses Litonjua of their intention to sell
the subject property and thereby, to give it priority over other buyers.

12. BORROMEO v. CA
March 28, 2008

13. AGBADA v. INTER-URBAN DEVELOPERS, INC.,

September 19, 2002

FACTS: Petitioner-spouses obtained P1.5M loan from defendant Inter-Urban with term of 6
months and 3% monthly interest, secured by a real estate mortgage on a parcel of land and the
improvements thereon. Upon default, defendant filed complaint for foreclosure of mortgage
which the petitioners opposed claiming that the loan is not yet due because when they
obtained the loan from Ong Tiam, President of Inter-Urban, the term agreed upon is 5 years
with rate at legal interest, and further alleging that those terms appearing in the documents are
simulated and for formality purposes only. Trial court ruled in favor of defendant in which the
petitioner-spouses did not appeal, thus property was foreclosed with defendant as the highest
bidder. Writ of possession was secured by defendant. After the foreclosure, the petitioners filed
Petition for Annulment of Judgment with Preliminary Injunction which was denied by RTC and
CA.

ISSUE: Whether the foreclosure by the defendant is valid.

RULING: Yes. The material issues in a civil action for foreclosure of real estate mortgage are the
existence of the debt and its demandability. The first one was not refuted by the petitioner-
spouses. The second lies on whether the term is 6 months or 5 years. When proceedings had
been ongoing in the trial court for more than 4 years, petitioner-spouses plainly assailed the
finding of the trial court vis-a-vis the appraised value of the foreclosed property, without more,
thus strongly implying their acquiescence to the due and demandable loan, and in fact
attempted to pay the loan completely and recover the foreclosed lot and improvements.

The defense of failure of the writing to express the true intent and agreement of the parties,
obtains only where the written contract is so ambiguous or obscure in terms that the
contractual intention of the parties cannot be understood from a mere reading of the
instrument, thus necessitating the reception of relevant extrinsic evidence of the contractual
provision in dispute to enable the court to make a proper interpretation of the instrument.
However, in this case, the loan and mortgage deed are clear and without ambiguity, mistake or
imperfection in specifying the maturity of the loan exactly after 6 months from date of
execution thereof at interest rate of 3% per month.

14. SAYSON v. LUNA

June 27, 2006

15. PAGUYO v. GATBUNTON

May 25, 2007
FACTS: Adoracion Paguyo and his wife, by way of security for a loan of P20,000.00 which they
obtained from Jeanlyn's Lending Investor, executed in favor of the latter a Deed of Real Estate
Mortgage over their residential property in Bataan.

When the Paguyos allegedly defaulted in their loan payment and its interests, an application for
the extrajudicial foreclosure of the aforesaid mortgage pursuant to Act 3135, as amended, was
filed with the RTC by the Garcia spouses, owners and operators of Jeanlyn's Lending Investor.

A Notice of Sheriff's Sale was then issued. The Sheriff of the RTC thereby set the public auction
sale of the mortgaged realty on April 11, 2003. The notice was posted on February 24, 2003 and
subsequently published in Sierra Pacific News. The auction sale was actually conducted by the
respondent on December 1, 2003 with Garcia emerging as the highest bidder.

Claiming that the conduct by the respondent sheriff of the extrajudicial foreclosure proceedings
against their property was highly irregular and patently illegal, Paguyo filed with the Office of
the Court Administrator (OCA) a complaint, charging respondent with grave abuse of authority
and/or gross ignorance of the law. Paguyo alleged, inter alia, that the respondent sheriff has no
authority to extrajudicially foreclose the mortgage because no special power of attorney is
attached to or incorporated in the Deed of Real Estate Mortgage authorizing the extrajudicial
foreclosure of the mortgage pursuant to Act 3135, as amended.

The sheriff denied the charges against him. He claimed that it is his ministerial duty to proceed
with the auction sale of the mortgaged property because it has already been approved by the
Ex-Officio Provincial Sheriff and Acting Clerk of Court.

The OCA finds no basis to hold the respondent liable for his failure to check if the deed of real
estate mortgage in question incorporates a Special Power of Attorney authorizing the
mortgagee to extrajudicially foreclose the mortgage in case the debtor fails to pay the
obligation upon its maturity.

ISSUE: Whether Gatbunton has the authority to extrajudicially foreclose the mortgage.

RULING: Yes.

Under Section 1 of Act 3135, as amended, extrajudicial foreclosure sales are proper only when
so provided under a special power inserted in or attached to the mortgage contract. While the
Deed of Real Estate Mortgage in this case contains no special power authorizing the Garcia
spouses as mortgagees to extrajudicially foreclose the mortgage in case the Paguyos defaulted
in their loan obligation, nonetheless, the respondent sheriff cannot be held administratively
liable for proceeding with the extrajudicial foreclosure of the mortgage in question.

It is provided for in Administrative Order No. 3 series of 1984 that it is the sheriff's duty to
examine if the application for extrajudicial foreclosure of real estate mortgage has complied
with the requirements under Section 4 of Act 3135, as amended. However, Circular No. 7-2002,
which became effective on April 22, 2002, have made it the specific duty of the Clerk of Court to
examine applications for extrajudicial foreclosure of mortgages thus amending AO No.3, S.
1984. Since the application for extrajudicial foreclosure was filed on February 11, 2003,
obviously after the amendment of Administrative Order No. 3., the duty to examine said
application to determine whether the deed of mortgage contains or incorporates a special
power authorizing the Garcia spouses to extrajudicially foreclose the mortgage in the event of
nonpayment of the loan by the Paguyos devolved upon the Clerk of Court, not on the
respondent sheriff. Hence, respondent cannot be held administratively liable for proceeding
with the foreclosure sale.
 16. TAMAYO, Jr. v. HEIRS OF G. DOMINGUEZ
August 10, 2006
17. LCK INDUSTRIES INC. v. PLANTERS DEVELOPMENT BANK
November 27, 2007

FACTS: Petitioner LCK obtained a loan from the respondent bank in the amount of P3M as
evidenced by two promissory notes. As a security for the loan obligation, petitioners-spouses
Chiko and Elizabeth Lim executed a Real Estate Mortgage over a parcel of land covered by a TCT
registered under their names and located at Quezon City (Quezon City property). Later on, to
secure the same obligation, another Real Estate Mortgage was executed over another parcel of
land, also registered under the names of the petitioner-spouses, located at Baguio City (Baguio
City property).

Subsequently, petitioner LCK incurred default in its payment; thus, making the obligation due
and demandable. Several demands were thereafter made by the respondent bank to no avail.
Consequently, respondent bank caused the extrajudicial foreclosure of the Baguio City property
which was sold at the public auction. Since the proceeds of the foreclosed Baguio City property
were not enough to satisfy the entire loan obligation, respondent bank further caused the
extrajudicial foreclosure of the Quezon City property. The respondent bank was the highest
bidder on both occasions.

Prior to the auction sale of the Quezon City property petitioners filed with the RTC of Quezon
City an action for Annulment of the Foreclosure of Mortgage and Auction Sale of the Quezon
City property with Restraining Order/Preliminary Injunction and with Damages against
respondent bank and Atty. Anigan. In their Complaint, petitioners alleged that respondent bank
failed to comply with the posting and publication requirements as well as with the filing of the
Petition for the Extrajudicial Foreclosure of the Real Estate Mortgage with the Clerk of Court as
required by Act No. 3135. Petitioners prayed for the issuance of a TRO in order to enjoin the
respondent bank from conducting the auction sale, and in the alternative, to enjoin the Registry
of Deeds of Quezon City from transferring the ownership of the Quezon City property to the
purchaser at the auction sale.

In its Answer with the Opposition to the Prayer, respondent bank averred that it had fully
observed the posting and publication requirements of Act No. 3135. It insisted that the filing of
the Petition for Extrajudicial Foreclosure of the Mortgage Property with the Notary Public was
sanctioned by the same statute. Respondent bank thus prayed for the dismissal of petitioners
complaint for lack of merit.

For failure of the counsels for both petitioners and respondent bank to appear in the scheduled
hearing for the issuance of temporary restraining order, the RTC deemed the prayer for TRO
abandoned. Thereafter, the RTC conducted a pre-trial conference. In the Pre-Trial Order the
parties made admissions of facts and stipulations.
The court further defined the issues as follows:
(1) whether or not the petition was filed with the Office of the Clerk of Court;
(2) whether or not the extra-judicial foreclosure of real estate mortgage by defendant
bank was made in accordance with the provisions of Act 3135, as amended; and
(3) whether or not the parties are entitled to their respective claims for attorneys fees
and damages.

The parties were given 15 days from receipt of the Pre-Trial Order to make amendments or
corrections thereon. The parties agreed to submit the case for the decision of the RTC based on
the stipulations and admissions made at the pre-trial conference. The parties further
manifested that they were waiving their respective claims for attorneys fees. On the same day,
the RTC required the parties to submit their respective memoranda.

In their Memorandum, petitioners, aside from reiterating issues previously raised in their
Complaint, further claimed that there was an overpayment of the loan obligation by
P1,856,416.67. As shown in the letter-demand received by petitioner LCK, its outstanding loan
obligation amounted to P2,962,500.00. The Baguio City property was purchased by respondent
bank at the public auction for P2,625,000.00, while the Quezon City property was purchased for
P2,231,416.67.

For its part, respondent bank maintained in its Memorandum that the complaint filed by
petitioners is devoid of merit. It further asseverated that petitioners claim for overpayment was
not among the issues submitted for the resolution of the RTC. It is clear from the Pre-Trial Order
that the issues to be resolved are limited to whether the petition for the foreclosure of the real
estate mortgage was filed before the Clerk of Court and whether or not the extrajudicial
foreclosure of real estate mortgage was made by the respondent bank in accordance with the
provisions of Act No. 3135. For failure of petitioners to promptly raise the alleged overpayment,
the RTC is now barred from adjudicating this issue.

The RTC rendered its Decision declaring the foreclosure and the auction sale of the Quezon City
property legal and valid, but ordered respondent bank to return the overpayment made by
petitioners in the amount of P1,856,416.67. The subsequent motion for reconsideration of
respondent bank was denied. Aggrieved, respondent bank elevated the matter to the Court of
Appeals by assailing the portion of the RTC Decision ordering it to pay petitioners the amount of
P1,856,416.67, the CA granted the appeal of the respondent bank and partially reversed the
RTC Decision insofar as it ordered respondent bank to pay the overpaid amount of
P1,856,416.67 to petitioners.

In deleting the award of overpayment, the appellate court emphasized that the primary
purpose of pretrial is to make certain that all issues necessary for the disposition of the case are
properly raised in order to prevent the element of surprise. Since the alleged overpayment was
only raised by the petitioners long after the pre-trial conference, the court a quo cannot
dispose of such issue without depriving the respondent bank of its right to due process. The
Motion for Reconsideration filed by petitioners was denied by the Court of Appeals.
Thus, this Petition for Review on Certiorari under Rule 45.
ISSUE: Whether the excess amount from the auction sale should be returned

RULING: Generally, pre-trial is primarily intended to make certain that all issues necessary to
the disposition of a case are properly raised. Thus, to obviate the element of surprise, parties
are expected to disclose at the pre-trial conference all issues of law and fact they intend to raise
at the trial. However, in cases in which the issue may involve privileged or impeaching matters,
or if the issues are impliedly included therein or may be inferable therefrom by necessary
implication to be integral parts of the pre-trial order as much as those that are expressly
stipulated, the general rule will not apply.

Thus, in Velasco v. Apostol, this Court highlighted the aforesaid exception and ruled in this wise:

“A pre-trial order is not meant to be a detailed catalogue of each and every issue that is
to be or may be taken up during the trial. Issues that are impliedly included therein or may be
inferable therefrom by necessary implication are as much integral parts of the pre-trial order as
those that are expressly stipulated.”

In fact, it would be absurd and inexplicable for the respondent company to knowingly disregard
or deliberately abandon the issue of non-payment of the premium on the policy considering
that it is the very core of its defense. Correspondingly, we cannot but perceive here an
undesirable resort to technicalities to evade an issue determinative of a defense duly averred.

In the case at bar falls under this particular exception. Upon scrupulous examination of the Pre-
Trial Order, it can be deduced that the parties stipulated that the remaining sum of petitioner
LCKs obligation as of 13 October 1997 was P2,962,500.00. In the same Pre-Trial Order, the
parties likewise stipulated that the Baguio City property was sold at the public auction for
P2,625,000.00 and the Quezon City property for P2,231,416.67. On both occasions, respondent
bank emerged as the highest bidder. By applying simple mathematical operation, the
mortgaged properties were purchased by the respondent at the public auctions for
P4,856,416.67; thus, after deducting therefrom the balance of petitioner LCKs obligation in the
amount of P2,962,500.00, an excess in the sum of P1,893,916.67 remains.

Needless to say, the fact of overpayment, though not expressly included in the issues raised in
the Pre-Trial Order dated 8 September 2000, can be evidently inferred from the stipulations
and admissions made by the parties therein. Even only upon plain reading of the said Pre-Trial
Order, it can be readily discerned that there was an overpayment.

Rule 39. SEC. 21. Judgment obligee as purchaser. When the purchaser is the judgment
obligee, and no third-party claim has been filed, he need not pay the amount of the bid if it
does not exceed the amount of the judgment. If it does, he shall pay only the excess.
 Rule 68. SEC. 4. Disposition of proceeds of sale - The amount realized from the
foreclosure sale of the mortgaged property shall, after deducting the costs of the sale, be paid
to the person foreclosing the mortgage, and when there shall be any balance or residue, after
paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order
of their priority, to be ascertained by the court, or if there be no such encumbrancers or there
be a balance or residue after payment to them, then to the mortgagor or his duly authorized
agent, or to the person entitled to it. (Emphasis supplied.)

The renowned jurist Florenz Regalado, in Sulit v. Court of Appeals, underscored the obligation
of the mortgagee with respect to the surplus money resulting from a foreclosure sale of the
mortgaged property:
“The application of the proceeds from the sale of the mortgaged property to the
mortgagors obligation is an act of payment, not payment by dation; hence, it is the mortgagees
duty to return any surplus in the selling price to the mortgagor. Perforce, a mortgagee who
exercises the power of sale contained in a mortgage is considered a custodian of the fund, and,
being bound to apply it properly, is liable to the persons entitled thereto if he fails to do so. And
even though the mortgagee is not strictly considered a trustee in a purely equitable sense, but
as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the
mortgagor or owner of the equity of redemption.”

Commenting on the theory that a mortgagee, when he sells under a power, cannot be
considered otherwise than as a trustee, the vice-chancellor in Robertson v. Norris (1 Giff. 421)
observed: That expression is to be understood in this sense: that with the power being given to
enable him to recover the mortgage money, the court requires that he shall exercise the power
of sale in a provident way, with a due regard to the rights and interests of the mortgagor in the
surplus money to be produced by the sale.

Petitioner LCKs obligation with the respondent bank was already fully satisfied after the
mortgaged properties were sold at the public auction for more than the amount of petitioner
LCKs remaining debt with the respondent bank. As the custodian of the proceeds from the
foreclosure sale, respondent bank has no legal right whatsoever to retain the excess of the bid
price in the sum of P1,893,916.67, and is under clear obligation to return the same to
petitioners.

In any case, this Court would not allow respondent bank to hide behind the cloak of procedural
technicalities in order to evade its obligation to return the excess of the bid price, for such an
act constitutes a violation of the elementary principle of unjust enrichment in human relations.
Under the principle of unjust enrichment - nemo cum alterius detrimento locupletari potest - no
person shall be allowed to enrich himself unjustly at the expense of others.

18. DBP v. LICUANAN

February 26, 2007
FACTS: In 1974, Respondent spouses Alejandro and Adelaida Licuanan ("Respondents") were
granted a P4,700 loan by petitioner Development Bank of the Philippines ("DBP") to mature in
1979 and secured by a real estate mortgage over a 980-square meter property. In 1975, DBP
granted respondents a second loan of P12,000 payable on or before the year 1980, which was
secured by a real estate mortgage over four parcels of land. Thereafter, DBP granted
Respondents a third loan of P22,000 maturing in 1985, and was secured by a real estate
mortgage over three parcels of land.

In 1981, DBP sent a letter to Respondents informing them that they would institute extrajudicial
foreclosure proceedings for breach of the conditions of the mortgage (of the first loan). After an
application for extrajudicial foreclosure, the properties were sold in a public auction, in which
DBP was the highest bidder for bidding a total of P16,340. In 1984 DBP informed Respondents
that the properties could be reacquired by negotiated sale. Three days later, however, the
properties were sold to one Emelita Peralta for P104,000. After being informed of the sale,
Respondents offered to repurchase the properties, but it was rejected by DBP. Respondents
then filed a complaint for recovery of real properties and damages in RTC of Lingayen against
DBP and Peralta.

ISSUE: Whether or not prior demand is precondition before an extrajudicial foreclosure can be
made

RULING: Yes.

Unless demand is proven, one cannot be held in default. Petitioner’s cause of action did not
accrue on the maturity dates stated in the promissory notes. It is only when demand to pay is
made and subsequently refused that respondents can be considered in default and DBP obtains
the right to file an action to collect the debt or foreclose the mortgage. The maturity dates only
indicate when payment can be demanded. It is the refusal to pay after demand that gives the
creditor a cause of action against the debtor.

Since demand was never made by DBP, the foreclosure was premature and therefore null and
void. Further, DBP's argument that respondents are estopped from questioning the validity of
the foreclosure sale since they offered to repurchase the foreclosed properties is incorrect. An
offer to repurchase should not be construed as a waiver of the right to question the sale.
Instead, it must be taken as an intention to avoid further litigation and thus is in the nature of
an offer to compromise. By offering to redeem the properties, respondents can attain their
ultimate objective: to pay off their debt and regain ownership of their lands.

19. GSIS v. CA
January 13, 1997

FACTS: Private respondent PVHI, then also known as the "Sulo ng Nayon, Inc.," obtained a loan
in the sum of 22 million pesos from the GSIS for the construction of a hotel on a land leased to
PVHI by the Nayong Pilipino Foundation. In order to guarantee payment of the loan, PVHI
hypothecated the hotel and its contents to the GSIS. GSIS granted to PVHI two additional loan
accommodations in the respective amounts of 8 million 6.5 million pesos. PVHI and GSIS
entered into a lease-purchase agreement over abuilding annexed to the hotel (then under
construction) for 67.8 million. Under the agreement, PVHI was to pay monthly installments to
the GSIS until the cost of the building would have been fully paid for.

The loan obligation covered by the mortgage still remained in arrears. GSIS instituted
foreclosure proceedings of real estate and chattel mortgages. The hotel was finally sold at a
public auction with the GSIS as the highest bidder.

PVHI filed with the same Pasay City RTC a petition to set aside the foreclosure sale with an
application for the issuance of a temporary restraining order and preliminary injunction,
asserting that the foreclosure sale was illegal.

CA held that under Section 8 of RA 3135, an appeal was the proper remedy for the PVHI.

ISSUE: Whether or not the remedy of a party aggrieved by foreclosure is to have the sale set
aside

RULING: Yes. Section 8 of Act No. 3135 states that the debtor may, in the proceedings in which
possession was requested, but not later than thirty days after the purchaser was given
possession, petition that the sale be set aside and the writ of possession canceled, specifying
the damages suffered by him, because the mortgage was not violated or the sale was not made
in accordance with the provisions hereof, and the court shall take cognizance of this petition in
accordance with the summary procedure.

20. Maglaque vs. Planters Development Bank

May 18, 1999
FACTS: Spouses Egmidio Maglaque and Sabina Payawal were the owners of a parcel of land,
situated in the municipality of San Miguel, province of Bulacan, with an area of 464 sqm, more
or less, and a residential house of strong materials erected thereon.

Spouses Maglaque obtained a loan P2,000.00 pesos from the Bulacan Development Bank
evidenced by a promissory note, payable on or before March 19, 1975, in two installments, the
first payment of P1,000.00, shall be due on September 19, 1974, and the second payment of
P1,000.00, shall be due on March 19, 1975, with interest at 12% per annum.

To secure the loan, the spouses executed a deed of real estate mortgage on the above-
described parcel of land, including its improvements.

Sabina Payawal died. On December 22, 1977, Egmidio Maglaque paid Planters Development
Bank the amount of P2,000.00, which the bank accepted. Then Egmidio died before he can pay
remaining the balance.
For non-payment in full of the loan, the bank extra-judicially foreclosed on the real estate
mortgage, through the Provincial Sheriff of Bulacan, who conducted a public auction sale of the
mortgaged property pursuant to the authority provided for in the deed of real estate mortgage.
The bank was the highest bidder.

After the lapse of the redemption period, the bank consolidated its title to the property, and
became its registered owner under TCT No. T259923 of the Registry of Deeds of Bulacan.

David Maglaque, as heir of the deceased spouses Egmidio Maglaque and Sabina Payawal, filed
with the CFI of Bulacan, a complaint for annulment of the sale conducted by the Provincial
Sheriff of Bulacan, reconveyance of title, with damages, and injunction on September 8, 1980.

The bank sold the property to the spouses Angel S. Beltran and Erlinda C. Beltran, for thirty
thousand P30,000.00 pesos on September 24, 1980.

ISSUE: Whether the court erred in not finding that the Bank should have filed its claim in the
settlement of estate of the deceased mortgagors.

RULING: No.

According to Rule 86, Section 7 of the Revised Rules of Court, the rule is that a secured creditor
holding a real estate mortgage has 3 options in case of death of the debtor. These are:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary
claim; and (3) to rely on the mortgage exclusively, foreclosing the same at anytime before it is
barred by prescription, without right to file a claim for any deficiency. Obviously, respondent
bank availed itself of the third option.

WHEREFORE, the Court hereby AFFIRMS in full the appealed decision of the Court of Appeals in
CA-G. R. CV No. 22489

21. Raymundo v. Sunico

September 27, 1913

FACTS: Valeriana Raymundo was the owner of three parcels of land. She mortgaged this land to
a company to secure the payment of P5,915.56. Thereafter, an action was filed to foreclose the
mortgage and an order was issued by the lower court directing Raymundo to pay the amount
within the time prescribed by law, and in case of failure to do so, the property will be sold to
satisfy the judgement. The land was sold at public auction to Sunico. Such sale was approved by
the lower court without any notice to the plaintiffs.

ISSUE: Whether the approval of the sale of mortgaged property is valid and sufficient to pass
title without giving the mortgagor an opportunity to be heard.
RULING: The last part of section 257 of the Code of Civil Procedure reads: “Should the Court
decline to confirm the sale, for good cause shown, and should set it aside, it shall order a resale
in accordance with law.” This part of the section clearly shows that there must be a hearing for
the confirmation of the sale. Such hearing is an essential part of the foreclosure proceedings
because it gives the interested parties an opportunity to lay before the court their reasons why
the sale should or should not be confirmed.

22. Phil. Veteran’s Bank v. Monillas

March 28, 2008

FACTS: Respondent Benjamin Monillas and his brother, Ireneo, inherited from their father a
parcel of land. On May 21, 1973, respondent Benjamin executed a deed of sale of his share over
the property to Ireneo under the latter’s representation that he would use the deed to facilitate
the procurement of a loan DBP for a planned housing project on the land. Ireneo then caused
the transfer of the title in his name, the property’s subdivision into 308 lots, and the issuance of
individual titles for the subdivided lots. Ireneo mortgaged 22 of the 308 lots petitioner
Philippine Veterans Bank (PVB). Three years later, respondent Benjamin filed a case for the
nullification of the 1973 deed of sale, the recovery of the property, and the payment of
damages. While the case between the 2 brothers was pending, PVB foreclosed the mortgage
and PVB was the highest bidder. Respondent Benjamin caused the annotation of notices of lis
pendens relating to the said civil case on the titles of the subdivided lots.

RTC: in favor of Benjamin by declaring the 1973 deed as null and void, cancelling the
subsequent titles issued, and ordering the payment of damages.

CA: affirmed the ruling of the RTC. The Sheriff’s Certificate of Sale and the Affidavit of
Consolidation of Ownership were annotated, and new titles were issued in the name of PVB.
Respondent Benjamin sued petitioner PVB and the Register of Deeds of Isabela for the
cancellation of the mortgage, the invalidation of the foreclosure, and the declaration of the
nullity of the titles issued in petitioner’s name. RTC: in favor of Benjamin declaring the
mortgage null and void, the foreclosure sale null and void and ordered the cancellation of the
title under PVB and transfer such titles to Benjamin Monillas. The RTC rationalized that while
the annotation of the notices succeeded the registration of the mortgage, still the effect of the
notices was that PVB acquired knowledge of an impediment against its interest, and as a matter
of fact, petitioner ignored the notices and slept on its rights, as it did not intervene in the said
civil case. PVB filed a Rule 45 with the SC.

ISSUE: Whether or not the prior registered mortgage and the already concluded foreclosure
proceedings with PVB should prevail over the subsequent annotation of the notices of lis
pendens on the lot titles

RULING: Petition is meritorious (SC in favor of PVB)

The Court rules that the prior registered mortgage of PVB and the foreclosure proceedings
already conducted prevail over respondent’s subsequent annotation of the notices of lis
pendens on the titles to the property. Settled in this jurisdiction is the doctrine that 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. A contrary rule will make the prior
registration of a mortgage or lien useless. The purpose of the registration of the mortgage is to
protect the property it is attached to. The doctrine applies with greater force in this case
considering that the annotation of the notice of lis pendens was made not only after the
registration of the mortgage, but also, and much later, after the conclusion of the foreclosure
sale.

The Court also notes that PVB is an innocent mortgagee for value. When the lots were
mortgaged to it by Ireneo: the titles thereto were in the Ireneo’s name; and they showed
neither vice nor infirmity and the public interest in upholding the indefeasibility of a certificate
of title, as evidence of the lawful ownership of the land or of any encumbrance thereon,
protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the
certificate of title.

PVB cannot even be considered to have slept on its rights when it only registered the Sheriff’s
certificate of sale after the lapse of almost 15 years, because, as already discussed, it registered
its prior mortgage and had already foreclosed on the same. Petitioner, therefore, had every
reason to expect that its rights were amply protected. And the mortgagor was even benefited
by this late registration of the Sheriff’s Sale, because then, he would still have a chance to
redeem the property.

Furthermore, oft repeated is the rule that the foreclosure sale retroacts to the date of the
registration of the mortgage. It no longer matters that the annotation of the sheriff’s certificate
of sale and the affidavit of consolidation of ownership was made subsequent to the annotation
of the notice of lis pendens.

23. LIMPIN v. IAC

January 30, 1987

FACTS: Four lots were mortgaged by the spouses Jose and Marcelina Aquino to Guillermo
Ponce and his wife Adela (since deceased) as security for a loan of P2,200,000.00. The
mortgages were registered. Two of the lots, those covered by TCTs Nos. 92836 and 92837, were
afterwards sold by the Aquinos to the Butuan Bay Wood Export Corporation, which caused an
adverse claim to be annotated on the certificates of title.

Gregorio Y. Limpin, Jr. obtained a money judgment against Butuan Bay Wood Export
Corporation in Court of First Instance of Davao. To satisfy the judgment, the lots covered by
TCTs Nos. 92836 and 92837 were levied upon on and sold at public auction to Limpin as the
highest bidder for the sum of P517,485.41.
On order of the trial court, the covering titles were cancelled and issued to Limpin. Limpin sold
the two lots to Rogelio M. Sarmiento. By virtue of said sale, TCTs Nos. 285450 and 285451 were
cancelled on November 4, 1983, and TCT’S were replaced in Sarmiento's name. Ponce filed suit
against the Aquino spouses for judicial foreclosure of the mortgage over the Aquinos' four lots.
Judgment was rendered in favor of Ponce. After the judgment became final, the Trial Court,
directed the sale at public auction of the 4 mortgaged lots to satisfy the judgment. The 4 lots,
including those formerly covered by TCTs Nos. 92836 and 92837, were sold to Ponce himself
whose bid was the highest and exactly correspond to the judgment debt. On the same day, the
sheriff's certificate of sale was registered.

Ponce then moved for the confirmation of the sale and the issuance of a writ of possession in
his favor covering the four lots. But the Trial Court confirmed only the sale of the lots covered
by TCTs Nos. 02839 and 92840, refusing to confirm the sale or issue a writ of possession in
regard to the lots covered by TCTs Nos. 92836 and 92837 on the ground that those titles had
already been cancelled and new ones issued to Gregorio F. Limpin. Limpin refused to
participate in the hearings contending that the Court had no jurisdiction over his person; but he
did comment that the mortgage over the lots covered by TCTs Nos. 92836 and 92837 had been
released by Ponce by virtue of a "Partial Release of Real Estate Mortgage". The Trial Court
denied Ponce's motion for reconsideration, whereupon he sought corrective relief by filing a
special civil action for certiorari and mandamus in the Intermediate Appellate Court, impleading
Limpin and Sarmiento, as private respondents. IAC set aside the judgment of the Trial Court and
issue a writ of possession to Ponce with respect thereto, subject to Sarmiento's equity of
redemption.

ISSUE: Whether or not IAC erred in according to superiority to the mortgage rights of Ponce
over the levy and sale in favor of Limpin and the subsequent sale to Sarmiento.

RULING: NO.

The superiority of the mortgagee's lien over that of a subsequent judgment creditor is now
expressly provided in Rule 39, Section 16 of the Revised Rules of Court, which states with
regard to the effect of levy on execution that it shall create a lien in favor of a judgment creditor
over the right title and interest of the judgment debtor in such property at the time of the levy,
subject to the liens or encumbrances then existing.

In Santiago v Dionisio, the Court in that case held that: The effect of the failure to implead a
subordinate lienholder 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." But the foreclosure is valid as between the parties to the suit.

Applied to this case, this means that the sale to Ponce, as the highest bidder in the foreclosure
sale of the two lots in question should have been confirmed, subject to Limpin's (and now
Sarmiento's equity to redemption. The registration of the lands, first in the name of Limpin and
later of Sarmiento, was premature. At most what they were entitled to be the registration of
their equity of redemption. It is well settled that a recorded mortgage is a right in rem, a lien on
the property whoever its owner may be.

The recordation of the mortgage in this case puts the whole world on constructive notice of its
existence and warned everyone who thereafter dealt with the property on which it was
constituted that he would have to reckon with that encumbrance. Hence, Limpin's subsequent
purchase of the "interests and participation" of Butuan Bay Wood Export Corporation in the lots
covered by TCTs Nos. 92836 and 92837, as well as the sale of the same to Sarmiento were both
subject to said mortgage.

24. Aclon v. CA
August 20, 2002

FACTS: On December 15, 1964, Aclon secured a loan from the Philippine National Bank (PNB for
brevity)) at Catbalogan, Samar, in the amount of Five Thousand Pesos (P5,000.00), payable
within one (1) year, this was secured by a mortgage of two parcels of land to PNB.

The loan became due and payable on December 15, 1965. However, the same was extended
after Aclon made a partial payment. But, still, Aclon failed to pay the loan in full at the time of
its maturity.PNB instituted extra-judicial foreclosure proceedings in accordance with the
provisions of Act 3135. After notice and publication, and conduct of the auction sale of the
mortgaged properties on July 17, 1973, The subject properties were awarded to PNB, being the
sole and highest bidder. The period of redemption lapsed on October 4, 1974 without Aclon
redeeming the foreclosed properties. PNB then consolidated its ownership over the said parcels
of land on October 16, 1974.

Then sometime around January 21, 1975, Aclon made a payment to PNB that was a “deposit”
for the purpose of enabling him to repurchase the foreclosed property. On June 25, 1975, PNB
sold to spouses Zosimo and Natalia Opimo the subject residential land located at Sulat, Eastern
Samar. However, Aclon remained in possession of the property. Aclon refused to vacate the
same and instead filed a complaint against PNB and the Opimo spouses for Annulment of Two
Contracts of Sale with Damages and Consignation.

The Opimo spouses, on the other hand, filed a complaint for Recovery of Real Property with
Preliminary Mandatory Injunction and Damages. Aclon brought two separate appeals with the
Court of Appeals. But the affirmed the decision of the lower court, whereby declaring the
extrajudicial foreclosure proceedings in question, as well as the sale at public auction to
defendant PNB are declared null and void (FOR LACK OF COMPLIANCE WITH THE MANDATORY
REQUIREMENTS OF THE LAW, ACT 3135, ON POSTING, PUBLICATION) but the subsequent sale
of the property by defendant PNB to appellees is however declared valid; and that Aclon
isordered to vacate the property in question and to surrender possession thereof to Opimo
Aclon now questions the sale to Opimo.
ISSUE: Whether or not, the sale to Opimo is valid, being that the extrajudicial proceedings and
auction were held invalid for not

RULING: Yes. An attempt to redeem from an execution sale by Aclon making the deposit has
been construed as a waiver of defects or irregularities therein, precluding him from relying
upon them for the purpose of challenging its validity. It has been held that The exercise of right
of redemption is an implied admission of the regularity of the foreclosure sale and estops the
mortgagor from later impugning its validity on that ground. Redemption is inconsistent with the
claim of the invalidity of the sale.

25. Metropolitan Bank and Trust Co. v. Tan

June 26, 2008s

FACTS: On the application for extra-judicial foreclosure of mortgage filed by herein petitioners
Metropolitan Bank and Trust Company (Metrobank) and its Vice President Rogelio T. Uy (Uy),
the Office of the Provincial Sheriff of Misamis Oriental issued a 'Sheriff's Notice of Sale setting
on April 17, 1998 the sale at public auction of four mortgaged parcels of land including that
covered by Transfer Certificate of Title No. T-53267 (the title in question) registered in the
name of herein respondent Jose B. Tan who was referred to in the title as 'JOSE B. TAN, of legal
age, Filipino, married to Eliza Go Tan.

A day before the scheduled public auction of the mortgaged properties or on April 16, 1998,
respondent spouses Jose B. Tan and Eliza Go Tan filed a complaint against petitioners, along
with Albano L. Cuarto, Sheriff IV of the Office of the Provincial Sheriff of Misamis Oriental, for
removal of cloud on the title in question and injunction before the Regional Trial Court of
Misamis Oriental.The complaint was docketed as Civil Case No. 98-225.

ISSUE: Whether a writ of possession shall issue in favor of Metrobank notwithstanding a

previous decision declaring the REM null and void.

HELD:

In Metrobank v. Tan. the Court ruled that Sps. Jose Tan failed to prove that the property in issue
is conjugal. It was thus declared that the extrajudicial foreclosure and the subsequent sale of
the mortgaged property covered by the titlen in question are valid. 

Notwithstanding respondent’s theory, no discretion is left to the trial court in the issuance of a
writ of possession. This is provided for in Sections 7 and 8 of Act 3135. The applicable law thus
states that it is the court’s ministerial duty to issue a writ of possession in favor of the purchaser
of the mortgaged realty during the period of redemption. It is ministerial upon the court to
issue a writ of possesion in favor of a purchaser, provided that a proper motion is filed, a bond
is approved, and no third person is involved. The pendency of an action to annul the mortgage
is not a ground for the non-enforcement of a writ of possession. The ministerial duty of the
court does not become discretionary upon the filing of a complaint questioning the mortgage. 
In any event, lack of respondent Eliza Go Tan's consent to the mortgage covering the title in
question would not render the encumbrance void under the second paragraph of Article 124 of
the Family Code . For proof is wanting that the property covered by the title is conjugal ' that it
was acquired during respondents' marriage which is what would give rise to the presumption
that it is conjugal property. The statement in the title that the property is 'registered in
accordance with the provisions of Section 103 of the Property Registration Decree in the name
of JOSE B. TAN, of legal age, married to Eliza Go Tan does not prove or indicate that the
property is conjugal.

In Ruiz v. Court of appeals instructs:

The property subject of the mortgage is registered in the name of 'Corazon G. Ruiz, of
legal age, married to Rogelio Ruiz, Filipinos. Thus, title is registered in the name of Corazon
alone because the phrase 'married to Rogelio Ruiz is merely descriptive of the civil status of
Corazon and should not be construed to mean that her husband is also a registered owner.
Furthermore, registration of the property in the name of 'Corazon G. Ruiz, of legal age, married
to Rogelio Ruiz is not proof that such property was acquired during the marriage, and thus, is
presumed to be conjugal. The property could have been acquired by Corazon while she was still
single and registered only after her marriage to Rogelio Ruiz. Acquisition of title and registration
thereof are two different acts.

The presumption under Article 116 of the Family Code that properties acquired during the
marriage are presumed to be conjugal cannot apply in the instant case. Before such
presumption can apply, it must first be established that the property was in fact acquired
during the marriage. In other words, proof of acquisition during the marriage is a condition sine
qua non for the operation of the presumption in favor of conjugal ownership. No such proof
was offered nor presented in the case at bar.

In fine, the extra-judicial foreclosure and subsequent sale of the mortgaged property covered
by the title in question was valid.

WHEREFORE, the petition is GRANTED. The assailed decision of the appellate court is SET ASIDE.
Civil Case No. 98-225, 'Jose B. Tan and Eliza Go Tan v. Metropolitan Bank and Trust Company, et
al., filed before and raffled to Branch 38 of the Regional Trial Court of Misamis Oriental, is
DISMISSED.