Yuliongsiu vs. Philippine National Bank
" Considering the circumstances of this case and the
FACTS: Plaintiff-appellant Diosdado Yuliongsiu was the
owner of two (2) vessels, namely: The M/S Surigao, valued
at P109,925.78 and the M/S Don Dino, valued at P63,000.00,
and operated the FS-203, valued at P210,672.24, which was
purchased by him from the Philippine Shipping Commission,
by installment or on account.
On June 30, 1947, plaintiff obtained a loan of P50,000 from
the defendant Philippine National Bank, Cebu Branch. To
guarantee its payment, plaintiff pledged the M/S Surigao,
M/S Don Dino and its equity in the FS203 to the defendant
bank, as evidenced by the pledge contract, executed on the
same day and duly registered with the office of the Collector
of Customs for the Port of Cebu.
Subsequently, plaintiff effected partial payment of the loan
in the sum of P20,000. The remaining balance was renewed
by the execution of two (2) promissory notes in the bank's
favor. These two notes were never paid at all by plaintiff on
their respective due dates.
Meanwhile, together with the institution of the criminal
action, defendant bank took physical possession of three
pledged vessels while they were at the Port of Cebu, and on
April 29, 1948, after the first note fell due and was not paid,
the Cebu Branch Manager of defendant bank, acting as
attorney-in-fact of plaintiff pursuant to the terms of the
pledge contract, executed a document of sale transferring the
two pledged vessels and plaintiff's equity in FS-203, to
defendant bank for P30, 042.72.
The FS-203 was subsequently surrendered by the defendant
bank to the Philippine Shipping Commission which
rescinded the sale to plaintiff on September 8, 1948, for
failure to pay the remaining installments on the purchase
price thereof. The other two boats, the M/S Surigao and the
M/S Don Dino were sold by defendant bank to third parties
on March 15, 1951.
On July 19, 1948, plaintiff commenced action in the Court of
First Instance of Cebu to recover the three vessels or their
value and damages from defendant bank.
The trial court ruled in favor of respondent.
ISSUE: Whether or not there is a valid contract of pledge?
RULING: Petitioner contends that the pledge contract is a
chattel mortgage contract so that the creditor defendant could
not take possession of the chattels object thereof until after
there has been default.
The parties stipulated as a fact that Exhibit "A" and "1-Bank"
is a pledge contract. Necessarily, this judicial admission
binds the plaintiff. Without any showing that this was made
thru palpable mistake, no amount of rationalization can
offset it.
The defendant bank as pledgee was therefore entitled to the
actual possession of the vessels. While it is true that plaintiff
continued operating the vessels after the pledge contract was
entered into, his possession was expressly made "subject to
the order of the pledgee."
Plaintiff-appellant would also urge Us to rule that
constructive delivery is insufficient to make pledge effective.
The type of delivery will depend upon the nature and the
peculiar circumstances of each case. The parties here agreed
that the vessels be delivered by the "pledgee to the pledgor
who shall hold said property subject to the order of the
pledgee.
nature of the objects pledged, i.e., vessels used in maritime
business, such delivery is sufficient.
Since the defendant bank was, pursuant to the terms of
pledge contract, in full control of the vessels thru the
plaintiff, the former could take actual possession at any time
during the life of the pledge to make more effective its
security. Its taking of the vessels therefore was not unlawful.
Llanto vs. Alzona
FACTS: Bernardo Sales and Maria Sales were husband and
wife. They have twelve children, eleven of whom are the
present petitioners while the remaining child, Estela Sales
Pelongco, is one of herein respondents. Maria was the
registered owner of a certain parcel of land with an area of
202 square meters.
Until they died, Maria and Bernardo, together with some of
their children, lived on said land and in the house which they
constructed thereon. Maria died on August 27, 19868 while
Bernardo died on January 1, 1997.
On January 29, 1990, a real estate mortgage contract was
purportedly executed by Maria, who was already deceased at
that time, and Bernardo in favor of herein respondent
Dominador Alzona and co-motgagee Ernesto Alzona
.Respondent Estela Sales Pelongco signed as an instrumental
witness to the mortgage contract.
The mortgage was subsequently foreclosed for alleged
failure of Bernardo and Maria to settle their obligation
secured by the said mortgage. The property was thereafter
sold in a mortgage sale wherein Ernesto Alzona was the
highest bidder.
Petitioners filed before the RTC of San Pedro, Laguna a
complaint for Annulment of Mortgage and of Auction Sale,
with Reconveyance of Title and Damages.
RULING OF RTC AND CA
The RTC rendered judgment in favor of defendants
Dominador Alzona and Ernesto Alzona dismissing plaintiffs’
complaint. The CA rendered a decision affirming the
judgment of the RTC.
ISSUE: Whether Ernesto and Dominador are mortgagees in
good faith.
RULING: The principle of “innocent purchasers for value”
is applicable to the present case.
Under Article 2085 of the Civil Code, one of the essential
requisites of the contract of mortgage is that the mortgagor
should be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is considered null and
void. However, an exception to this rule is the doctrine of
“mortgagee in good faith.” Under this doctrine, even if the
mortgagor is not the owner of the mortgaged property, the
mortgage contract and any foreclosure sale arising therefrom
are given effect by reason of public policy. This principle is
based on the rule that all persons dealing with property
covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on
the face of the title.
The prevailing jurisprudence is that a mortgagee has a right
to rely in good faith on the certificate of title of the
mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion, has no
obligation to undertake further investigation. Hence, even if
the mortgagor is not the rightful owner of, or does not have a
valid title to, the mortgaged property, the mortgagee in good
faith is, nonetheless, entitled to protection.
In the instant case, the CA affirmed the ruling of the trial
court that Ernesto and Dominador are mortgagees in good
faith. The trial court gave credence to Ernesto’s testimony
that he conducted a credit investigation before he approved
the loan sought and the property mortgaged.
From the foregoing, we find no error in the ruling of the CA
that Ernesto sufficiently established that he acted in good
faith by exercising due diligence in ascertaining the status of
the property mortgaged and the identity of the owners and
occupants of the said property; that it was Estela and the
persons who represented themselves as Bernardo and Maria
who perpetrated the fraud. Hence, Ernesto can no longer be
faulted if he was led into believing that the old man and
woman whom he met in November 1989 and January 1990
are Bernardo and Maria Sales when, in fact, they are not.
Ereña vs. Querrer-Kauffman
Vida Dana Querrer-Kauffman is the owner of a residential
house and lot. When respondent was in the US, her sister in
law Bernal, in conspiracy with her niece, the defendant
Jennifer V. Ramirez, using the key in their possession,
opened the locked and the unoccupied house of the plaintiff,
forced open the vault of the plaintiff and stole the owner’s
copy of TCT No. T-48521 and other articles contained
therein.
Respondent learned that the lot had been mortgaged to
Rosana Ereña.
Kauffman filed a complaint against Ereña, Bernal and
Jennifer Ramirez for Nullification of Deed of Real Estate
Mortgage and Damages with prayer for a Temporary
Restraining Order and Preliminary Mandatory Injunction12
in the RTC of Las Piñas City.
RTC dismissed the complaint ruling that petitioner is a
mortgagee in good faith. CA reversed the decision of RTC.
ISSUE:
1. Whether or not the mortgage is valid? NO
2. Whether or not petitioner is a mortgagee in good faith?
NO
RULING:
1. One of the essential requisites of a mortgage contract is
that the mortgagor must be the absolute owner of the thing
mortgaged.42 A mortgage is, thus, invalid if the mortgagor is
not the property owner.43 In this case, the trial court and the
CA are one in finding that based on the evidence on record
the owner of the property is respondent who was not the one
who mortgaged the same to the petitioner.
The evidence shows that Mira Bernal and Jennifer Ramirez
were able to open respondent’s vault and steal the owner’s
duplicate of TCT No. T-48521 and the tax declarations
covering the property; with the connivance of a woman who
pretended to be the respondent, they were able consummate
the execution of the Real Estate Mortgage by forging the
respondent’s signature on said deed.
2, Indeed, a mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor of the property given as
security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful
owner of, or does not have a valid title to, the mortgaged
property, the mortgagee in good faith is nonetheless entitled
to protection.
This doctrine presupposes, however, 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 the said title, he succeeds
in mortgaging the property to another who relies on what
appears on the said title. The innocent purchaser (mortgagee
in this case) for value protected by law is one who purchases
a titled land by virtue of a deed executed by the registered
owner himself, not by a forged deed, as the law expressly
states. Such is not the situation of petitioner, who has been
the victim of impostors pretending to be the registered
owners but who are not said owners. The doctrine of
mortgagee in good faith does not apply to a situation
where the title is still in the name of the rightful owner
and the mortgagor is a different person pretending to be
the owner. In such a case, the mortgagee is not an
innocent mortgagee for value and the registered owner
will generally not lose his title. We thus agree with the
following discussion of the CA:
‘The trial court wrongly applied in this case the doctrine of
“mortgagee in good faith” which has been allowed in many
instances but in a milieu dissimilar from this case. This
doctrine is based on the rule that persons dealing with
properties covered by a Torrens certificate of title are not
required to go beyond what appears on the face of the title.
But this is only in a situation where the mortgagor has a
fraudulent or otherwise defective title, but not when the
mortgagor is an impostor and a forger.
In a forged mortgage, as in this case, the doctrine of
“mortgagee in good faith” cannot be applied and will not
benefit a mortgagee no matter how large is his or her
reservoir of good faith and diligence. Such mortgage is void
and cannot prejudice the registered owner whose signature to
the deed is falsified. When the instrument presented is
forged, even if accompanied by the owner’s duplicate
certificate of title, the registered owner does not lose his title,
and neither does the assignee in the forged deed acquire any
right or title to the property. An innocent purchaser for value
is one who purchases a titled land by virtue of a deed
executed by the registered owner himself not a forged deed.
Flancia vs. Court of Appeals, William Genato Ong
This is an action to declare null and void the mortgage
executed by defendant Oakland Development Resources
Corp. xxx in favor of defendant William Ong Genato over
the house and lot plaintiffs spouses Godofredo and Dominica
Flancia purchased from defendant corporation.
FACTS: Petitioner purchased from defendant corporation a
parcel of land by virtue of the contract of sale, defendant
corporation authorized plaintiffs occupy the house at the
aforesaid lot.
Subsequently, petitioner received a copy of the execution
foreclosing the mortgage issued by the RTC ordering the
sheriff to sell at public auction several lots formerly owned
by defendant corporation including subject lot of petitioner.
Respondent submits that Oakland Development Resources
Corporation mortgaged to Genato two parcels of land
covered by TCT Nos. 356315 and 366380 as security and
guaranty for the payment of a loan in the sum of
P2,000,000.00, that for non-payment of the loan of
P2,000,000.00 defendant Genato filed an action for
foreclosure of real estate mortgage against co-defendant
corporation.
The RTC rendered a decision ordering defendant Oakland
Dev’t. Resources Corporation to pay petitioner
On MR, the trial judge declared that the subject mortgage
and the foreclosure proceedings held thereunder as null and
void.
The CA, reversed and reinstated the first RTC decision.
ISSUE: whether or not the registered mortgage constituted
over the property was valid? YES
RULING: Under the Art. 2085 of the Civil Code, the
essential requisites of a contract of mortgage are: (a) that it
be constituted to secure the fulfillment of a principal
obligation; (b) that the mortgagor be the absolute owner of
the thing mortgaged; and (c) that the persons constituting the
mortgage have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the
purpose. All these requirements are present in this case.
The contract between petitioner and corporation is a Contract
to sell, all that was granted to them by the “occupancy
permit” was the right to possess it.
Because Oakland retained all the foregoing rights as owner
of the property, it was entitled absolutely to mortgage it to
Genato. Hence, the mortgage was valid.
WHEREFORE, the petition for review is hereby DENIED.
The decision of the Court of Appeals reinstating the August
16, 1996 decision of the trial court is hereby AFFIRMED.
Cuyco vs. Cuyco
FATCTS: Petitioners, spouses Adelina and Feliciano
Cuyco, obtained a loan in the amount of P1,500,000.00 from
respondents, spouses Renato and Filipina Cuyco, payable
within one year at 18% interest per annum, and secured by a
Real Estate Mortgage4 over a parcel of land.
Subsequently, petitioners obtained additional loans from the
respondents in the aggregate amount of P1,250,000.00,
broken down as follows: (1) P150,000.00 on May 30, 1992;
(2) P150,000.00 on July 1, 1992; (3) P500,000.00 on
September 5, 1992; (4) P200,000.00 on October 29, 1992;
and (5) P250,000.00 on January 13, 1993.
Petitioners made payments amounting to P291,700.00,7 but
failed to settle their outstanding loan obligations. Thus, on
September 10, 1997, respondents filed a complaint8 for
foreclosure of mortgage with the RTC of Quezon City,
which was docketed as Civil Case No. Q-97-32130. They
alleged that petitioners’ loans were secured by the real estate
mortgage; that as of August 31, 1997, their indebtedness
amounted to P6,967,241.14, inclusive of the 18% interest
compounded monthly; and that petitioners’ refusal to settle
the same entitles the respondents to foreclose the real estate
mortgage.
In their answer,11 petitioners admitted their loan obligations
but argued that only the original loan of P1,500,000.00 was
secured by the real estate mortgage at 18% per annum and
that there was no agreement that the same will be
compounded monthly.
the RTC rendered judgment12 in favor of the respondent
the CA partially granted the petition and modified the RTC
decision insofar as the amount of the loan obligations
secured by the real estate mortgage. It held that by express
intention of the parties, the real estate mortgage secured the
original P1,500,000.00 loan and the subsequent loans of
P150,000.00 and P500,000.00 obtained on July 1, 1992 and
September 5, 1992, respectively. As regards the loans
obtained on May 31, 1992, October 29, 1992 and January 13,
1993 in the amounts of P150,000.00, P200,000.00 and
P250,000.00, respectively, the appellate tribunal held that the
parties never intended the same to be secured by the real
estate mortgage.
ISSUE: Whether or not the amount secured by the REM is
limited only to 1.5M?
RULING:
As regards what loans were secured by the real estate
mortgage, respondents contended that all five additional
loans were intended by the parties to be secured by the real
estate mortgage. Thus, the CA erred in ruling that only two
of the five additional loans were secured by the real estate
mortgage when the documents evidencing said loans would
show at least three loans were secured by the real estate
mortgage, namely: (1) P150,000.00 obtained on May 31,
1992; (2) P150,000.00 obtained on July 1, 1992; and (3)
P500,000.00 obtained on September 5, 1992.
As a general rule, a mortgage liability is usually limited to
the amount mentioned in the contract.31 However, the
amounts named as consideration in a contract of mortgage 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. This
stipulation is valid and binding between the parties and is
known in American Jurisprudence as the “blanket mortgage
clause,” also known as a “dragnet clause.”
A “dragnet clause” operates as a convenience and
accommodation to the borrowers as it makes available
additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et cetera.
While a real estate mortgage may exceptionally secure future
loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An
obligation is not secured by a mortgage unless it comes fairly
within the terms of the mortgage contract.
It is clear from a perusal of the aforequoted real estate
mortgage that there is no stipulation that the mortgaged
realty shall also secure future loans and advancements. Thus,
what applies is the general rule above stated.
Even if the parties intended the additional loans of
P150,000.00 obtained on May 30, 1992, P150,000.00
obtained on July 1, 1992, and P500,00.00 obtained on
September 5, 1992 to be secured by the same real estate
mortgage, as shown in the acknowledgement receipts, it is
not sufficient in law to bind the realty for it was not made
substantially in the form prescribed by law
In order to constitute a legal mortgage, it must be executed in
a public document, besides being recorded. A provision in a
private document, although denominating the agreement as
one of mortgage, cannot be considered as it is not susceptible
of inscription in the property registry. A mortgage in legal
form is not constituted by a private document, even if such
mortgage be accompanied with delivery of possession of the
mortgaged property
What the parties could have done in order to bind the realty
for the additional loans was to execute a new real estate
mortgage or to amend the old mortgage conformably with
the form prescribed by the law. Failing to do so, the realty
cannot be bound by such additional loans, which may be
recovered by the respondents in an ordinary action for
collection of sums of money.
AFFIRMED WITH MODIFICATION.
Teoco vs. Metropolitan Bank and Trust Company
FACTS: Lydia T. Co, married to Ramon Co, was the
registered owner of two parcels of land situated in Poblacion,
Municipality of Catbalogan, Province of Samar under
Transfer Certificate of Title (TCT) Nos. T-6220 and T-
6910.3 Ramon Co mortgaged the said parcels of land to
Metrobank for a sum of P200,000.00.
On February 14, 1991, the properties were sold to Metrobank
in an extrajudicial foreclosure sale under Act No. 3135. One
year after the registration of the Certificates of Sale, the titles
to the properties were consolidated in the name of
Metrobank for failure of Ramon Co to redeem the same
within the one year period provided for by law.
On November 29, 1993, Metrobank filed a petition for the
issuance of a writ of possession against Spouses Co.
However, since the spouses Co were no longer residing in
the Philippines at the time the petition was filed, the trial
court ordered Metrobank, on January 12, 1994 and again on
January 26, 1994 to effect summons by publication against
the Spouses Co
On May 17, 1994, the brothers Teoco filed an answer-in-
intervention alleging that they are the successors-in- interest
of the Spouses Co, and that they had duly and validly
redeemed the subject properties within the reglementary
period provided by law. The Brothers Teoco thus prayed for
the dismissal of Metrobank’s petition for a writ of
possession.
Metrobank, in its reply, alleged that the amount deposited by
the brothers Teoco as redemption price was not sufficient.
On February 24, 1995, the trial court was informed that the
Brothers Teoco had deposited the amount of P356,297.57 to
the clerk of court of the RTC in Catbalogan, Samar. The trial
court ordered Metrobank to disclose whether it is allowing
the brothers Teoco to redeem the subject properties.
Metrobank refused to accept the amount deposited by the
Brothers Teoco, alleging that they are obligated to pay the
Spouses Co’s subsequent obligations to Metrobank as well.
The Brothers Teoco claimed that they are not bound to pay
all the obligations of the Spouses Co, but only the value of
the property sold during the public auction.
Ruling of RTC
It ruled that Petitioners had legally and effectively redeemed
the subject properties from Metrobank
Ruling of CA
the CA held that the Brothers Teoco were not able to
effectively redeem the subject properties, because the
amount tendered was insufficient, and the Brothers Teoco
have not sufficiently shown that the Spouses Co’s right of
redemption was properly transferred to them.
ISSUE: Whether or not petitioners are bound to pay the
subsequent obligations of Spouses Co to Metrobank?
RULING: NO
We find that neither petitioners, the Brothers Teoco, nor
respondent, Metrobank, were able to present sufficient
evidence to prove whether the additional loans granted to the
Spouses Co by Metrobank were covered by the mortgage
agreement between them. The Brothers Teoco failed to
present any evidence of the supposed trust receipt agreement
between Metrobank and the Spouses Co, or an evidence of
the supposed payment by the Spouses Co of the other loans
extended by Metrobank. Metrobank, on the other hand,
merely relied on the stipulation on the mortgage deed that
the mortgage was intended to secure “the payment of the
same (P200,000.00 loan) and those that may hereafter be
obtained.”12 However, there was no mention whatsoever of
the mortgage agreement in the succeeding loans entered into
by the Spouses Co.
While we agree with Metrobank that mortgages intended to
secure future advancements are valid and legal contracts,13
entering into such mortgage contracts does not necessarily
put within its coverage all loan agreements that may be
subsequently entered into by the parties. If Metrobank
wishes to apply the mortgage contract in order to satisfy loan
obligations not stated on the face of such contract,
Metrobank should prove by a preponderance of evidence that
such subsequent obligations are secured by said mortgage
contract and not by any other form of security.
In order to prevent any injustice to, or unjust enrichment of,
any of the parties, this Court holds that the fairest resolution
is to allow the brothers Teoco to redeem the foreclosed
properties based on the amount for which it was foreclosed
(P255,441.14 plus interest). This is subject, however, to the
right of Metrobank to foreclose the same property anew in
order to satisfy the succeeding loans entered into by the
Spouses Co, if they were, indeed, covered by the mortgage
contract. The right of Metrobank to foreclose the mortgage
would not be hampered by the transfer of the properties to
the brothers Teoco as a result of this decision, since Article
2127 of the Civil Code provides:
“Art. 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.”
Further, Article 2129 of the Civil Code provides:
“Art. 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.”
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. Otherwise stated, a mortgage creates a real right
which is enforceable against the whole world. Hence, even if
the mortgage property is sold or its possession transferred to
another, the property remains subject to the fulfillment of the
obligation for whose security it was constituted.
Thus, the redemption by the Brothers Teoco shall be without
prejudice to the subsequent foreclosure of same properties
by Metrobank in order to satisfy other obligations covered by
the Real Estate Mortgage.
Fort Bonifacio Development Corporation vs. Yllas
Lending Corporation
FACTS: On 24 April 1998, FBDC executed a lease contract
in favor of Tirreno, Inc. (Tirreno) over a unit at the
Entertainment Center—Phase 1 of the Bonifacio Global City
in Taguig. Tirreno used the leased premises for Savoia
Ristorante and La Strega Bar.
Two provisions in the lease contract are pertinent to the
present case: Section 20, which is about the consequences in
case of default of the lessee, and Section 22, which is about
the lien on the properties of the lease. The pertinent portion
of Section 20 reads:
“Section 20. Default of the Lessee
20.1 The LESSEE shall be deemed to be in default within
the meaning of this Contract in case:
(i) The LESSEE fails to fully pay on time any rental, utility
and service charge or other financial obligation of the
LESSEE under this Contract; x x x
20.2 Without prejudice to any of the rights of the LESSOR
under this Contract, in case of default of the LESSEE, the
lessor shall have the right to:
(i) Terminate this Contract immediately upon written notice
to the LESSEE, without need of any judicial action or
declaration;
Section 22, on the other hand, reads:
“Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the expiration of the
Lease Period without the rentals, charges and/or damages, if
any, being fully paid or settled, the LESSOR shall have the
right to retain possession of the properties of the LESSEE
used or situated in the Leased Premises and the LESSEE
hereby authorizes the LESSOR to offset the prevailing value
thereof as appraised by the LESSOR against any unpaid
rentals, charges and/or damages. If the LESSOR does not
want to use said properties, it may instead sell the same to
third parties and apply the proceeds thereof against any
unpaid rentals, charges and/or damages.”
Tirreno began to default in its lease payments in 1999. By
July 2000, Tirreno was already in arrears by P5,027,337.91.
Despite the execution of the settlement agreement, FBDC
found need to send Tirreno a written notice of termination
dated 19 September 2000 due to Tirreno’s alleged failure to
settle its outstanding obligations. On 29 September 2000,
FBDC entered and occupied the leased premises. FBDC also
appropriated the equipment and properties left by Tirreno
pursuant to Section 22 of their Contract of Lease as partial
payment for Tirreno’s outstanding obligations.
On 4 March 2002, Yllas Lending Corporation and Jose S.
Lauraya, in his official capacity as President, (respondents)
caused the sheriff of Branch 59 of the trial court to serve an
alias writ of seizure against FBDC.
FBDC found out that on 27 September 2001, respondents
filed a complaint for Foreclosure of Chattel Mortgage with
Replevin against Tirreno. IT appears that respondent lent a
total of P1.5 million to Tirreno, the latter executed a Deed of
Chattel Mortgage in favor of respondents as security for the
loan.
Despite FBDC’s service upon him of an affidavit of title and
third party claim, the sheriff proceeded with the seizure of
certain items from FBDC’s premises.
Ruling of RTC
In deciding against FBDC, the trial court declared that
Section 22 of the lease contract between FBDC and Tirreno
is void under Article 2088 of the Civil Code.
ISSUE: Whether or not a pledge is constituted by the
contract of lease between petitioner and Tirreno.
RULING: NO
Respondents, as well as the trial court, contend that Section
22 constitutes a pactum commissorium, a void stipulation in
a pledge contract. FBDC, on the other hand, states that
Section 22 is merely a dacion en pago.
Articles 2085 and 2093 of the Civil Code enumerate the
requisites essential to a contract of pledge: (1) the pledge is
constituted to secure the fulfillment of a principal obligation;
(2) the pledgor is the absolute owner of the thing pledged;
(3) the persons constituting the pledge have the free disposal
of their property or have legal authorization for the purpose;
and (4) the thing pledged is placed in the possession of the
creditor, or of a third person by common agreement. Article
2088 of the Civil Code prohibits the creditor from
appropriating or disposing the things pledged, and any
contrary stipulation is void.
Section 22, as worded, gives FBDC a means to collect
payment from Tirreno in case of termination of the lease
contract or the expiration of the lease period and there are
unpaid rentals, charges, or damages. The existence of a
contract of pledge, however, does not arise just because
FBDC has means of collecting past due rent from Tirreno
other than direct payment. The trial court concluded that
Section 22 constitutes a pledge because of the presence of
the first three requisites of a pledge: Tirreno’s properties in
the leased premises secure Tirreno’s lease payments; Tirreno
is the absolute owner of the said properties; and the persons
representing Tirreno have legal authority to constitute the
pledge. However, the fourth requisite, that the thing pledged
is placed in the possession of the creditor, is absent. There is
non-compliance with the fourth requisite even if Tirreno’s
personal properties are found in FBDC’s real property.
Tirreno’s personal properties are in FBDC’s real property
because of the Contract of Lease, which gives Tirreno
possession of the personal properties. Since Section 22 is not
a contract of pledge, there is no pactum commissorium.
Briones-Vasquez vs. Court of Appeals HEIRS OF
MARIA MENDOZA VDA. DE OCAMPO
FACTS: Under an agreement denominated as a pacto de
retro sale, Maria Mendoza Vda. De Ocampo acquired a
parcel of land from Luisa Briones. The latter thereunder
reserved the right to repurchase the parcel of land up to
December 31, 1970.  condominium unit, described herein has an outstanding dues
On June 14, 1990, Hipolita Ocampo Paulite and Eusebio
Mendoza Ocampo, the heirs of Maria Mendoza Vda. De
Ocampo, filed a petition for consolidation of ownership,
alleging that the seller was not able to exercise her privilege
to redeem the property on or before December 31, 1970. 
CA ruled that the contract entered was of equitable
mortgage.  Sheriff, a Petition7 for extrajudicial foreclosure of the
ISSUE: Whether or not consolidation of ownership is
tantamount to pactum commissorium?
The Court of Appeals pronounced in its Decision that the
contract between the parties is an equitable mortgage. Since
the contract is characterized as a mortgage, the provisions of
the Civil Code governing mortgages apply. Article 2088 of
the Civil Code states:
The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void.
This Court has interpreted this provision in the following
manner:
The essence of pacto commissorio, which is prohibited by
Article 2088 of the Civil Code, is that ownership of the
security will pass to the creditor by the mere default of the
debtor
. . . The only right of a mortgagee in case of non-payment of
a debt secured by mortgage would be to foreclose the
mortgage and have the encumbered property sold to satisfy
the outstanding indebtedness. The mortgagor’s default does
not operate to vest in the mortgagee the ownership of the
encumbered property, for any such effect is against public
policy, as enunciated by the Civil Code . . .
Applying the principle of pactum commissorium specifically
to equitable mortgages, in Montevirgen v. CA, the Court
enunciated that the consolidation of ownership in the person
of the mortgagee in equity, merely upon failure of the
mortgagor in equity to pay the obligation, would amount to a
pactum commissorium. The Court further articulated that an
action for consolidation of ownership is an inappropriate
remedy on the part of the mortgagee in equity. The only
proper remedy is to cause the foreclosure of the mortgage in
equity. And if the mortgagee in equity desires to obtain title
to the mortgaged property, the mortgagee in equity may buy
it at the foreclosure sale.
The private respondents do not appear to have caused the
foreclosure of the mortgage much less have they purchased
the property at a foreclosure sale. Petitioner, therefore,
retains ownership of the subject property. The right of
ownership necessarily includes the right to possess,
particularly where, as in this case, there appears to have been
no availment of the remedy of foreclosure of the mortgage
on the ground of default or non-payment of the obligation in
question.
First Marbella Condominium Association, Inc.vs.
Gatmaytan
FACTS: Respondent is the registered owner of Fontavilla
No. 501 (condominium unit), Marbella I Condominium,
Roxas Boulevard, Pasay City.
Inscribed on his title is a Declaration of Restrictions and a
Notice of Assessment stating among other things that the
with the FMCAI in the sum of P775,786.17, inclusive of
interests, penalties and attorney’s fees, which
aforementioned liabilities constitute as first lien against this
condominium unit pursuant to the Master Deed of
Restrictions.
On November 11, 2003, petitioner filed with the RTC,
through the Office of the Clerk of Court & Ex Officio
condominium unit of respondent, alleging that it (petitioner)
is a duly organized association of the tenants and
homeowners of Marbella I Condominium; that respondent is
a member thereof but has unpaid association dues amounting
to P3,229,104.89, as of June 30, 2003; and that the latter
refused to pay his dues despite demand.
RTC denied the request for extrajudicial foreclosure of the
subject condominium unit adopting the position of the Clerk
of Court finding that no mortgage exists between the
petitioner and respondent.
ISSUE: Whether or not petitioner can foreclose the condo
unit?
RULING: NO
Petitioner asserts that it is expressly provided under Section
20 of Republic Act (R.A.) No. 4726 that it has the right to
cause the extrajudicial foreclosure of its annotated lien on the
condominium unit.
Respondent impugns petitioner’s right to file the petition for
extrajudicial foreclosure, pointing out that the latter does not
hold a real estate mortgage on the condominium unit or a
special power of attorney to cause the extra-judicial
foreclosure sale of said unit.
In the present case, the only basis of petitioner for causing
the extrajudicial foreclosure of the condominium unit of
respondent is a notice of assessment annotated on CCT No.
1972 in accordance with Section 20 of R.A. No. 4726.
However, neither annotation nor law vests it with sufficient
authority to foreclose on the property.
The notice of assessment contains no provision for the
extrajudicial foreclosure of the condominium unit. All that it
states is that the assessment of petitioner against respondent
for unpaid association dues constitutes a “first lien against
[the] condominium unit.”
Section 20 merely prescribes the procedure by which
petitioner’s claim may be treated as a superior lien— i.e.,
through the annotation thereof on the title of the
condominium unit.31 While the law also grants petitioner the
option to enforce said lien through either the judicial or
extrajudicial foreclosure sale of the condominium unit,
Section 20 does not by itself, ipso facto, authorize judicial as
extrajudicial foreclosure of the condominium unit. Petitioner
may avail itself of either option only in the manner provided
for by the governing law and rules. As already pointed out,
A.M. No. No. 99-10-05-0, as implemented under Circular
No. 7-2002, requires that petitioner furnish evidence of its
special authority to cause the extrajudicial foreclosure of the
condominium unit.
There being no evidence of such special authority, petitioner
failed to establish a clear right to a writ of mandamus to
compel the RTC to act on its petition for extrajudicial
foreclosure.
Development Bank of the Philippines vs CA, EMERALD
RESORT HOTEL CORPORATION
FACTS: Private respondent Emerald Resort Hotel
Corporation (“ERHC”) obtained a loan from petitioner
Development Bank of the Philippines (“DBP”). DBP
released the loan of P3,500,000.00 in three installments:
P2,000,000.00 on 27 September 1975, P1,000,000.00 on 14
June 1976 and P500,000.00 on 14 September 1976. To
secure the loan, ERHC mortgaged its personal and real
properties to DBP.
On 5 June 1986, alleging that ERHC failed to pay its loan,
DBP filed with the Office of the Sheriff, Regional Trial
Court of Iriga City, an Application for Extrajudicial
Foreclosure of Real Estate and Chattel Mortgages.
Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon
issued the required notices of public auction sale of the
personal and real properties. However, Sheriffs Ramos and
Galeon failed to execute the corresponding certificates of
posting of the notices. On 10 July 1986, the auction sale of
the personal properties proceeded.
The Office of the Sheriff scheduled on 12 August 1986 the
public auction sale of the real properties. The Bicol Tribune
published on 18 July 1986, 25 July 1986 and 1 August 1986
the notice of auction sale of the real properties. However, the
Office of the Sheriff postponed the auction sale on 12
August 1986 to 11 September 1986 at the request of ERHC.
DBP did not republish the notice of the rescheduled auction
sale because DBP and ERHC signed an agreement to
postpone the 12 August 1986 auction sale.
On 22 December 1986, ERHC filed with the Regional Trial
Court of Iriga City a complaint for annulment of the
foreclosure sale of the personal and real properties.
Subsequently, ERHC filed a Supplemental Complaint.
ERHC alleged that the foreclosure was void mainly because
(1) DBP failed to comply with the procedural requirements
prescribed by law; and (2) the foreclosure was premature.
ERHC maintained that the loan was not yet due and
demandable because the DBP had restructured the loan.
Meanwhile, acting on ERHC’s application for the issuance
of a writ of preliminary injunction, the trial court granted the
writ on 20 August 1990. Accordingly, the trial court enjoined
DBP from enforcing the legal effects of the foreclosure of
both the chattel and real estate mortgages.
RULING of the RTC
Declaring as null and void the foreclosure and auction sale of
the personal and real properties of plaintiff corporation.
RULING OF CA
The Court of Appeals sustained the trial court’s ruling that
the foreclosure was void. The Court of Appeals affirmed the
trial court’s finding that DBP failed to comply with the
posting and publication requirements under the applicable
laws. The Court of Appeals held that the non-execution of
the certificate of posting of the notices of auction sale and
the non-republication of the notice of the rescheduled 11
September 1986 auction sale invalidated the foreclosure.
ISSUE: Whether DBP complied with the posting and
publication requirements under applicable laws for a valid
foreclosure.
RULING:
As to non-execution of the certificate of posting of the
auction sale
This Court ruled in Cristobal v. Court of Appeals13 that a
certificate of posting is not required, much less considered
indispensable for the validity of an extrajudicial foreclosure
sale of real property under Act No. 3135. What the law
requires is the posting of the notice of sale, which is present
in this case, and not the execution of the certificate of
posting.
As to publication of the notice of sale of the real
properties in compliance with Act No. 3135.
DBP contends that the agreement to postpone dispensed with
the need to publish again the notice of auction sale. Thus,
DBP did not anymore publish the notice of the 11 September
1986 auction sale. DBP insists that the law does not require
republication of the notice of a rescheduled auction sale.
The Court held recently in Ouano v. Court of Appeals that
republication in the manner prescribed by Act No. 3135 is
necessary for the validity of a postponed extrajudicial
foreclosure sale.
Another publication is required in case the auction sale is
rescheduled, and the absence of such republication
invalidates the foreclosure sale.
DBP also maintains that ERHC’s act of requesting
postponement of the 12 August 1986 auction sale estops
ERHC from challenging the absence of publication of the
notice of the rescheduled auction sale.
ERHC indeed requested postponement of the auction sale
scheduled on 12 August 1986.24 However, the records are
bereft of any evidence that ERHC requested the
postponement without need of republication of the notice of
sale.
The form of the notice of extrajudicial sale is now prescribed
in Circular No. 7-200226 issued by the Office of the Court
Administrator
“In the event the public auction should not take place on the
said date, it shall be held on _______ , ______ without
further notice.”

The last paragraph of the prescribed notice of sale allows the

holding of a rescheduled auction sale without reposting or
republication of the notice. However, the rescheduled
auction sale will only be valid if the rescheduled date of
auction is clearly specified in the prior notice of sale. The
absence of this information in the prior notice of sale will
render the rescheduled auction sale void for lack of reposting
or republication. If the notice of auction sale contains this
particular information, whether or not the parties agreed to
such rescheduled date, there is no more need for the
reposting or republication of the notice of the rescheduled
auction sale.

Clearly, DBP failed to comply with the publication

requirement under Act No. 3135. There was no publication
of the notice of the rescheduled auction sale of the real
properties. Therefore, the extrajudicial foreclosure of the real
estate mortgage is void.

As to the personal properties.

DBP, however, complied with the mandatory posting of the

notices of the auction sale of the personal properties. Under
the Chattel Mortgage Law, the only requirement is posting of
the notice of auction sale. There was no postponement of the
auction sale of the personal properties and the foreclosure
took place as scheduled. Thus, the extrajudicial foreclosure
of the chattel mortgage in the instant case suffers from no
procedural infirmity.