Real Estate Mortgage

1. Concept and Governing Law (Civil Code and Act 3135)

Civil Code, Arts. 2085, 2087, 2124, 2125, 2126

2. Essential Requisites - Consent, Object, Cause, Other Requisites

Civil Code, Arts. 2124, 2126, 2127, 2086, 2052, 2091

Personal Property Security Act (PPSA), Secs. 4, 66

 People's Bank & Trust Company & Atlantic, Gulf and Pacific, Co. of Manila v. Dahican Lumber Company, et al., G. R. No.
L-17500

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do business in the
Philippines — hereinafter referred to as ATLANTIC — sold and assigned all its rights in the Dahican Lumber concession to Dahican
Lumber Company — hereinafter referred to as DALCO — for the total sum of $500,000.00, of which only the amount of $50,000.00
was paid. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust Company —
hereinafter referred to as the BANK — amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the
BANK, a loan of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00
each, maturing on different dates, executed by both DALCO and the Dahican America Lumber Corporation, a foreign corporation and
a stockholder of DALCO, — hereinafter referred to as DAMCO, all payable to the BANK or its order.

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the BANK — the latter
acting for itself and as trustee for the Export-Import Bank of Washington D.C. — a deed of mortgage covering five parcels of land
situated in the province of Camarines Norte together with all the buildings and other improvements existing thereon and all the
personal properties of the mortgagor located in its place of business in the municipalities of Mambulao and Capalonga, Camarines
Norte (Exhibit D). On the same date, DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure
payment of the unpaid balance of the sale price of the lumber concession amounting to the sum of $450,000.00 (Exhibit G). Both
deeds contained the following provision extending the mortgage lien to properties to be subsequently acquired — referred to hereafter
as "after acquired properties" — by the mortgagor:

All property of every nature and description taken in exchange or replacement, and all buildings, machinery, fixtures, tools equipment
and other property which the Mortgagor may hereafter acquire, construct, install, attach, or use in, to, upon, or in connection with the
premises, shall immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if now
included therein, and the Mortgagor shall from time to time during the existence of this mortgage furnish the Mortgagee with an
accurate inventory of such substituted and subsequently acquired property.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition thereto DALCO and DAMCO
pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the same obligations.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the same to the Export-
Import Bank of Washington D.C., and the latter assigned to the former its credit and the first mortgage securing it. Subsequently, the
BANK gave DALCO and DAMCO up to April 1, 1953 to pay the overdue promissory note.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO purchased various machineries,
equipment, spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the date
aforesaid. Pursuant to the provision of the mortgage deeds quoted theretofore regarding "after acquired properties," the BANK
requested DALCO to submit complete lists of said properties but the latter failed to do so. In connection with these purchases, there
appeared in the books of DALCO as due to Connell Bros. Company (Philippines) — a domestic corporation who was acting as the
general purchasing agent of DALCO — thereinafter called CONNELL — the sum of P452,860.55 and to DAMCO, the sum of
P2,151,678.34.

On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the purpose, passed a resolution agreeing to
rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to it. Thereafter, the corresponding
agreements of rescission of sale were executed between DALCO and DAMCO, on the one hand and between DALCO and
CONNELL, on the other.

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be cancelled but
CONNELL and DAMCO refused to do so. As a result, on February 12, 1953; ATLANTIC and the BANK, commenced foreclosure
proceedings in the Court of First Instance of Camarines Norte against DALCO and DAMCO. On the same date they filed an  ex-
parte application for the appointment of a Receiver and/or for the issuance of a writ of preliminary injunction to restrain DALCO from
removing its properties. The court granted both remedies and appointed George H. Evans as Receiver. Upon defendants' motion,
however, the court, in its order of February 21, 1953, discharged the Receiver.

On March 2, 1953, defendants filed their answer denying the material allegations of the complaint and alleging several affirmative
defenses and a counterclaim.

On March 4 of the same year, CONNELL, filed a motion for intervention alleging that it was the owner and possessor of some of the
equipments, spare parts and supplies which DALCO had acquired subsequent to the execution of the mortgages sought to be
foreclosed and which plaintiffs claimed were covered by the lien. In its order of March 18,1953 the Court granted the motion, as well
as plaintiffs' motion to set aside the order discharging the Receiver. Consequently, Evans was reinstated.
On April 1, 1953, CONNELL filed its answer denying the material averment of the complaint, and asserting affirmative defenses and
a counterclaim.

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the venue of the action to the Court of First
Instance of Manila where it was docketed as Civil Case No. 20987.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries, equipment and supplies of
DALCO, and the same were subsequently sold for a total consideration of P175,000.00 which was deposited in court pending final
determination of the action. By a similar agreement one-half (P87,500.00) of this amount was considered as representing the proceeds
obtained from the sale of the "undebated properties" (those not claimed by DAMCO and CONNELL), and the other half as
representing those obtained from the sale of the "after acquired properties".

After due trial, the Court, on July 15, 1960, rendered judgment as follows:

IN VIEW WHEREFORE, the Court:

1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with 7% interest per annum from July 13, 1950,
Plus another sum of P100,000.00 with 5% interest per annum from July 13, 1950; plus 10% on both principal sums as attorney's fees;

2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of P900,000.00 with 4% interest per annum from July 3, 1950,
plus 10% on both principal as attorney's fees;

3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of P425,860.55, and to pay unto Dahican American Lumber Co.
the sum of P2,151,678.24 both with legal interest from the date of the filing of the respective answers of those parties, 10% of the
principals as attorney's fees;

4. Orders that of the sum realized from the sale of the properties of P175,000.00, after deducting the recognized expenses, one-half
thereof be adjudicated unto plaintiffs, the court no longer specifying the share of each because of that announced intention under the
stipulation of facts to "pool their resources"; as to the other one-half, the same should be adjudicated unto both plaintiffs, and
defendant Dahican American and Connell Bros. in the proportion already set forth on page 9, lines 21, 22 and 23 of the body of this
decision; but with the understanding that whatever plaintiffs and Dahican American and Connell Bros. should receive from the
P175,000.00 deposited in the Court shall be applied to the judgments particularly rendered in favor of each;

5. No other pronouncement as to costs; but the costs of the receivership as to the debated properties shall be borne by People's Bank,
Atlantic Gulf, Connell Bros., and Dahican American Lumber Co., pro-rata.

On the following day, the Court issued the following supplementary decision:

IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add the following paragraph 6:

6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the Court orders the sale at public auction of the
lands object of the mortgages to satisfy the said mortgages and costs of foreclosure.

From the above-quoted decision, all the parties appealed.

Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject to the deeds of
mortgage mentioned heretofore; that said properties were acquired from suppliers other than DAMCO and CONNELL; that even
granting that DAMCO and CONNELL were the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage
lien in favor of plaintiffs; that considering the foregoing, the proceeds obtained from the sale of the "after acquired properties" as well
as those obtained from the sale of the "undebated properties" in the total sum of P175,000.00 should have been awarded exclusively to
plaintiffs by reason of the mortgage lien they had thereon; that damages should have been awarded to plaintiffs against defendants, all
of them being guilty of an attempt to defraud the former when they sought to rescind the sales already mentioned for the purpose of
defeating their mortgage lien, and finally, that defendants should have been made to bear all the expenses of the receivership, costs
and attorney's fees.

On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that plaintiffs had no cause of action
against them because the promissory note sued upon was not yet due when the action to foreclose the mortgages was commenced;
secondly, in not holding that the mortgages aforesaid were null and void as regards the "after acquired properties" of DALCO because
they were not registered in accordance with the Chattel Mortgage Law, the court erring, as a consequence, in holding that said
properties were subject to the mortgage lien in favor of plaintiffs; thirdly, in not holding that the provision of the fourth paragraph of
each of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof
being that the mortgagor was willing to constitute a lien over such properties; fourthly, in not ruling that said stipulation was void as
against DAMCO and CONNELL and in not awarding the proceeds obtained from the sale of the "after acquired properties" to the
latter exclusively; fifthly, in appointing a Receiver and in holding that the damages suffered by DAMCO and CONNELL by reason of
the depreciation or loss in value of the "after acquired properties" placed under receivership was  damnum absque injuria and,
consequently, in not awarding, to said parties the corresponding damages claimed in their counterclaim; lastly, in sentencing DALCO
and DAMCO to pay attorney's fees and in requiring DAMCO and CONNELL to pay the costs of the Receivership, instead of
sentencing plaintiffs to pay attorney's fees.

Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as appellants submit a total of seventeen.
However, the multifarious issues thus before Us may be resolved, directly or indirectly, by deciding the following issues:
Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of foreclosure?; secondly,
assuming that they are subject thereto, are the mortgages valid and binding on the properties aforesaid inspite of the fact that they were
not registered in accordance with the provisions of the Chattel Mortgage Law?; thirdly, assuming again that the mortgages are valid
and binding upon the "after acquired properties", what is the effect thereon, if any, of the rescission of sales entered into, on the one
hand, between DAMCO and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was the action to foreclose the
mortgages premature?

A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and description taken in
exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor may
acquire, construct, install, attach; or use in, to upon, or in connection with the premises — that is, its lumber concession — "shall
immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included
therein at the time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties, We see no
useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say
logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be
sold, or to be used — thus becoming subject to the inevitable wear and tear — but with the understanding — express or implied —
that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its
obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties given as security.
Indeed, if such properties were of the nature already referred to, it would be poor judgment on the part of the creditor who does not see
to it that a similar provision is included in the contract.

B. But defendants contend that, granting without admitting, that the deeds of mortgage in question cover the "after acquired
properties" of DALCO, the same are void and ineffectual because they were not registered in accordance with the Chattel Mortgage
Law. In support of this and of the proposition that, even if said mortgages were valid, they should not prejudice them, the defendants
argue (1) that the deeds do not describe the mortgaged chattels specifically, nor were they registered in accordance with the Chattel
Mortgage Law; (2) that the stipulation contained in the fourth paragraph thereof constitutes "mere executory agreements to give a lien"
over the "after acquired properties" upon their acquisition; and (3) that any mortgage stipulation concerning "after acquired properties"
should not prejudice creditors and other third persons such as DAMCO and CONNELL.

The stipulation under consideration strongly belies defendants contention. As adverted to hereinbefore, it states that all property of
every nature, building, machinery etc. taken in exchange or replacement by the mortgagor "shall immediately be and become subject
to the lien of this mortgage in the same manner and to the same extent as if now included therein". No clearer language could have
been chosen.

Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a chattel mortgage must be registered
and must describe the mortgaged chattels or personal properties sufficiently to enable the parties and any other person to identify
them, We say that such law does not apply to this case.

As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force, there can be no doubt that the
provisions of said code must govern their interpretation and the question of their validity. It happens however, that Articles 334 and
1877 of the old Civil Code are substantially reproduced in Articles 415 and 2127, respectively, of the new Civil Code. It is, therefore,
immaterial in this case whether we take the former or the latter as guide in deciding the point under consideration.

Article 415 does not define real property but enumerates what are considered as such, among them being machinery, receptacles,
instruments or replacements intended by owner of the tenement for an industry or works which may be carried on in a building or on a
piece of land, and shall tend directly to meet the needs of the said industry or works.

On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were placed in the real
properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".

We find the above ruling in agreement with our decisions on the subject:

(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old) gives the character of
real property to machinery, liquid containers, instruments or replacements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade
or industry.

(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a sugar central includes not
only the land on which it is built but also the buildings, machinery and accessories installed at the time the mortgage was constituted
as well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof .

It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in
the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in
the premises on July 13, 1950. In Law, therefore, they must be deemed to have been immobilized, with the result that the real estate
mortgages involved herein — which were registered as such — did not have to be registered a second time as chattel mortgages in
order to bind the "after acquired properties" and affect third parties.

But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after acquired properties" did
not become immobilized because DALCO did not own the whole area of its lumber concession all over which said properties were
scattered.

The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In the former, the Davao
Sawmill Company, Inc., had repeatedly treated the machinery therein involved as personal property by executing chattel mortgages
thereon in favor of third parties, while in the present case the parties had treated the "after acquired properties" as real properties by
expressly and unequivocally agreeing that they shall automatically become subject to the lien of the real estate mortgages executed by
them. In the Davao Sawmill decision it was, in fact, stated that "the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character determined by the parties" (61 Phil. 112, emphasis supplied). In
the present case, the characterization of the "after acquired properties" as real property was made not only by one but by both
interested parties. There is, therefore, more reason to hold that such consensus impresses upon the properties the character determined
by the parties who must now be held in estoppel to question it.

Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia, Inc. (225 U.S. 58) where it was held that
while under the general law of Puerto Rico, machinery placed on property by a tenant does not become immobilized, yet, when the
tenant places it there pursuant to contract that it shall belong to the owner, it then becomes immobilized  as to that tenant and even as
against his assignees and creditors who had sufficient notice of such stipulation. In the case at bar it is not disputed that DALCO
purchased the "after acquired properties" to be placed on, and be used in the development of its lumber concession, and agreed further
that the same shall become immediately subject to the lien constituted by the questioned mortgages. There is also abundant evidence
in the record that DAMCO and CONNELL had full notice of such stipulation and had never thought of disputed validity until the
present case was filed. Consequently all of them must be deemed barred from denying that the properties in question had
become immobilized.

What We have said heretofore sufficiently disposes all the arguments adduced by defendants in support their contention that the
mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against DAMCO and CONNELL.

Now to the question of whether or not DAMCO CONNELL have rights over the "after acquired properties" superior to the mortgage
lien constituted thereon in favor of plaintiffs. It is defendants' contention that in relation to said properties they are "unpaid sellers";
that as such they had not only a superior lien on the "after acquired properties" but also the right to rescind the sales thereof to
DALCO.

This contention — it is obvious — would have validity only if it were true that DAMCO and CONNELL were the suppliers or
vendors of the "after acquired properties". According to the record, plaintiffs did not know their exact identity and description prior to
the filing of the case bar because DALCO, in violation of its obligation under the mortgages, had failed and refused theretofore to
submit a complete list thereof. In the course of the proceedings, however, when defendants moved to dissolve the order of receivership
and the writ of preliminary injunction issued by the lower court, they attached to their motion the lists marked as Exhibits 1, 2 and 3
describing the properties aforesaid. Later on, the parties agreed to consider said lists as identifying and describing the "after acquire
properties," and engaged the services of auditors to examine the books of DALCO so as to bring out the details thereof. The report of
the auditors and its annexes (Exhibits V, V-1 — V4) show that neither DAMCO nor CONNELL had supplied any of the goods of
which they respective claimed to be the unpaid seller; that all items were supplied by different parties, neither of whom appeared to be
DAMCO or CONNELL that, in fact, CONNELL collected a 5% service charge on the net value of all items it claims to have sold to
DALCO and which, in truth, it had purchased for DALCO as the latter's general agent; that CONNELL had to issue its own invoices
in addition to those o f the real suppliers in order to collect and justify such service charge.

Taking into account the above circumstances together with the fact that DAMCO was a stockholder and CONNELL was not only a
stockholder but the general agent of DALCO, their claim to be the suppliers of the "after acquired required properties" would seem to
be preposterous. The most that can be claimed on the basis of the evidence is that DAMCO and CONNELL probably financed some
of the purchases. But if DALCO still owes them any amount in this connection, it is clear that, as  financiers, they can not claim any
right over the "after acquired properties" superior to the lien constituted thereon by virtue of the deeds of mortgage under foreclosure.
Indeed, the execution of the rescission of sales mentioned heretofore appears to be but a desperate attempt to better or improve
DAMCO and CONNELL's position by enabling them to assume the role of "unpaid suppliers" and thus claim a vendor's lien over the
"after acquired properties". The attempt, of course, is utterly ineffectual, not only because they are not the "unpaid sellers" they claim
to be but also because there is abundant evidence in the record showing that both DAMCO and CONNELL had known and admitted
from the beginning that the "after acquired properties" of DALCO were meant to be included in the first and second mortgages under
foreclosure.

The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or otherwise, is of no consequence and does
not make the rescission valid and legally effective. It must be stated clearly, however, in justice to Belden, that, as a member of the
Board of Directors of DALCO, he opposed the resolution of December 15, 1952 passed by said Board and the subsequent rescission
of the sales.

Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was premature because the promissory
note sued upon did not fall due until April 1 of the same year, concluding from this that, when the action was commenced, the
plaintiffs had no cause of action. Upon this question the lower court says the following in the appealed judgment;

The other is the defense of prematurity of the causes of action in that plaintiffs, as a matter of grace, conceded an extension of time to
pay up to 1 April, 1953 while the action was filed on 12 February, 1953, but, as to this, the Court taking it that there is absolutely no
debate that Dahican Lumber Co., was insolvent as of the date of the filing of the complaint, it should follow that the debtor thereby
lost the benefit to the period.

x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code);

and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the aggregate, P1,200,000 excluding interest while
the aggregate price of the "after-acquired" chattels claimed by Connell under the rescission contracts was P1,614,675.94, Exh. 1, Exh.
V, report of auditors, and as a matter of fact, almost all the properties were sold afterwards for only P175,000.00, page 47, Vol. IV,
and the Court understanding that when the law permits the debtor to enjoy the benefits of the period notwithstanding that he is
insolvent by his giving a guaranty for the debt, that must mean a new and efficient guaranty, must concede that the causes of action for
collection of the notes were not premature.

Very little need be added to the above. Defendants, however, contend that the lower court had no basis for finding that, when the
action was commenced, DALCO was insolvent for purposes related to Article 1198, paragraph 1 of the Civil Code. We find, however,
that the finding of the trial court is sufficiently supported by the evidence particularly the resolution marked as Exhibit K, which
shows that on December 16, 1952 — in the words of the Chairman of the Board — DALCO was "without funds, neither does it
expect to have any funds in the foreseeable future." (p. 64, record on appeal).

The remaining issues, namely, whether or not the proceeds obtained from the sale of the "after acquired properties" should have been
awarded exclusively to the plaintiffs or to DAMCO and CONNELL, and if in law they should be distributed among said parties,
whether or not the distribution should be pro-rata or otherwise; whether or not plaintiffs are entitled to damages; and, lastly, whether
or not the expenses incidental to the Receivership should be borne by all the parties on a pro-rata basis or exclusively by one or some
of them are of a secondary nature as they are already impliedly resolved by what has been said heretofore.

As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated properties", it is clear, in view of
our opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should be awarded exclusively to the
plaintiffs in payment of the money obligations secured by the mortgages under foreclosure.

On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of the New Civil Code)
provides that creditors are protected in cases of contracts intended to defraud them; and that any third person who induces another to
violate his contract shall be liable for damages to the other contracting party. Similar liability is demandable under Arts. 20 and 21 —
which may be given retroactive effect (Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil Code.

The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth promissory note upon
its maturity, conspired jointly with CONNELL to violate the provisions of the fourth paragraph of the mortgages under foreclosure by
attempting to defeat plaintiffs' mortgage lien on the "after acquired properties". As a result, the plaintiffs had to go to court to protect
their rights thus jeopardized. Defendants' liability for damages is therefore clear.

However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely, the difference between the alleged
total obligation secured by the mortgages amounting to around P1,200,000.00, plus the stipulated interest and attorney's fees, on the
one hand, and the proceeds obtained from the sale of "after acquired properties", and of those that were not claimed neither by
DAMCO nor CONNELL, on the other. Considering that the sale of the real properties subject to the mortgages under foreclosure has
not been effected, and considering further the lack of evidence showing that the true value of all the properties already sold was not
realized because their sale was under stress, We feel that We do not have before Us the true elements or factors that should determine
the amount of damages that plaintiffs are entitled recover from defendants. It is, however, our considered opinion that, upon the facts
established, all the expenses of the Receivership, which was deemed necessary to safeguard the rights of the plaintiffs, should be
borne by the defendants, jointly and severally, in the same manner that all of them should pay to the plaintiffs, jointly a severally,
attorney's fees awarded in the appealed judgment.

In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled to recover from the defendants,
the record of this case shall be remanded below for the corresponding proceedings.

Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.

May 16, 1967, 20 SCRA 84

 Star Two (SPV-AMC), Inc. v. Paper City Corp. of the Philippines, G. R. No. 169211, March 6, 2013, 692 SCRA 438.

For review before this Court is a Petition for Review on Certiorari filed by Rizal Commercial Banking Corporation now substituted
by Star Two (SPV-AMC), Inc. by virtue of Republic Act No. 9182 2 otherwise known as the "Special Purpose Vehicle Act of 2002,"
assailing the 8 March 2005 Decision and 8 August 2005 Resolution of the Special Fourth Division of the Court of Appeals (CA) in
CA-G.R. SP No. 82022 upholding the 15 August 2003 and 1 December 2003 Orders of the Valenzuela Regional Trial Court (RTC)
ruling that the subject machineries and equipments of Paper City Corporation (Paper City) are movable properties by agreement of the
parties and cannot be considered as included in the extrajudicial foreclosure sale of the mortgaged land and building of Paper
City.3chanroblesvirtualawlibrary

The facts as we gathered from the records are:chanroblesvirtualawlibrary

Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust Co. (Metrobank) and Union Bank of the Philippines
(Union Bank) are banking corporations duly organized and existing under the laws of the Philippines.

On the other hand, respondent Paper City is a domestic corporation engaged in the manufacture of paper products particularly cartons,
newsprint and clay-coated paper.4chanroblesvirtualawlibrary

From 1990-1991, Paper City applied for and was granted the following loans and credit accommodations in peso and dollar
denominations by RCBC: P10,000,000.00 on 8 January 1990,5 P14,000,000.00 on 19 July 1990,6 P10,000,000.00 on 28 June
1991,7 and P16,615,000.00 on 28 November 1991.8 The loans were secured by four (4) Deeds of Continuing Chattel Mortgages on its
machineries and equipments found inside its paper plants.
On 25 August 1992, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory of Merchandise/Stocks-in-Trade
was executed by RCBC through its Branch Operation Head Joey P. Singh and Asst. Vice President Anita O. Abad over the
merchandise and stocks-in-trade covered by the continuing chattel mortgages. 9chanroblesvirtualawlibrary

On 26 August 1992, RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee bank) entered into a
Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper City acquired an additional loan of One Hundred Seventy
Million Pesos (P170,000,000.00) from the creditor banks in addition to the previous loan from RCBC amounting to  P110,000,000.00
thereby increasing the entire loan to a total of P280,000,000.00. The old loan of P110,000,000.00 was partly secured by various
parcels of land covered by TCT Nos. T-157743, V-13515, V-1184, V-1485, V-13518 and V-13516 situated in Valenzuela City
pursuant to five (5) Deeds of Real Estate Mortgage dated 8 January 1990, 27 February 1990, 19 July 1990, 20 February 1992 and 12
March 1992.10 The new loan obligation of P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate Mortgage and
additional real and personal properties described in an annex to MTI, Annex "B." 11 Annex "B" of the said MTI covered the
machineries and equipments of Paper City.12chanroblesvirtualawlibrary

The MTI was later amended on 20 November 1992 to increase the contributions of the RCBC and Union Bank to P80,000,000.00
and P70,000,000.00, respectively. As a consequence, they executed a Deed of Amendment to MTI 13 but still included as part of the
mortgaged properties by way of a first mortgage the various machineries and equipments located in and bolted to and/or forming part
of buildings generally described as:chanroblesvirtualawlibrary

Annex "A"

A. Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers' Quarter/Restroom
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities
B. Pollution Tank Nos. 1 and 2.
Reserve Water Tank and Swimming Pool
Waste Water Treatment Tank
Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
C. Power Plants Nos. 1 and 2
Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers

Annex "B"

D. Material Handling Equipment

Paper Plant No. 3

A Second Supplemental Indenture to the 26 August 1992 MTI was executed on 7 June 1994 to increase the amount of the loan
from P280,000,000.00 to P408,900,000.00 secured against the existing properties composed of land, building, machineries and
equipments and inventories described in Annexes "A" and "B."14chanroblesvirtualawlibrary

Finally, a Third Supplemental Indenture to the 26 August 1992 MTI was executed on 24 January 1995 to increase the existing loan
obligation of P408,900,000.00 to P555,000,000.00 with an additional security composed of a newly constructed two-storey building
and other improvements, machineries and equipments located in the existing plant site. 15chanroblesvirtualawlibrary

Paper City was able to comply with its loan obligations until July 1997. But economic crisis ensued which made it difficult for Paper
City to meet the terms of its obligations leading to payment defaults. 16 Consequently, RCBC filed a Petition for Extrajudicial
Foreclosure Under Act No. 3135 Against the Real Estate Mortgage executed by Paper City on 21 October 1998. 17 This petition was
for the extra-judicial foreclosure of eight (8) parcels of land including all improvements thereon enumerated as TCT Nos. V-9763, V-
13515, V-13516, V-13518, V-1484, V-1485, V-6662 and V-6663 included in the MTI dated 26 August 1992, Supplemental

MTI dated 20 November 1992, Second Supplemental Indenture on the MTI dated 7 June 1994 and Third Supplemental Indenture on
the MTI dated 24 January 1995. 18 Paper City then had an outstanding obligation with the creditor banks adding up to Nine Hundred
One Million Eight Hundred One Thousand Four Hundred Eighty-Four and 10/100 Pesos (P901,801,484.10), inclusive of interest and
penalty charges.19chanroblesvirtualawlibrary

A Certificate of Sale was executed on 8 February 1999 certifying that the eight (8) parcels of land with improvements thereon were
sold on 27 November 1998 in the amount of Seven Hundred Two Million Three Hundred Fifty-One Thousand Seven Hundred Ninety-
Six Pesos and 28/100 (P702,351,796.28) in favor of the creditor banks RCBC, Union Bank and Metrobank as the highest
bidders.20chanroblesvirtualawlibrary

This foreclosure sale prompted Paper City to file a Complaint 21 docketed as Civil Case No. 164-V-99 on 15 June 1999 against the
creditor banks alleging that the extra-judicial sale of the properties and plants was null and void due to lack of prior notice and
attendance of gross and evident bad faith on the part of the creditor banks. In the alternative, it prayed that in case the sale is declared
valid, to render the whole obligation of Paper City as fully paid and extinguished. Also prayed for was the return of  P5,000,000.00 as
excessive penalty and the payment of damages and attorney's fees.
In the meantime, Paper City and Union Bank entered into a Compromise Agreement which was later approved by the trial court on 19
November 2001. It was agreed that the share of Union Bank in the proceeds of the foreclosure shall be up to 34.23% of the price and
the remaining possible liabilities of Paper City shall be condoned by the bank. Paper City likewise waived all its claim and counter
charges against Union Bank and agreed to turn-over its proportionate share over the property within 120 days from the date of
agreement.22chanroblesvirtualawlibrary

On the other hand, the negotiations between the other creditor banks and Paper City remained pending. During the interim, Paper City
filed with the trial court a Manifestation with Motion to Remove and/or Dispose Machinery on 18 December 2002 reasoning that the
machineries located inside the foreclosed land and building were deteriorating. It posited that since the machineries were not included
in the foreclosure of the real estate mortgage, it is appropriate that it be removed from the building and sold to a third
party.23chanroblesvirtualawlibrary

Acting on the said motion, the trial court, on 28 February 2003 issued an Order denying the prayer and ruled that the machineries and
equipments were included in the annexes and form part of the MTI dated 26 August 1992 as well as its subsequent amendments.
Further, the machineries and equipments are covered by the Certificate of Sale issued as a consequence of foreclosure, the certificate
stating that the properties described therein with improvements thereon were sold to creditor banks to the defendants at public
auction.24chanroblesvirtualawlibrary

Paper City filed its Motion for Reconsideration 25 on 4 April 2003 which was favorably granted by the trial court in its Order dated 15
August 2003. The court justified the reversal of its order on the finding that the disputed machineries and equipments are chattels by
agreement of the parties through their inclusion in the four (4) Deeds of Chattel Mortgage dated 28 January 1990, 19 July 1990, 28
June 1991 and 28 November 1991. It further ruled that the deed of cancellation executed by RCBC on 25 August 1992 was not valid
because it was done unilaterally and without the consent of Paper City and the cancellation only refers to the merchandise/stocks-in-
trade and not to machineries and equipments.26chanroblesvirtualawlibrary

RCBC in turn filed its Motion for Reconsideration to persuade the court to reverse its 15 August 2003 Order. However, the same was
denied by the trial court through its 1 December 2003 Order reiterating the finding and conclusion of the previous
Order.27chanroblesvirtualawlibrary

Aggrieved, RCBC filed with the CA a Petition for Certiorari under Rule 65 to annul the Orders dated 15 August 2003 and 1
December 2003 of the trial court,28 for the reasons that:chanroblesvirtualawlibrary

I. Paper City gave its conformity to consider the subject machineries and equipment as real properties when the president and
Executive Vice President of Paper City signed the Mortgage Trust Indenture as well as its subsequent amendments and all pages of the
annexes thereto which itemized all properties that were mortgaged.29chanroblesvirtualawlibrary

II. Under Section 8 of Act No. 1508, otherwise known as "The Chattel Mortgage Law" the consent of the mortgagor (Paper City) is
not required in order to cancel a chattel mortgage. Thus the "Cancellation of Deed of Continuing Chattel Mortgage on Inventory of
Merchandise/Stocks-in-Trade" dated August 25, 1992 is valid and binding on the Paper City even assuming that it was executed
unilaterally by petitioner RCBC.30chanroblesvirtualawlibrary

III. The four (4) Deeds of Chattel Mortgage that were attached as Annexes "A" to "D" to the December 18, 2003 "Manifestation with
Motion to Remove and/or Dispose of Machinery" were executed from January 8, 1990 until November 28, 1991. On the other hand,
the "Cancellation of Deed of Continuing Chattel Mortgage" was executed on August 25, 1992 while the MTI and the subsequent
supplemental amendments thereto were executed from August 26, 1992 until January 24, 1995. It is of the contention of RCBC that
Paper City's unreasonable delay of ten

(10) years in assailing that the disputed machineries and equipments were personal amounted to estoppel and ratification of the
characterization that the same were real properties.31chanroblesvirtualawlibrary

IV. The removal of the subject machineries or equipment is not among the reliefs prayed for by the Paper City in its June 11, 1999
Complaint. The Paper City sought the removal of the subject machineries and equipment only when it filed its December 18, 2002
Manifestation with Motion to Remove and/or Dispose of Machinery. 32chanroblesvirtualawlibrary

V. Paper City did not specify in its various motions filed with the respondent judge the subject machineries and equipment that are
allegedly excluded from the extrajudicial foreclosure sale.33chanroblesvirtualawlibrary

VI. The machineries and equipments mentioned in the four (4) Deeds of Chattel Mortgage that were attached on the Manifestation
with Motion to Remove and/or Dispose of Machinery are the same machineries and equipments included in the MTI and supplemental
amendments, hence, are treated by agreement of the parties as real properties. 34chanroblesvirtualawlibrary

In its Comment,35 Paper City refuted the claim of RCBC that it gave its consent to consider the machineries and equipments as real
properties. It alleged that the disputed properties remained within the purview of the existing chattel mortgages which in fact were
acknowledged by RCBC in the MTI particularly in Section 11.07 which reads:chanroblesvirtualawlibrary

Section 11.07. This INDENTURE in respect of the MORTGAGE OBLIGATIONS in the additional amount not exceeding TWO
HUNDRED TWENTY MILLION SIX HUNDRED FIFTEEN THOUSAND PESOS (P220,615,000.00) shall be registered with the
Register of Deeds of Valenzuela, Metro Manila, apportioned based on the corresponding loanable value of the MORTGAGED
PROPERTIES, viz:chanroblesvirtualawlibrary

a. Real Estate Mortgage P206,815,000.00

b. Chattel Mortgage P13,800,000.0036chanroblesvirtualawlibrary

Paper City argued further that the subject machineries and equipments were not included in the foreclosure of the mortgage on real
properties particularly the eight (8) parcels of land. Further, the Certificate of Sale of the Foreclosed Property referred only to "lands
and improvements" without any specification and made no mention of the inclusion of the subject
properties.37chanroblesvirtualawlibrary

In its Reply,38 RCBC admitted that there was indeed a provision in the MTI mentioning a chattel mortgage in the amount
of P13,800,000.00. However, it justified that its inclusion in the MTI was merely for the purpose of ascertaining the amount of the
loan to be extended to Paper City. 39 It reiterated its position that the machineries and equipments were no longer treated as chattels but
already as real properties following the MTI.40chanroblesvirtualawlibrary

On 8 March 2005, the CA affirmed41 the challenged orders of the trial court. The dispositive portion reads:chanroblesvirtualawlibrary

WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is hereby DISMISSED for
lack of merit. The assailed Orders dated 15 August and 2 December 2003, issued by Hon. Judge Floro P. Alejo are hereby
AFFIRMED. No costs at this instance.42chanroblesvirtualawlibrary

The CA relied on the "plain language of the MTIs:chanroblesvirtualawlibrary

Undoubtedly, nowhere from any of the MTIs executed by the parties can we find the alleged "express" agreement adverted to by
petitioner. There is no provision in any of the parties' MTI, which expressly states to the effect that the parties shall treat the
equipments and machineries as real property. On the contrary, the plain and unambiguous language of the aforecited MTIs, which
described the same as personal properties, contradicts petitioner's claims.43chanroblesvirtualawlibrary

It was also ruled that the subject machineries and equipments were not included in the extrajudicial foreclosure sale. The claim of
inclusion was contradicted by the very caption of the petition itself, "Petition for Extra-Judicial Foreclosure of Real Estate Mortgage
Under Act No. 3135 As Amended." It opined further that this inclusion was further stressed in the Certificate of Sale which
enumerated only the mortgaged real properties bought by RCBC without the subject properties.44chanroblesvirtualawlibrary

RCBC sought reconsideration but its motion was denied in the CA's Resolution dated 8 August 2005.

RCBC before this Court reiterated all the issues presented before the appellate court:chanroblesvirtualawlibrary

1. Whether the unreasonable delay of ten (10) years in assailing that the disputed machineries and equipments were personal
properties amounted to estoppel on the part of Paper City;cralawlibrary

2. Whether the Cancellation of Deed of Continuing Mortgage dated 25 August 1992 is valid despite the fact that it was executed
without the consent of the mortgagor Paper City;cralawlibrary

3. Whether the subsequent contracts of the parties such as Mortgage Trust Indenture dated 26 August 1992 as well as the subsequent
supplementary amendments dated 20 November 1992, 7 June 1992, and 24 January 1995 included in its coverage of mortgaged
properties the subject machineries and equipment; and

4. Whether the subject machineries and equipments were included in the extrajudicial foreclosure dated 21 October 1998 which in turn
were sold to the creditor banks as evidenced by the Certificate of Sale dated 8 February 1999.

We grant the petition.

By contracts, all uncontested in this case, machineries and equipments are included in the mortgage in favor of RCBC, in the
foreclosure of the mortgage and in the consequent sale on foreclosure also in favor of petitioner.

The mortgage contracts are the original MTI of 26 August 1992 and its amendments and supplements on 20 November 1992, 7 June
1994, and 24 January 1995. The clear agreements between RCBC and Paper City follow:chanroblesvirtualawlibrary

The original MTI dated 26 August 1992 states that:chanroblesvirtualawlibrary

MORTGAGE TRUST INDENTURE

This MORTGAGE TRUST INDENTURE, executed on this day of August 26, 1992, by and between:chanroblesvirtualawlibrary

PAPER CITY CORPORATION OF THE PHILIPPINES, x x x hereinafter referred to as the "MORTGAGOR");cralawlibrary

-and-

RIZAL COMMERCIAL BANKING CORPORATION, x x x (hereinafter referred to as the "TRUSTEE").

xxx
WHEREAS, against the same mortgaged properties and additional real and personal properties more particularly described in
ANNEX "B" hereof, the MORTGAGOR desires to increase their borrowings to TWO HUNDRED EIGHTY MILLION PESOS
(P280,000,000.00) or an increase of ONE HUNDRED SEVENTY MILLION PESOS (P170,000,000.00) xxx from various
banks/financial institutions;

xxx

GRANTING CLAUSE

NOW, THEREFORE, this INDENTURE witnesseth:chanroblesvirtualawlibrary

THAT the MORTGAGOR in consideration of the premises and of the acceptance by the TRUSTEE of the trust hereby created, and in
order to secure the payment of the MORTGAGE OBLIGATIONS which shall be incurred by the MORTGAGOR pursuant to the
terms hereof xxx hereby states that with the execution of this INDENTURE it will assign, transfer and convey as it has hereby
ASSIGNED, TRANSFERRED and CONVEYED by way of a registered first mortgage unto RCBC x x x the various parcels of land
covered by several Transfer Certificates of Title issued by the Registry of Deeds, including the buildings and existing improvements
thereon, as well as of the machinery and equipment more particularly described and listed that is to say, the real and personal
properties listed in Annexes "A" and "B" hereof of which the MORTGAGOR is the lawful and registered owner. 45 (Emphasis and
underlining ours)

The Deed of Amendment to MTI dated 20 November 1992 expressly provides:chanroblesvirtualawlibrary

NOW, THEREFORE, premises considered, the parties considered have amended and by these presents do further amend the
Mortgage Trust Indenture dated August 26, 1992 including the Real Estate Mortgage as follows:chanroblesvirtualawlibrary

xxx

2. The Mortgage Trust Indenture and the Real Estate Mortgage are hereby amended to include as part of the Mortgage Properties, by
way of a first mortgage and for pari-passu and pro-rata benefit of the existing and new creditors, various machineries and equipment
owned by the Paper City, located in and bolted to and forming part of the following, generally describes as x x x more particularly
described and listed in Annexes "A" and "B" which are attached and made integral parts of this Amendment. The machineries and
equipment listed in Annexes "A" and "B" form part of the improvements listed above and located on the parcels of land subject of the
Mortgage Trust Indenture and the Real Estate Mortgage.46 (Emphasis and underlining ours)

A Second Supplemental Indenture to the 26 August 1992 MTI executed on 7 June 1994 to increase the amount of loan
from P280,000,000.00 to P408,900,000.00 also contains a similar provision in this regard:chanroblesvirtualawlibrary

WHEREAS, the Paper City desires to increase its borrowings to be secured by the INDENTURE from PESOS: TWO HUNDRED
EIGHTY MILLION (P280,000,000.00) to PESOS: FOUR HUNDRED EIGHT MILLION NINE HUNDRED THOUSAND
(P408,900,000.00) or an increase of PESOS: ONE HUNDRED TWENTY EIGHT MILLION NINE HUNDRED THOUSAND
(P128,900,000.00) x x x which represents additional loan/s granted to the Paper City to be secured against the existing properties
composed of land, building, machineries and equipment and inventories more particularly described in Annexes "A" and "B" of the
INDENTURE x x x.47chanroblesvirtualawlibrary

(Emphasis and underlining ours)

Finally, a Third Supplemental Indenture to the 26 August 1992 MTI executed on 24 January 1995 contains a similar
provision:chanroblesvirtualawlibrary

WHEREAS, in order to secure NEW/ADDITIONAL LOAN OBLIGATION under the Indenture, there shall be added to the collateral
pool subject of the Indenture properties of the Paper City composed of newly constructed two (2)-storey building, other land
improvements and machinery and equipment all of which are located at the existing Plant Site in Valenzuela, Metro Manila and more
particularly described in Annex "A" hereof x x x.48 (Emphasis and underlining ours)

Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various parcels of land including the
buildings and existing improvements thereon as well as the machineries and equipments, which as stated in the granting clause of the
original mortgage, are "more particularly described and listed that is to say, the real and personal properties listed in Annexes A and B
x x x of which the Paper City is the lawful and registered owner." Significantly, Annexes "A" and "B" are itemized listings of the
buildings, machineries and equipments typed single spaced in twenty-seven pages of the document made part of the records.

As held in Gateway Electronics Corp. v. Land Bank of the Philippines, 49 the rule in this jurisdiction is that the contracting parties may
establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy.
The right to enter into lawful contracts constitutes one of the liberties guaranteed by the Constitution.

It has been explained by the Supreme Court in Norton Resources and Development Corporation v. All Asia Bank Corporation 50 in
reiteration of the ruling in Benguet Corporation v. Cabildo51 that:chanroblesvirtualawlibrary

x x x A court's purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them.
The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is
ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms
of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. x x x
Then till now the pronouncement has been that if the language used is as clear as day and readily understandable by any ordinary
reader, there is no need for construction.52chanroblesvirtualawlibrary

The case at bar is covered by the rule.

The plain language and literal interpretation of the MTIs must be applied. The petitioner, other creditor banks and Paper City intended
from the very first execution of the indentures that the machineries and equipments enumerated in Annexes "A" and "B" are included.
Obviously, with the continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper City had to offer all
valuable properties acceptable to the creditor banks.

The plain and obvious inclusion in the mortgage of the machineries and equipments of Paper City escaped the attention of the CA
which, instead, turned to another "plain language of the MTI" that "described the same as personal properties." It was error for the CA
to deduce from the "description" exclusion from the mortgage.

1. The MTIs did not describe the equipments and machineries as personal property. Had the CA looked into Annexes "A" and "B"
which were referred to by the phrase "real and personal properties," it could have easily noted that the captions describing the listed
properties were "Buildings," "Machineries and Equipments," "Yard and Outside," and "Additional Machinery and Equipment." No
mention in any manner was made in the annexes about "personal property." Notably, while "personal" appeared in the granting clause
of the original MTI, the subsequent Deed of Amendment specifically stated that:chanroblesvirtualawlibrary

x x x The machineries and equipment listed in Annexes "A" and "B" form part of the improvements listed above and located on the
parcels of land subject of the Mortgage Trust Indenture and the Real Estate Mortgage.

The word "personal" was deleted in the corresponding granting clauses in the Deed of Amendment and in the First, Second and Third
Supplemental Indentures.

2. Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the improvements.

Article 2127 of the Civil Code provides:chanroblesvirtualawlibrary

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. (Underlining ours)

In the early case of Bischoff v. Pomar and Cia. General de Tabacos, 53 the Court ruled that even if the machinery in question was not
included in the mortgage expressly, Article 111 of the old Mortgage Law provides that chattels permanently located in a building,
either useful or ornamental, or for the service of some industry even though they were placed there after the creation of the mortgage
shall be considered as mortgaged with the estate, provided they belong to the owner of said estate. The provision of the old Civil Code
was cited. Thus:chanroblesvirtualawlibrary

Article 1877 provides that a mortgage includes the natural accessions, improvements, growing fruits, and rents not collected when the
obligation is due, and the amount of the indemnities granted or due the owner by the underwriters of the property mortgaged or by
virtue of the exercise of eminent domain by reason of public utility, with the declarations, amplifications, and limitations established
by law, in case the estate continues in the possession of the person who mortgaged it, as well as when it passes into the hands of a
third person.54chanroblesvirtualawlibrary

The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co. 55 relied on this provision. The issue was whether the machineries and
accessories were included in the mortgage and the subsequent sale during public auction. This was answered in the affirmative by the
Court when it ruled that the machineries were integral parts of said sugar central hence included following the principle of law that the
accessory follows the principal.

Further, in the case of Manahan v. Hon. Cruz,56 this Court denied the prayer of Manahan to nullify the order of the trial court including
the building in question in the writ of possession following the public auction of the parcels of land mortgaged to the bank. It upheld
the inclusion by relying on the principles laid upon in Bischoff v. Pomar and Cia. General de Tabacos 57 and Cu Unjieng e Hijos v.
Mabalacat Sugar Co.58chanroblesvirtualawlibrary

In Spouses Paderes v. Court of Appeals, 59 we reiterated once more the Cu Unjieng e Hijos ruling and approved the inclusion of
machineries and accessories installed at the time the mortgage, as well as all the buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof.

3. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the machineries and equipments of
respondent. While captioned as a "Petition for Extra-Judicial Foreclosure of Real Estate Mortgage Under Act No. 3135 As Amended,"
the averments state that the petition is based on "x x x the Mortgage Trust Indenture, the Deed of Amendment to the Mortgage Trust
Indenture, the Second Supplemental Indenture to the Mortgage Trust Indenture, and the Third Supplemental Indenture to the
Mortgage Trust Indenture (hereinafter collectively referred to as the Indenture) duly notarized and entered as x x x." 60 Noting that
herein respondent has an outstanding obligation in the total amount of Nine Hundred One Million Eight Hundred One Thousand Four
Hundred Eighty Four and 10/100 Pesos (P901,801,484.10), the petition for foreclosure prayed that a foreclosure proceedings "x x x on
the aforesaid real properties, including all improvements thereon covered by the real estate mortgage be undertaken and the
appropriate auction sale be conducted x x x."61chanroblesvirtualawlibrary
Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly states through the Deed of
Amendment that the machineries and equipments listed in Annexes "A" and "B" form part of the improvements listed and located on
the parcels of land subject of the mortgage, such machineries and equipments are surely part of the foreclosure of the "real estate
properties, including all improvements thereon" as prayed for in the petition.

Indeed, the lower courts ought to have noticed the fact that the chattel mortgages adverted to were dated 8 January 1990, 19 July 1990,
28 June 1991 and 28 November 1991. The real estate mortgages which specifically included the machineries and equipments were
subsequent to the chattel mortgages dated 26 August 1992, 20 November 1992, 7 June 1994 and 24 January 1995. Without doubt, the
real estate mortgages superseded the earlier chattel mortgages.

The real estate mortgage over the machineries and equipments is even in full accord with the classification of such properties by the
Civil Code of the Philippines as immovable property. Thus:chanroblesvirtualawlibrary

Article 415. The following are immovable property:chanroblesvirtualawlibrary

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;cralawlibrary

xxxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;cralawlibrary

WHEREFORE, the petition is GRANTED. Accordingly, the Decision and Resolution of the Court of Appeals dated 8 March 2005
and 8 August 2005 upholding the 15 August 2003 and 1 December 2003 Orders of the Valenzuela Regional Trial Court are hereby
REVERSED and SET ASIDE and the original Order of the trial court dated 28 February 2003 denying the motion of respondent to
remove or dispose of machinery is hereby REINSTATED.

 Prudential Bank vs. Alviar, G. R. No. 150197, July 28, 2005, 464 SCRA 353

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner Prudential Bank seeks the reversal of
the Decision1 of the Court of Appeals dated 27 September 2001 in CA-G.R. CV No. 59543 affirming the Decision of the Regional
Trial Court (RTC) of Pasig City, Branch 160, in favor of respondents.

Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in San Juan, Metro Manila,
covered by Transfer Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal. On 10 July 1975, they executed a deed
of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan worth  P250,000.00.2 This mortgage was
annotated at the back of TCT No. 438157. On 4 August 1975, respondents executed the corresponding promissory note, PN BD#75/C-
252, covering the said loan, which provides that the loan matured on 4 August 1976 at an interest rate of 12% per annum with a 2%
service charge, and that the note is secured by a real estate mortgage as aforementioned. 3 Significantly, the real estate mortgage
contained the following clause:

That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by the
Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the payment of the
same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR,
including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as
appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto
the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back of this document,
and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or
constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free from all liens and incumbrances. . . . 4

On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-345 for P2,640,000.00, secured by D/A SFDX
#129, signifying that the loan was secured by a "hold-out" on the mortgagor's foreign currency savings account with the bank under
Account No. 129, and that the mortgagor's passbook is to be surrendered to the bank until the amount secured by the "hold-out" is
settled.5

On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., of which the husband and wife were President and
Chairman of the Board and Vice President,6 respectively, PN BD#76/C-430 covering P545,000.000. As provided in the note, the loan
is secured by "Clean-Phase out TOD CA 3923," which means that the temporary overdraft incurred by Donalco Trading, Inc. with
petitioner is to be converted into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of
overdrafts.7

On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan of  P545,000.00, the
proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD. The letter likewise mentioned that the
securities for the loan were the deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation equipment.8

On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2) lots located at Vam
Buren and Madison Streets, North Greenhills, San Juan, Metro Manila. The payment was acknowledged by petitioner who
accordingly released the mortgage over the two properties.9
On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT No. 438157.
Per petitioner's computation, respondents had the total obligation of P1,608,256.68, covering the three (3) promissory notes, to wit:
PN BD#75/C-252 for P250,000.00, PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus assessed past due
interests and penalty charges. The public auction sale of the mortgaged property was set on 15 January 1980.10

Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC of
Pasig,11 claiming that they have paid their principal loan secured by the mortgaged property, and thus the mortgage should not be
foreclosed. For its part, petitioner averred that the payment of P2,000,000.00 made on 6 March 1979 was not a payment made by
respondents, but by G.B. Alviar Realty and Development Inc., which has a separate loan with the bank secured by a separate
mortgage.12

On 15 March 1994, the trial court dismissed the complaint and ordered the Sheriff to proceed with the extra-judicial
foreclosure.13 Respondents sought reconsideration of the decision. 14 On 24 August 1994, the trial court issued an Order setting aside
its earlier decision and awarded attorney's fees to respondents. 15 It found that only the P250,000.00 loan is secured by the mortgage on
the land covered by TCT No. 438157. On the other hand, the P382,680.83 loan is secured by the foreign currency deposit account of
Don A. Alviar, while the P545,000.00 obligation was an unsecured loan, being a mere conversion of the temporary overdraft of
Donalco Trading, Inc. in compliance with a Central Bank circular. According to the trial court, the "blanket mortgage clause" relied
upon by petitioner applies only to future loans obtained by the mortgagors, and not by parties other than the said mortgagors, such as
Donalco Trading, Inc., for which respondents merely signed as officers thereof.

On appeal to the Court of Appeals, petitioner made the following assignment of errors:

I. The trial court erred in holding that the real estate mortgage covers only the promissory note BD#75/C-252 for the sum
of P250,000.00.

II. The trial court erred in holding that the promissory note BD#76/C-345 for P2,640,000.00 (P382,680.83 outstanding principal
balance) is not covered by the real estate mortgage by expressed agreement.

III. The trial court erred in holding that Promissory Note BD#76/C-430 for P545,000.00 is not covered by the real estate mortgage.

IV. The trial court erred in holding that the real estate mortgage is a contract of adhesion.

V. The trial court erred in holding defendant-appellant liable to pay plaintiffs-appellees attorney's fees for P20,000.00.16

The Court of Appeals affirmed the Order of the trial court but deleted the award of attorney's fees. 17 It ruled that while a continuing
loan or credit accommodation based on only one security or mortgage is a common practice in financial and commercial institutions,
such agreement must be clear and unequivocal. In the instant case, the parties executed different promissory notes agreeing to a
particular security for each loan. Thus, the appellate court ruled that the extrajudicial foreclosure sale of the property for the three
loans is improper.18

The Court of Appeals, however, found that respondents have not yet paid the P250,000.00 covered by PN BD#75/C-252 since the
payment of P2,000,000.00 adverted to by respondents was issued for the obligations of G.B. Alviar Realty and Development, Inc. 19

Aggrieved, petitioner filed the instant petition, reiterating the assignment of errors raised in the Court of Appeals as grounds herein.

Petitioner maintains that the "blanket mortgage clause" or the "dragnet clause" in the real estate mortgage expressly covers not only
the P250,000.00 under PN BD#75/C-252, but also the two other promissory notes included in the application for extrajudicial
foreclosure of real estate mortgage. 20 Thus, it claims that it acted within the terms of the mortgage contract when it filed its petition for
extrajudicial foreclosure of real estate mortgage. Petitioner relies on the cases of Lim Julian v. Lutero,21 Tad-Y v. Philippine National
Bank,22 Quimson v. Philippine National Bank,23 C & C Commercial v. Philippine National Bank, 24 Mojica v. Court of
Appeals,25 and China Banking Corporation v. Court of Appeals, 26 all of which upheld the validity of mortgage contracts securing
future advancements.

Anent the Court of Appeals' conclusion that the parties did not intend to include PN BD#76/C-345 in the real estate mortgage because
the same was specifically secured by a foreign currency deposit account, petitioner states that there is no law or rule which prohibits
an obligation from being covered by more than one security. 27 Besides, respondents even continued to withdraw from the same foreign
currency account even while the promissory note was still outstanding, strengthening the belief that it was the real estate mortgage that
principally secured all of respondents' promissory notes. 28 As for PN BD#76/C-345, which the Court of Appeals found to be
exclusively secured by the Clean-Phase out TOD 3923, petitioner posits that such security is not exclusive, as the "dragnet clause" of
the real estate mortgage covers all the obligations of the respondents.29

Moreover, petitioner insists that respondents attempt to evade foreclosure by the expediency of stating that the promissory notes were
executed by them not in their personal capacity but as corporate officers. It claims that PN BD#76/C-430 was in fact for home
construction and personal consumption of respondents. Thus, it states that there is a need to pierce the veil of corporate fiction. 30

Finally, petitioner alleges that the mortgage contract was executed by respondents with knowledge and understanding of the "dragnet
clause," being highly educated individuals, seasoned businesspersons, and political personalities. 31 There was no oppressive use of
superior bargaining power in the execution of the promissory notes and the real estate mortgage. 32

For their part, respondents claim that the "dragnet clause" cannot be applied to the subsequent loans extended to Don Alviar and
Donalco Trading, Inc. since these loans are covered by separate promissory notes that expressly provide for a different form of
security.33 They reiterate the holding of the trial court that the "blanket mortgage clause" would apply only to loans obtained jointly by
respondents, and not to loans obtained by other parties. 34 Respondents also place a premium on the finding of the lower courts that the
real estate mortgage clause is a contract of adhesion and must be strictly construed against petitioner bank. 35

The instant case thus poses the following issues pertaining to: (i) the validity of the "blanket mortgage clause" or the "dragnet clause";
(ii) the coverage of the "blanket mortgage clause"; and consequently, (iii) the propriety of seeking foreclosure of the mortgaged
property for the non-payment of the three loans.

At this point, it is important to note that one of the loans sought to be included in the "blanket mortgage clause" was obtained by
respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco Trading, Inc. and
not in their personal capacity. Petitioner asks the Court to pierce the veil of corporate fiction and hold respondents liable even for
obligations they incurred for the corporation. The mortgage contract states that the mortgage covers "as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the
Mortgagee, whether direct or indirect, principal or secondary." Well-settled is the rule that a corporation has a personality separate and
distinct from that of its officers and stockholders. Officers of a corporation are not personally liable for their acts as such officers
unless it is shown that they have exceeded their authority. 36 However, the legal fiction that a corporation has a personality separate and
distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. 37 PN BD#76/C-430, being an
obligation of Donalco Trading, Inc., and not of the respondents, is not within the contemplation of the "blanket mortgage clause."
Moreover, petitioner is unable to show that respondents are hiding behind the corporate structure to evade payment of their
obligations. Save for the notation in the promissory note that the loan was for house construction and personal consumption, there is
no proof showing that the loan was indeed for respondents' personal consumption. Besides, petitioner agreed to the terms of the
promissory note. If respondents were indeed the real parties to the loan, petitioner, a big, well-established institution of long standing
that it is, should have insisted that the note be made in the name of respondents themselves, and not to Donalco Trading Inc., and that
they sign the note in their personal capacity and not as officers of the corporation.

Now on the main issues.

A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to
subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." 38 Mortgages of this
character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time,
and they avoid the expense and inconvenience of executing a new security on each new transaction. 39 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.40 Indeed, it
has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, 41 and the
amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the
four corners of the instrument the intent to secure future and other indebtedness can be gathered. 42

The "blanket mortgage clause" in the instant case states:

That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by the
Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the payment of the
same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR,
including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or
secondary as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of
mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back of this
document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected
or constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free from all liens and
incumbrances. . . .43 (Emphasis supplied.)

Thus, contrary to the finding of the Court of Appeals, petitioner and respondents intended the real estate mortgage to secure not only
the P250,000.00 loan from the petitioner, but also future credit facilities and advancements that may be obtained by the respondents.
The terms of the above provision being clear and unambiguous, there is neither need nor excuse to construe it otherwise.

The cases cited by petitioner, while affirming the validity of "dragnet clauses" or "blanket mortgage clauses," are of a different factual
milieu from the instant case. There, the subsequent loans were not covered by any security other than that for the mortgage deeds
which uniformly contained the "dragnet clause."

In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-345, executed by
Don Alviar was secured by a "hold-out" on his foreign currency savings account, while PN BD#76/C-430, executed by respondents
for Donalco Trading, Inc., was secured by "Clean-Phase out TOD CA 3923" and eventually by a deed of assignment on two
promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel
mortgage on various heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus, the
critical issue is whether the "blanket mortgage" clause applies even to subsequent advancements for which other securities were
intended, or particularly, to PN BD#76/C-345.

Under American jurisprudence, two schools of thought have emerged on this question. One school advocates that a "dragnet clause"
so worded as to be broad enough to cover all other debts in addition to the one specifically secured will be construed to cover a
different debt, although such other debt is secured by another mortgage. 44 The contrary thinking maintains that a mortgage with such a
clause will not secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to anything other than a
deficiency after exhausting the security specified therein, 45 such deficiency being an indebtedness within the meaning of the mortgage,
in the absence of a special contract excluding it from the arrangement. 46

The latter school represents the better position. The parties having conformed to the "blanket mortgage clause" or "dragnet clause," it
is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other
securities, as the subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a
corollary component of the "dragnet clause." But of course, there is no prohibition, as in the mortgage contract in issue, against
contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was made in reliance solely on the original security with the "dragnet
clause," but rather, on the new security given. This is the "reliance on the security test."

Hence, based on the "reliance on the security test," the California court in the cited case made an inquiry whether the second loan was
made in reliance on the original security containing a "dragnet clause." Accordingly, finding a different security was taken for the
second loan no intent that the parties relied on the security of the first loan could be inferred, so it was held. The rationale involved,
the court said, was that the "dragnet clause" in the first security instrument constituted a continuing offer by the borrower to secure
further loans under the security of the first security instrument, and that when the lender accepted a different security he did not accept
the offer.47

In another case, it was held that a mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide the security
of the mortgage for advances of and when they were made. Thus, it was concluded that the "offer" was not accepted by the bank when
a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause
therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage
indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her
name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and
(4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the
advance.48

Indeed, in some instances, it has been held that in the absence of clear, supportive evidence of a contrary intention, a mortgage
containing a "dragnet clause" will not be extended to cover future advances unless the document evidencing the subsequent advance
refers to the mortgage as providing security therefor. 49

It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the
three promissory notes. While the existence and validity of the "dragnet clause" cannot be denied, there is a need to respect the
existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for
the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory note.
As held in one case, where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently
become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a
special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security. 50 This is
recognition that while the "dragnet clause" subsists, the security specifically executed for subsequent loans must first be exhausted
before the mortgaged property can be resorted to.

One other crucial point. The mortgage contract, as well as the promissory notes subject of this case, is a contract of adhesion, to which
respondents' only participation was the affixing of their signatures or "adhesion" thereto. 51 A contract of adhesion is one in which a
party imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. 52

The real estate mortgage in issue appears in a standard form, drafted and prepared solely by petitioner, and which, according to
jurisprudence must be strictly construed against the party responsible for its preparation. 53 If the parties intended that the "blanket
mortgage clause" shall cover subsequent advancement secured by separate securities, then the same should have been indicated in the
mortgage contract. Consequently, any ambiguity is to be taken contra proferentum, that is, construed against the party who caused the
ambiguity which could have avoided it by the exercise of a little more care. 54 To be more emphatic, any ambiguity in a contract whose
terms are susceptible of different interpretations must be read against the party who drafted it,55 which is the petitioner in this case.

Even the promissory notes in issue were made on standard forms prepared by petitioner, and as such are likewise contracts of
adhesion. Being of such nature, the same should be interpreted strictly against petitioner and with even more reason since having been
accomplished by respondents in the presence of petitioner's personnel and approved by its manager, they could not have been unaware
of the import and extent of such contracts.

Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that respondents have not yet paid
the P250,000.00, and gave no credence to their claim that they paid the said amount when they paid petitioner  P2,000,000.00. Thus,
the mortgaged property could still be properly subjected to foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned
earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses
which are available to respondents.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 59543 is AFFIRMED.

Costs against petitioner.

3. Parties - Civil Code, Art. 2085, Family Code, Art. 111

a. Mortgagee in Good Faith

 Homeowners Savings and Loan Bank vs. Felonia, G. R. No. 189477, February 26, 2014, 717 SCRA 358
Assailed in this Petition for Review on Certiorari is the Decision 1 and Resolution2 of the Court of Appeals (CA), in CA-G.R. CV No.
87540, which affirmed with modifications, the Decision 3 of the Regional Trial Court (RTC), reinstating the title of respondents
Asuncion Felonia (Felonia) and Lydia de Guzman (De Guzman) and cancelling the title of Marie Michelle Delgado (Delgado).

The facts as culled from the records are as follows:

Felonia and De Guzman were the registered owners of a parcel of land consisting of 532 square meters with a five-bedroom house,
covered by Transfer of Certificate of Title (TCT) No. T-402 issued by the register of deeds of Las Piñas City.

Sometime in June 1990, Felonia and De Guzman mortgaged the property to Delgado to secure the loan in the amount of
₱1,655,000.00. However, instead of a real estate mortgage, the parties executed a Deed of Absolute Sale with an Option to
Repurchase.4

On 20 December 1991, Felonia and De Guzman filed an action for Reformation of Contract (Reformation case), docketed as Civil
Case No. 91-59654, before the RTC of Manila. On the findings that it is "very apparent that the transaction had between the parties is
one of a mortgage and not a deed of sale with right to repurchase," 5 the RTC, on 21 March 1995 rendered a judgment favorable to
Felonia and De Guzman. Thus:

WHEREFORE, judgment is hereby rendered directing the [Felonia and De Guzman] and the [Delgado] to execute a deed of mortgage
over the property in question taking into account the payments made and the imposition of the legal interests on the principal loan.

On the other hand, the counterclaim is hereby dismissed for lack of merit.

No pronouncements as to attorney’s fees and damages in both instances as the parties must bear their respective expenses incident to
this suit.6

Aggrieved, Delgado elevated the case to the CA where it was docketed as CA-G.R. CV No. 49317. The CA affirmed the trial court
decision. On 16 October 2000, the CA decision became final and executory. 7

Inspite of the pendency of the Reformation case in which she was the defendant, Delgado filed a "Petition for Consolidation of
Ownership of Property Sold with an Option to Repurchase and Issuance of a New Certificate of Title" (Consolidation case) in the
RTC of Las Piñas, on 20 June 1994. 8 After an ex-parte hearing, the RTC ordered the issuance of a new title under Delgado’s name,
thus:

WHEREFORE, judgment is rendered-

1. Declaring [DELGADO] as absolute owner of the subject parcel of land covered by Transfer Certificate of Title No. T-402
of the Register of Deeds of Las Piñas, Metro Manila;

2. Ordering the Register of Deeds of Las Piñas, Metro Manila to cancel Transfer Certificate of Title No. T-402 and issue in
lieu thereof a new certificate of title and owner’s duplicate copy thereof in the name of [DELGADO]. 9

By virtue of the RTC decision, Delgado transferred the title to her name. Hence, TCT No. T-402, registered in the names of Felonia
and De Guzman, was canceled and TCT No. 44848 in the name of Delgado, was issued.

Aggrieved, Felonia and De Guzman elevated the case to the CA through a Petition for Annulment of Judgment. 10

Meanwhile, on 2 June 1995, Delgado mortgaged the subject property to Homeowners Savings and Loan Bank (HSLB) using her
newly registered title. Three (3) days later, or on 5 June 1995, HSLB caused the annotation of the mortgage.

On 14 September 1995, Felonia and De Guzman caused the annotation of a Notice of Lis Pendens on Delgado’s title, TCT No. 44848.
The Notice states:

Entry No. 8219/T-44848 – NOTICE OF LIS PENDENS – filed by Atty. Humberto A. Jambora, Counsel for the Plaintiff, that a case
been commenced in the RTC, Branch 38, Manila, entitled ASUNCION P. FELONIA and LYDIA DE GUZMAN thru VERONICA P.
BELMONTE, as Atty-in-fact (Plaintiffs) v.s. MARIE MICHELLE DELGADO defendant in Civil Case No. 91-59654 for
Reformation of Instrument.

Copy on file in this Registry.

Date of Instrument – Sept. 11, 1995

Date of Inscription – Sept. 14, 1995 at 9:55 a.m.11

On 20 November1997, HSLB foreclosed the subject property and later consolidated ownership in its favor, causing the issuance of a
new title in its name, TCT No. 64668.

On 27 October 2000, the CA annulled and set aside the decision of the RTC, Las Piñas City in the Consolidation case. The decision of
the CA, declaring Felonia and De Guzman as the absolute owners of the subject property and ordering the cancellation of Delgado’s
title, became final and executory on 1 December 2000.12 Thus:
WHEREFORE, the petition is GRANTED and the subject judgment of the court a quo is ANNULLED and SET ASIDE.13

On 29 April 2003, Felonia and De Guzman, represented by Maribel Frias (Frias), claiming to be the absolute owners of the subject
property, instituted the instant complaint against Delgado, HSLB, Register of Deeds of Las Piñas City and Rhandolfo B. Amansec
before the RTC of Las Piñas City for Nullity of Mortgage and Foreclosure Sale, Annulment of Titles of Delgado and HSLB, and
finally, Reconveyance of Possession and Ownership of the subject property in their favor.

As defendant, HSLB asserted that Felonia and De Guzman are barred from laches as they had slept on their rights to timely annotate,
by way of Notice of Lis Pendens, the pendency of the Reformation case. HSLB also claimed that it should not be bound by the
decisions of the CA in the Reformation and Consolidation cases because it was not a party therein.

Finally, HSLB asserted that it was a mortgagee in good faith because the mortgage between Delgado and HSLB was annotated on the
title on 5 June 1995, whereas the Notice of Lis Pendens was annotated only on 14 September 1995.

After trial, the RTC ruled in favor of Felonia and De Guzman as the absolute owners of the subject property. The dispositive portion
of the RTC decision reads:

WHEREFORE, premises considered, the Court hereby finds for the [Felonia and De Guzman] with references to the decision of the
Court of Appeals in CA-G.R. CV No. 49317 and CA-G.R. SP No. 43711 as THESE TWO DECISIONS CANNOT BE IGNORED
and against [Delgado] and [HSLB], Register of Deeds of Las Piñas City ordering the (sic) as follows:

1. The Register of Deeds of Las Piñas City to cancel Transfer Certificate of Title Nos. 44848 and T-64668 as null and void
and reinstating Transfer Certificate of Title No. T-402 which shall contain a memorandum of the fact and shall in all respect
be entitled to like faith and credit as the original certificate of title and shall, thereafter be regarded as such for all intents and
purposes under the law;

2. Declaring the Mortgage Sheriff’s Sale and the Certificate of Sale issued in favor of HSLB null and void, without prejudice
to whatever rights the said Bank may have against [Delgado];

3. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for compensatory damages;

4. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for exemplary damages;

5. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for moral damages;

6. Ordering [Delgado] to pay 20% of the total obligations as and by way of attorney’s fees;

7. Ordering [Delgado] to pay cost of suit.14

On appeal, the CA affirmed with modifications the trial court decision. The dispositive portion of the appealed Decision reads:

WHEREFORE, in the light of the foregoing, the decision appealed from is AFFIRMED with the MODIFICATIONS that the awards
of actual damages and attorney’s fees are DELETED, moral and exemplary damages are REDUCED to ₱50,000.00 each, and Delgado
is ordered to pay the appellees ₱25,000.00 as nominal damages.15

Hence, this petition.

Notably, HSLB does not question the affirmance by the CA of the trial court’s ruling that TCT No. 44848, the certificate of title of its
mortgagor-vendor, and TCT No. 64668, the certificate of title that was secured by virtue of the Sheriff’s sale in its favor, should be
cancelled "as null and void" and that TCT No. T-402 in the name of Felonia and De Guzman should be reinstated.

Recognizing the validity of TCT No. T-402 restored in the name of Felonia and De Guzman, petitioners pray that the decision of the
CA be modified "to the effect that the mortgage lien in favor of petitioner HSLB annotated as entry No. 4708-12 on TCT No. 44848
be [ordered] carried over on TCT No. T-402 after it is reinstated in the name of [Felonia and De Guzman]." 16

Proceeding from the ruling of the CA that it is a mortgagee in good faith, HSLB argues that a denial of its prayer would run counter to
jurisprudence giving protection to a mortgagee in good faith by reason of public policy.

We cannot grant the prayer of petitioner. The priorly registered mortgage lien of HSLB is now worthless.

Arguably, HSLB was initially a mortgagee in good faith. In Bank of Commerce v. San Pablo, Jr., 17 the doctrine of mortgagee in good
faith was explained:

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being
fraudulent, the mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy. This is the
doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by the Torrens Certificates
of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding
indefeasibility of a certificate of title, as evidence of 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.
When the property was mortgaged to HSLB, the registered owner of the subject property was Delgado who had in her name TCT No.
44848. Thus, HSLB cannot be faulted in relying on the face of Delgado’s title. The records indicate that Delgado was at the time of
the mortgage in possession of the subject property and Delgado’s title did not contain any annotation that would arouse HSLB’s
suspicion. HSLB, as a mortgagee, had a right to rely in good faith on Delgado’s title, and in the absence of any sign that might arouse
suspicion, HSLB had no obligation to undertake further investigation. As held by this Court in Cebu International Finance Corp. v.

CA:18

The prevailing jurisprudence is that 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 or transferee in good faith is nonetheless entitled to protection.

However, the rights of the parties to the present case are defined not by the determination of whether or not HSLB is a mortgagee in
good faith, but of whether or not HSLB is a purchaser in good faith. And, HSLB is not such a purchaser.

A purchaser in good faith is defined as one who buys a property without notice that some other person has a right to, or interest in, the
property and pays full and fair price at the time of purchase or before he has notice of the claim or interest of other persons in the
property.19

When a prospective buyer is faced with facts and circumstances as to arouse his suspicion, he must take precautionary steps to qualify
as a purchaser in good faith. In Spouses Mathay v. CA,20 we determined the duty of a prospective buyer:

Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title, it is also a
firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the
property being sold to him, such as the presence of occupants/tenants thereon, it is of course, expected from the purchaser of a valued
piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants possess the land
en concepto de dueño, in the concept of the owner. As is the common practice in the real estate industry, an ocular inspection of the
premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find out that the land he intends to buy is
occupied by anybody else other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the
purchaser to verify the extent of the occupant’s possessory rights. The failure of a prospective buyer to take such precautionary steps
would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a purchaser in good faith.

In the case at bar, HSLB utterly failed to take the necessary precautions.1âwphi1 At the time the subject property was mortgaged,
there was yet no annotated Notice of Lis Pendens. However, at the time HSLB purchased the subject property, the Notice of Lis
Pendens was already annotated on the title.21

Lis pendens is a Latin term which literally means, "a pending suit or a pending litigation" while a notice of lis pendens is an
announcement to the whole world that a real property is in litigation, serving as a warning that anyone who acquires an interest over
the property does so at his/her own risk, or that he/she gambles on the result of the litigation over the property. 22 It is a warning to
prospective buyers to take precautions and investigate the pending litigation.

The purpose of a notice of lis pendens is to protect the rights of the registrant while the case is pending resolution or decision. With the
notice of lis pendens duly recorded and remaining uncancelled, the registrant could rest secure that he/she will not lose the property or
any part thereof during litigation.

The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter
of the litigation within the Court’s jurisdiction until the judgment or the decree have been entered; otherwise, by successive alienations
pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution. 23

Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the annotated Notice of Lis Pendens. Instead of
heeding the same, HSLB continued with the purchase knowing the legal repercussions a notice of lis pendens entails. HSLB took upon
itself the risk that the Notice of Lis Pendens leads to.1âwphi1 As correctly found by the CA, "the notice of lis pendens was annotated
on 14 September 1995, whereas the foreclosure sale, where the appellant was declared as the highest bidder, took place sometime in
1997. There is no doubt that at the time appellant purchased the subject property, it was aware of the pending litigation concerning the
same property and thus, the title issued in its favor was subject to the outcome of said litigation." 24

This ruling is in accord with Rehabilitation Finance Corp. v. Morales, 25 which underscored the significance of a lis pendens, then
defined in Sec. 24, Rule 7 now Sec. 14 of Rule 13 in relation to a mortgage priorly annotated on the title covering the property. Thus:

The notice of lis pendens in question was annotated on the back of the certificate of title as a necessary incident of the civil action to
recover the ownership of the property affected by it. The mortgage executed in favor of petitioner corporation was annotated on the
same title prior to the annotation of the notice of lis pendens; but when petitioner bought the property as the highest bidder at the
auction sale made as an aftermath of the foreclosure of the mortgage, the title already bore the notice of lis pendens. Held: While the
notice of lis pendens cannot affect petitioner’s right as mortgagee, because the same was annotated subsequent to the mortgage, yet the
said notice affects its right as purchaser because notice of lis pendens simply means that a certain property is involved in a litigation
and serves as a notice to the whole world that one who buys the same does so at his own risk.26

The subject of the lis pendens on the title of HSLB’s vendor, Delgado, is the "Reformation case" filed against Delgado by the herein
respondents. The case was decided with finality by the CA in favor of herein respondents. The contract of sale in favor of Delgado
was ordered reformed into a contract of mortgage. By final decision of the CA, HSLB’s vendor, Delgado, is not the property owner
but only a mortgagee. As it turned out, Delgado could not have constituted a valid mortgage on the property. That the mortgagor be
the absolute owner of the thing mortgaged is an essential requisite of a contract of mortgage. Article 2085 (2) of the Civil Code
specifically says so:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

xxxx

(2) That the pledgor or mortagagor be the absolute owner of the thing pledged or mortgaged.

Succinctly, for a valid mortgage to exist, ownership of the property is an essential requisite. 27

Reyes v. De Leon28 cited the case of Philippine National Bank v. Rocha 29 where it was pronounced that "a mortgage of real property
executed by one who is not an owner thereof at the time of the execution of the mortgage is without legal existence." Such that,
according to DBP v. Prudential Bank,30 there being no valid mortgage, there could also be no valid foreclosure or valid auction sale.

We go back to Bank of Commerce v. San Pablo, Jr. 31 where the doctrine of mortgagee in good faith, upon which petitioner relies, was
clarified as "based on the rule that all persons dealing with property covered by the Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the face of the title. In turn, the rule is based on "x x x public interest in
upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon." 32

Insofar as the HSLB is concerned, there is no longer any public interest in upholding the indefeasibility of the certificate of title of its
mortgagor, Delgado. Such title has been nullified in a decision that had become final and executory. Its own title, derived from the
foreclosure of Delgado's mortgage in its favor, has likewise been nullified in the very same decision that restored the certificate of title
in respondents' name. There is absolutely no reason that can support the prayer of HSLB to have its mortgage lien carried over and
into the restored certificate of title of respondents.

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 87540 is AFFIRMED.

SO ORDERED.

4. Form - Civil Code, Arts. 2125, 1358, 1878, 1879

5. Obligations of the Mortgagor

a. Implied Obligation to Take Care of the Thing

b. Obligation to Allow Foreclosure - Civil Code, Art. 2087

6. Obligations of the Mortgagee

a. Obligation to Release the Mortgaged Property From Encumbrance

7. Right to Alienate Mortgage Credit - Civil Code, Arts. 2128, 1625, 1627

8. Right to Alienate Collateral - Civil Code, Arts. 2085, 2130, 2129

 Garcia v. Villar, G. R. No. 158891, June 27, 2012, 675 SCRA 80

This is a petition for review on certiorari 1 of the February 27, 2003 Decision2 and July 2, 2003 Resolution3 of the Court of Appeals in
CA-G.R. SP No. 72714, which reversed the May 27, 2002 Decision 4 of the Regional Trial Court (RTC), Branch 92 of Quezon City in
Civil Case No. Q-99-39139.

Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property) located at Malindang St., Quezon City,
covered by Transfer Certificate of Title (TCT) No. RT-67970(253279).5

On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker, mortgaged the subject property to Yolanda
Valdez Villar (Villar) as security for a loan in the amount of Two Million Two Hundred Thousand Pesos (₱2,200,000.00). 6

On October 10, 1994, Galas, again with Pingol as her co-maker, mortgaged the same subject property to Pablo P. Garcia (Garcia) to
secure her loan of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).7

Both mortgages were annotated at the back of TCT No. RT-67970 (253279), to wit:

REAL ESTATE MORTGAGE

Entry No. 6537/T-RT-67970(253279) MORTGAGE – In favor of Yolanda Valdez Villar m/to Jaime Villar to guarantee a principal
obligation in the sum of ₱2,200,000- mortgagee’s consent necessary in case of subsequent encumbrance or alienation of the property;
Other conditions set forth in Doc. No. 97, Book No. VI, Page No. 20 of the Not. Pub. of Diana P. Magpantay

Date of Instrument: 7-6-93

Date of Inscription: 7-7-93

SECOND REAL ESTATE MORTGAGE

Entry No. 821/T-RT-67970(253279) MORTGAGE – In favor of Pablo Garcia m/to Isabela Garcia to guarantee a principal obligation
in the sum of ₱1,800,000.00 mortgagee’s consent necessary in case of subsequent encumbrance or alienation of the property; Other
conditions set forth in Doc. No. 08, Book No. VII, Page No. 03 of the Not. Pub. of Azucena Espejo Lozada

Date of Instrument: 10/10/94

Date of Inscription: 10/11/94

LRC Consulta No. 1698

On November 21, 1996, Galas sold the subject property to Villar for One Million Five Hundred Thousand Pesos (₱1,500,000.00), and
declared in the Deed of Sale9 that such property was "free and clear of all liens and encumbrances of any kind whatsoever." 10

On December 3, 1996, the Deed of Sale was registered and, consequently, TCT No. RT-67970(253279) was cancelled and TCT No.
N-16836111 was issued in the name of Villar. Both Villar’s and Garcia’s mortgages were carried over and annotated at the back of
Villar’s new TCT.12

On October 27, 1999, Garcia filed a Petition for Mandamus with Damages 13 against Villar before the RTC, Branch 92 of Quezon City.
Garcia subsequently amended his petition to a Complaint for Foreclosure of Real Estate Mortgage with Damages. 14 Garcia alleged that
when Villar purchased the subject property, she acted in bad faith and with malice as she knowingly and willfully disregarded the
provisions on laws on judicial and extrajudicial foreclosure of mortgaged property. Garcia further claimed that when Villar purchased
the subject property, Galas was relieved of her contractual obligation and the characters of creditor and debtor were merged in the
person of Villar. Therefore, Garcia argued, he, as the second mortgagee, was subrogated to Villar’s original status as first mortgagee,
which is the creditor with the right to foreclose. Garcia further asserted that he had demanded payment from Villar, 15 whose refusal
compelled him to incur expenses in filing an action in court.16

Villar, in her Answer,17 claimed that the complaint stated no cause of action and that the second mortgage was done in bad faith as it
was without her consent and knowledge. Villar alleged that she only discovered the second mortgage when she had the Deed of Sale
registered. Villar blamed Garcia for the controversy as he accepted the second mortgage without prior consent from her. She averred
that there could be no subrogation as the assignment of credit was done with neither her knowledge nor prior consent. Villar added
that Garcia should seek recourse against Galas and Pingol, with whom he had privity insofar as the second mortgage of property is
concerned.

On May 23, 2000, the RTC issued a Pre-Trial Order18 wherein the parties agreed on the following facts and issue:

STIPULATIONS OF FACTS/ADMISSIONS

The following are admitted:

1. the defendant admits the second mortgage annotated at the back of TCT No. RT-67970 of Lourdes V. Galas with the
qualification that the existence of said mortgage was discovered only in 1996 after the sale;

2. the defendant admits the existence of the annotation of the second mortgage at the back of the title despite the transfer of
the title in the name of the defendant;

3. the plaintiff admits that defendant Yolanda Valdez Villar is the first mortgagee;

4. the plaintiff admits that the first mortgage was annotated at the back of the title of the mortgagor Lourdes V. Galas; and

5. the plaintiff admits that by virtue of the deed of sale the title of the property was transferred from the previous owner in
favor of defendant Yolanda Valdez Villar.

xxxx

ISSUE

Whether or not the plaintiff, at this point in time, could judicially foreclose the property in question.

On June 8, 2000, upon Garcia’s manifestation, in open court, of his intention to file a Motion for Summary Judgment, 19 the RTC
issued an Order20 directing the parties to simultaneously file their respective memoranda within 20 days.

On June 26, 2000, Garcia filed a Motion for Summary Judgment with Affidavit of Merit 21 on the grounds that there was no genuine
issue as to any of the material facts of the case and that he was entitled to a judgment as a matter of law.
On June 28, 2000, Garcia filed his Memorandum 22 in support of his Motion for Summary Judgment and in compliance with the RTC’s
June 8, 2000 Order. Garcia alleged that his equity of redemption had not yet been claimed since Villar did not foreclose the mortgaged
property to satisfy her claim.

On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of Time to File Her Memorandum. 23 This, however, was
denied24 by the RTC in view of Garcia’s Opposition.25

On May 27, 2002, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of the plaintiff Pablo P. Garcia and against
the defendant Yolanda V. Villar, who is ordered to pay to the former within a period of not less than ninety (90) days nor more than
one hundred twenty (120) days from entry of judgment, the sum of ₱1,800,000.00 plus legal interest from October 27, 1999 and upon
failure of the defendant to pay the said amount within the prescribed period, the property subject matter of the 2nd Real Estate
Mortgage dated October 10, 1994 shall, upon motion of the plaintiff, be sold at public auction in the manner and under the provisions
of Rules 39 and 68 of the 1997 Revised Rules of Civil Procedure and other regulations governing sale of real estate under execution in
order to satisfy the judgment in this case. The defendant is further ordered to pay costs.26

The RTC declared that the direct sale of the subject property to Villar, the first mortgagee, could not operate to deprive Garcia of his
right as a second mortgagee. The RTC said that upon Galas’s failure to pay her obligation, Villar should have foreclosed the subject
property pursuant to Act No. 3135 as amended, to provide junior mortgagees like Garcia, the opportunity to satisfy their claims from
the residue, if any, of the foreclosure sale proceeds. This, the RTC added, would have resulted in the extinguishment of the
mortgages.27

The RTC held that the second mortgage constituted in Garcia’s favor had not been discharged, and that Villar, as the new registered
owner of the subject property with a subsisting mortgage, was liable for it.28

Villar appealed29 this Decision to the Court of Appeals based on the arguments that Garcia had no valid cause of action against her;
that he was in bad faith when he entered into a contract of mortgage with Galas, in light of the restriction imposed by the first
mortgage; and that Garcia, as the one who gave the occasion for the commission of fraud, should suffer. Villar further asseverated that
the second mortgage is a void and inexistent contract considering that its cause or object is contrary to law, moral, good customs, and
public order or public policy, insofar as she was concerned.30

Garcia, in his Memorandum,31 reiterated his position that his equity of redemption remained "unforeclosed" since Villar did not
institute foreclosure proceedings. Garcia added that "the mortgage, until discharged, follows the property to whomever it may be
transferred no matter how many times over it changes hands as long as the annotation is carried over."32

The Court of Appeals reversed the RTC in a Decision dated February 27, 2003, to wit:

WHEREFORE, the decision appealed from is REVERSED and another one entered DISMISSING the complaint for judicial
foreclosure of real estate mortgage with damages.33

The Court of Appeals declared that Galas was free to mortgage the subject property even without Villar’s consent as the restriction
that the mortgagee’s consent was necessary in case of a subsequent encumbrance was absent in the Deed of Real Estate Mortgage. In
the same vein, the Court of Appeals said that the sale of the subject property to Villar was valid as it found nothing in the records that
would show that Galas violated the Deed of Real Estate Mortgage prior to the sale.34

In dismissing the complaint for judicial foreclosure of real estate mortgage with damages, the Court of Appeals held that Garcia had
no cause of action against Villar "in the absence of evidence showing that the second mortgage executed in his favor by Lourdes V.
Galas [had] been violated and that he [had] made a demand on the latter for the payment of the obligation secured by said mortgage
prior to the institution of his complaint against Villar."35

On March 20, 2003, Garcia filed a Motion for Reconsideration 36 on the ground that the Court of Appeals failed to resolve the main
issue of the case, which was whether or not Garcia, as the second mortgagee, could still foreclose the mortgage after the subject
property had been sold by Galas, the mortgage debtor, to Villar, the mortgage creditor.

This motion was denied for lack of merit by the Court of Appeals in its July 2, 2003 Resolution.

Garcia is now before this Court, with the same arguments he posited before the lower courts. In his Memorandum, 37 he added that the
Deed of Real Estate Mortgage contained a stipulation, which is violative of the prohibition on pactum commissorium.

Issues

The crux of the controversy before us boils down to the propriety of Garcia’s demand upon Villar to either pay Galas’s debt of
₱1,800,000.00, or to judicially foreclose the subject property to satisfy the aforesaid debt. This Court will, however, address the
following issues in seriatim:

1. Whether or not the second mortgage to Garcia was valid;

2. Whether or not the sale of the subject property to Villar was valid;
 3. Whether or not the sale of the subject property to Villar was in violation of the prohibition on pactum commissorium;

4. Whether or not Garcia’s action for foreclosure of mortgage on the subject property can prosper.

Discussion

Validity of second mortgage to Garcia

and sale of subject property to Villar

At the onset, this Court would like to address the validity of the second mortgage to Garcia and the sale of the subject property to
Villar. We agree with the Court of Appeals that both are valid under the terms and conditions of the Deed of Real Estate Mortgage
executed by Galas and Villar.

While it is true that the annotation of the first mortgage to Villar on Galas’s TCT contained a restriction on further encumbrances
without the mortgagee’s prior consent, this restriction was nowhere to be found in the Deed of Real Estate Mortgage. As this Deed
became the basis for the annotation on Galas’s title, its terms and conditions take precedence over the standard, stamped annotation
placed on her title. If it were the intention of the parties to impose such restriction, they would have and should have stipulated such in
the Deed of Real Estate Mortgage itself.

Neither did this Deed proscribe the sale or alienation of the subject property during the life of the mortgages. Garcia’s insistence that
Villar should have judicially or extrajudicially foreclosed the mortgage to satisfy Galas’s debt is misplaced. The Deed of Real Estate
Mortgage merely provided for the options Villar may undertake in case Galas or Pingol fail to pay their loan. Nowhere was it stated in
the Deed that Galas could not opt to sell the subject property to Villar, or to any other person. Such stipulation would have been void
anyway, as it is not allowed under Article 2130 of the Civil Code, to wit:

Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.

Prohibition on pactum commissorium

Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagor’s attorney-in-fact, to sell the property in case of
default in the payment of the loan, is in violation of the prohibition on pactum commissorium, as stated under Article 2088 of the Civil
Code, viz:

Art. 2088. 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.

The power of attorney provision in the Deed of Real Estate Mortgage reads:

5. Power of Attorney of MORTGAGEE. – Effective upon the breach of any condition of this Mortgage, and in addition to the
remedies herein stipulated, the MORTGAGEE is likewise appointed attorney-in-fact of the MORTGAGOR with full power and
authority to take actual possession of the mortgaged properties, to sell, lease any of the mortgaged properties, to collect rents, to
execute deeds of sale, lease, or agreement that may be deemed convenient, to make repairs or improvements on the mortgaged
properties and to pay the same, and perform any other act which the MORTGAGEE may deem convenient for the proper
administration of the mortgaged properties. The payment of any expenses advanced by the MORTGAGEE in connection with the
purpose indicated herein is also secured by this Mortgage. Any amount received from the sale, disposal or administration
abovementioned maybe applied by assessments and other incidental expenses and obligations and to the payment of original
indebtedness including interest and penalties thereon. The power herein granted shall not be revoked during the life of this Mortgage
and all acts which may be executed by the MORTGAGEE by virtue of said power are hereby ratified.38

The following are the elements of pactum commissorium:

(1) There should be a property mortgaged by way of security for the payment of the principal obligation; and

(2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment
of the principal obligation within the stipulated period.39

Villar’s purchase of the subject property did not violate the prohibition on pactum commissorium. The power of attorney provision
above did not provide that the ownership over the subject property would automatically pass to Villar upon Galas’s failure to pay the
loan on time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the
subject property, and to apply the proceeds to the payment of the loan. 40 This provision is customary in mortgage contracts, and is in
conformity with Article 2087 of the Civil Code, which reads:

Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or
mortgage consists may be alienated for the payment to the creditor.

Galas’s decision to eventually sell the subject property to Villar for an additional ₱1,500,000.00 was well within the scope of her
rights as the owner of the subject property. The subject property was transferred to Villar by virtue of another and separate contract,
which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was automatic upon Galas’s failure to
discharge her debt, or that the sale was simulated to cover up such automatic transfer.
Propriety of Garcia’s action
for foreclosure of mortgage

The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit:

Art. 2126. The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to
the fulfillment of the obligation for whose security it was constituted.

Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers by the mortgagor. 1âwphi1 "A
registered mortgage lien is considered inseparable from the property inasmuch as it is a right in rem." 41

The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the purchaser or transferee is necessarily
bound to acknowledge and respect the encumbrance. 42 In fact, under Article 2129 of the Civil Code, the mortgage on the property may
still be foreclosed despite the transfer, viz:

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 terms and with the formalities which the law establishes.

While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet been discharged, we find that
said mortgage subsists and is still enforceable. However, Villar, in buying the subject property with notice that it was mortgaged, only
undertook to pay such mortgage or allow the subject property to be sold upon failure of the mortgage creditor to obtain payment from
the principal debtor once the debt matures. Villar did not obligate herself to replace the debtor in the principal obligation, and could
not do so in law without the creditor’s consent.43 Article 1293 of the Civil Code provides:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.

Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and Pingol. 44 The case of E.C.
McCullough & Co. v. Veloso and Serna45 is square on this point:

The effects of a transfer of a mortgaged property to a third person are well determined by the Civil Code.1âwphi1 According to article
187946 of this Code, the creditor may demand of the third person in possession of the property mortgaged payment of such part of the
debt, as is secured by the property in his possession, in the manner and form established by the law. The Mortgage Law in force at the
promulgation of the Civil Code and referred to in the latter, provided, among other things, that the debtor should not pay the debt upon
its maturity after judicial or notarial demand, for payment has been made by the creditor upon him. (Art. 135 of the Mortgage Law of
the Philippines of 1889.) According to this, the obligation of the new possessor to pay the debt originated only from the right of the
creditor to demand payment of him, it being necessary that a demand for payment should have previously been made upon the debtor
and the latter should have failed to pay. And even if these requirements were complied with, still the third possessor might abandon
the property mortgaged, and in that case it is considered to be in the possession of the debtor. (Art. 136 of the same law.) This clearly
shows that the spirit of the Civil Code is to let the obligation of the debtor to pay the debt stand although the property mortgaged to
secure the payment of said debt may have been transferred to a third person. While the Mortgage Law of 1893 eliminated these
provisions, it contained nothing indicating any change in the spirit of the law in this respect. Article 129 of this law, which provides
the substitution of the debtor by the third person in possession of the property, for the purposes of the giving of notice, does not show
this change and has reference to a case where the action is directed only against the property burdened with the mortgage. (Art. 168 of
the Regulation.)47

This pronouncement was reiterated in Rodriguez v. Reyes 48 wherein this Court, even before quoting the same above portion in E.C.
McCullough & Co. v. Veloso and Serna, held:

We find the stand of petitioners-appellants to be unmeritorious and untenable. The maxim "caveat emptor" applies only to execution
sales, and this was not one such. The mere fact that the purchaser of an immovable has notice that the acquired realty is encumbered
with a mortgage does not render him liable for the payment of the debt guaranteed by the mortgage, in the absence of stipulation or
condition that he is to assume payment of the mortgage debt. The reason is plain: the mortgage is merely an encumbrance on the
property, entitling the mortgagee to have the property foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage
debt, and apply the proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory undertaking for the
convenience and security of the mortgage creditor, and exists independently of the obligation to pay the debt secured by it. The
mortgagee, if he is so minded, can waive the mortgage security and proceed to collect the principal debt by personal action against the
original mortgagor.49

In view of the foregoing, Garcia has no cause of action against Villar in the absence of evidence to show that the second mortgage
executed in favor of Garcia has been violated by his debtors, Galas and Pingol, i.e., specifically that Garcia has made a demand on
said debtors for the payment of the obligation secured by the second mortgage and they have failed to pay.

WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March 8, 2003 Resolution of the Court of Appeals
in CA-G.R. SP No. 72714.

SO ORDERED.

9. Foreclosure
 a. Judicial Foreclosure - Rules of Court, Rule 68

 Korea Exchange Bank v. Filkor Business Integrated, Inc., et al., G. R. No. 138292, April10, 2002, 380 SCRA 381.

This petition assails the order 1 dated April 16, 1999 of the Regional Trial Court of Cavite City, Branch 88, in Civil Case No. N-6689.
Said order denied petitioner’s partial motion for reconsideration of the trial court’s order 2 dated March 12, 1999 whereby respondents
were ordered to pay petitioner various sums of U.S. dollars as payment of the former’s various loans with interest but omitted to state
that the property mortgaged as security for said loans be foreclosed and sold at public auction in case respondents fail to pay their
obligations to petitioner ninety days from entry of judgment.chanrob1es virtua1 1aw 1ibrary

The facts are summarized from the findings of the trial court.

On January 9, 1997, respondent Filkor Business Integrated, Inc. (Filkor), borrowed US$140,000 from petitioner Korea Exchange
Bank, payable on July 9, 1997. Of this amount, only US$40,000 was paid by Filkor. 3

In addition, Filkor executed nine trust receipts in favor of petitioner, from June 26, 1997 to September 11, 1997. However, Filkor
failed to turn over to petitioner the proceeds from the sale of the goods, or the goods themselves as required by the trust receipts in
case Filkor could not sell them. 4

In the period from June 9, 1997 to October 1, 1997, Filkor also negotiated to petitioner the proceeds of seventeen letters of credit
issued by the Republic Bank of New York and the Banque Leumi France, S.A. to pay for goods which Filkor sold to Segerman
International, Inc. and Davyco, S.A. When petitioner tried to collect the proceeds of the letters of credit by presenting the bills of
exchange drawn to collect the proceeds, they were dishonored because of discrepancies. 5

Prior to all the foregoing, in order to secure payment of all its obligations, Filkor executed a Real Estate Mortgage on February 9,
1996. It mortgaged to petitioner the improvements belonging to it constructed on the lot it was leasing at the Cavite Export Processing
Zone Authority. 6 Respondents Kim Eung Joe and Lee Han Sang also executed Continuing Suretyships binding themselves jointly
and severally with respondent Filkor to pay for the latter’s obligations to petitioner. 7

As respondents failed to make good on their obligations, petitioner filed Civil Case No. N-6689 in the Regional Trial Court of Cavite
City, docketed as "Korea Exchange Bank v. Filkor Business Integrated, Inc." In its complaint, petitioner prayed that (a) it be paid by
respondents under its twenty-seven causes of action; (b) the property mortgaged be foreclosed and sold at public auction in case
respondents failed to pay petitioner within ninety days from entry of judgment; and (c) other reliefs just and equitable be granted. 8

Petitioner moved for summary judgment pursuant to Section 1, Rule 35 of the 1997 Rules of Civil Procedure. On March 12, 1999, the
trial court rendered its order granting petitioner’s motion, reasoning as follows:chanrob1es virtual 1aw library

x       x       x

It appears that the only reason defendants deny all the material allegations in the complaint is because the documents attached thereto
are mere photocopies and not the originals thereof. Section 7, Rule 8 of the Rules of Court allows copies of documents to be attached
to the pleading as an exhibit. Defendants are, therefore, deemed to have admitted the genuineness and due execution of all actionable
documents attached to the complaint inasmuch as they were not specifically denied, pursuant to Section 8 of the Rule 8 of the Rules of
Court.

In the case at bar, there is clearly no substantial triable issue, hence, the motion for summary judgment filed by plaintiff is proper.

A summary of judgment is one granted by the court upon motion by a party for an expeditious settlement of the case, there appearing
from the pleadings, depositions, admissions and affidavits that there are no important questions or issues of fact involved (except as to
the amount of damages) and that, therefore, the moving party is entitled to a judgment as a matter of law (Sections 1, 2, 3, Rule 35,
1997 Rules of Civil Procedure).

The court having taken into account the pleadings of the parties as well as the affidavits attached to the motion for summary judgment
and having found that there is indeed no genuine issue as to any material fact and that plaintiff is entitled to a summary of judgment as
a matter of law, hereby renders judgment for the plaintiff and against the defendants, ordering said defendants jointly and severally to
pay plaintiff, as follows . . . 9

The trial court then rendered judgment in favor of petitioner, granting its prayers under all its twenty-seven causes of action. It,
however, failed to order that the property mortgaged by respondent Filkor be foreclosed and sold at public auction in the event that
Filkor fails to pay its obligations to petitioner.

Petitioner filed a motion for partial reconsideration of the trial court’s order, praying that the aforesaid relief of foreclosure and sale at
public auction be granted. In an order dated April 16, 1999, the trial court denied petitioner’s motion, ruling as follows:chanrob1es
virtual 1aw library

Plaintiff, in opting to file a civil action for the collection of defendants obligations, has abandoned its mortgage lien on the property
subject of the real estate mortgage.

The issue has already been resolved in Danao v. Court of Appeals, 154 SCRA 446, citing Manila Trading and Supply Co. v. Co Kim,
Et Al., 71 Phil. 448, where the Supreme Court ruled that:chanrob1es virtual 1aw library

The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary action to recover the
indebtedness with the right to execute a judgment thereon on all the properties of the debtor including the subject matter of the
mortgage, subject to the qualification that if he fails in the remedy by him elected, he cannot pursue further the remedy he has
waived.chanrob1es virtua1 1aw 1ibrary

WHEREFORE, the Partial Motion for Reconsideration filed by the plaintiff of the Court’s Order dated March 12, 1999 is hereby
denied for lack of merit.

SO ORDERED. 10

Hence, the present petition, where petitioner ascribes the following error to the trial court.

THE REGIONAL TRIAL COURT OF CAVITE CITY ERRED IN RULING THAT PETITIONER HAD ABANDONED THE
REAL ESTATE MORTGAGE IN ITS FAVOR, BECAUSE IT FILED A SIMPLE COLLECTION CASE. 11

The resultant issue is whether or not petitioner’s complaint before the trial court was an action for foreclosure of a real estate
mortgage, or an action for collection of a sum of money. In addition, we must also determine if the present appeal was correctly
lodged before us rather than with the Court of Appeals.

In petitioner’s complaint before the trial court, Paragraph 183 thereof alleges:chanrob1es virtual 1aw library

183. To secure payment of the obligations of defendant Corporation under the First to the Twenty-Seventh Cause of Action, on
February 9, 1996, defendant Corporation executed a Real Estate Mortgage by virtue of which it mortgaged to plaintiff the
improvements standing on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, belonging to defendant Corporation
covered by Tax Declaration No. 59061 and consisting of a one-story building called warehouse and spooling area, the guardhouse, the
cutting/sewing area building and the packing area building. (A copy of the Real Estate Mortgage is attached hereto as Annex "SS" and
made an integral part hereof.) 12

This allegation satisfies in part the requirements of Section 1, Rule 68 of the 1997 Rules of Civil Procedure on foreclosure of real
estate mortgage, which provides:chanrob1es virtual 1aw library

SECTION 1. Complaint in action for foreclosure. — In an action for the foreclosure of a mortgage or other encumbrance upon real
estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of
the mortgagor and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary
evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all
persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be
made defendants in the action.

In Paragraph 183 above, the date and due execution of the real estate mortgage are alleged. The properties mortgaged are stated and
described therein as well. In addition, the names and residences of respondent Filkor, as mortgagor, and of petitioner, as mortgagee,
are alleged in paragraphs 1 and 2 of the complaint. 13 The dates of the obligations secured by the mortgage and the amounts unpaid
thereon are alleged in petitioner’s first to twenty-seventh causes of action. 14 Moreover, the very prayer of the complaint before the
trial court reads as follows:chanrob1es virtual 1aw library

WHEREFORE, it is respectfully prayed that judgment be rendered:chanrob1es virtual 1aw library

x       x       x

2. Ordering that the property mortgaged be foreclosed and sold at public auction in case defendants fail to pay plaintiff within ninety
(90) days from entry of judgment.

x       x       x 15

Petitioner’s allegations in its complaint, and its prayer that the mortgaged property be foreclosed and sold at public auction, indicate
that petitioner’s action was one for foreclosure of real estate mortgage. We have consistently ruled that what determines the nature of
an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint and the character of the relief
sought. 16 In addition, we find no indication whatsoever that petitioner had waived its rights under the real estate mortgage executed
in its favor. Thus, the trial court erred in concluding that petitioner had abandoned its mortgage lien on Filkor’s property, and that
what it had filed was an action for collection of a sum of money.chanrob1es virtua1 1aw 1ibrary

Petitioner’s action being one for foreclosure of real estate mortgage, it was incumbent upon the trial court to order that the mortgaged
property be foreclosed and sold at public auction in the event that respondent Filkor fails to pay its outstanding obligations. This is
pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure, which provides:chanrob1es virtual 1aw library

SEC. 2. Judgment on foreclosure for payment or sale. — If upon the trial in such action the court shall find the facts set forth in the
complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other
charges as approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the
court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from
entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. ( Emphasis
supplied.)

Accordingly, the dispositive portion of the decision of the trial court dated March 12, 1999, must be modified to comply with the
provisions of Section 2 of Rule 68 of the 1997 Rules of Civil Procedure. This modification is subject to any appeal filed by
respondents of said decision.
On the propriety of the present appeal, we note that what petitioner impugns is the determination by the trial court of the nature of
action filed by petitioner, based on the allegations in the complaint. Such a determination as to the correctness of the conclusions
drawn from the pleadings undoubtedly involves a question of law. 17 As the present appeal involves a question of law, petitioner
appropriately filed it with this Court, pursuant to Section 1 of Rule 45 of the 1997 Rules of Civil Procedure, which
provides:chanrob1es virtual 1aw library

SECTION 1. Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file
with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be
distinctly set forth. (Emphasis supplied).

There is no dispute with respect to the fact that when an appeal raises only pure questions of law, this Court has jurisdiction to
entertain the same. 18

WHEREFORE, the petition is GRANTED. The Order dated March 12, 1999 of the Regional Trial Court of Cavite City, Branch 88, in
Civil Case No. N-6689 is hereby MODIFIED, to state that the mortgaged property of respondent Filkor be ordered foreclosed and sold
at public auction in the event said respondent fails to pay its obligations to petitioner within ninety (90) days from entry of judgment.

No pronouncement as to costs.chanrob1es virtua1 law library

SO ORDERED.

-Equity of Redemption

Rules of Court, Rule 68, Sec. 2

 Huerta Alba Resort, Inc. v. Court of Appeals, G. R. No. 128567, September 1, 2000, 339 SCRA 534.

Litigation must at some time be terminated, even at the risk of occasional errors. Public policy dictates that once a judgment becomes
final, executory and unappealable, the prevailing party should not be denied the fruits of his victory by some subterfuge devised by the
losing party. Unjustified delay in the enforcement of a judgment sets at naught the role of courts in disposing justiciable controversies
with finality.chanrob1es virtua1 1aw 1ibrary

The Case

At bar is a petition assailing the Decision, dated November 14, 1996, and Resolution, dated March 11, 1997, of the Court of Appeals
in CA-G.R. No. 38747, which set aside the Order, dated July 21, 1995 and Order, dated September 4, 1997, of the Regional Trial
Court of Makati City, in Civil Case No. 89-5424. The aforesaid orders of the trial court held that petitioner had the right to redeem
subject pieces of property within the one-year period prescribed by Section 78 of Republic Act No. 337 otherwise known as the
General Banking Act.

Section 78 of R.A. No. 337 provides that "in case of a foreclosure of a mortgage in favor of a bank, banking or credit institution,
whether judicially or extrajudicially, the mortgagor shall have the right, within one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem the property."cralaw virtua1aw library

The Facts

The facts that matter are undisputed:chanrob1es virtual 1aw library

In a complaint for judicial foreclosure of mortgage with preliminary injunction filed on October 19, 1989, docketed as Civil Case No.
89-5424 before the Regional Trial Court of Makati City, the herein private respondent sought the foreclosure of four (4) parcels of
land mortgaged by petitioner to Intercon Fund Resource, Inc. ("Intercon").

Private respondent instituted Civil Case No. 89-5424 as mortgagee-assignee of a loan amounting to P8.5 million obtained by petitioner
from Intercon, in whose favor petitioner mortgaged the aforesaid parcels of land as security for the said loan.

In its answer below, petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on the
ground that the same was ultra vires. Petitioner also questioned during the trial the correctness of the charges and interest on the
mortgage debt in question.

On April 30, 1992, the trial court, through the then Judge now Court of Appeals Justice Buenaventura J. Guerrero, came out with its
decision "granting herein private respondent SMGI’s complaint for judicial foreclosure of mortgage", disposing as follows:chanrob1es
virtua1 1aw 1ibrary

"WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the following:chanrob1es virtual 1aw library

(1) P8,500,000.00 representing the principal of the amount due;

(2) P850,000.00 as penalty charges with interest at 6% per annum, until fully paid;
(3) 22% per annum interest on the above principal from September 6, 1998, until fully paid;

(4) 5% of the sum total of the above amounts, as reasonable attorney’s fees; and,

(5) Costs.

All the above must be paid within a period of not less than 150 days from receipt hereof by the defendant. In default of such payment,
the four parcels of land subject matter of the suit including its improvements shall be sold to realize the mortgage debt and costs, in the
manner and under the regulations that govern sales of real estate under execution." 1

Petitioner appealed the decision of the trial court to the Court of Appeals, the appeal docketed as CA-G.R. CV No. 39243 before the
Sixth Division of the appellate court, which dismissed the case on June 29, 1993 on the ground of late payment of docket fees.

Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this Court via a petition for  certiorari, docketed as G.R. No.
112044, which this court resolved to dismiss on December 13, 1993, on the finding that the Court of Appeals erred not in dismissing
the appeal of petitioner.

Petitioner’s motion for reconsideration of the dismissal of its petition in G.R. No. 112044 was denied with finality in this Court’s
Resolution promulgated on February 16, 1994. On March 10, 1994, leave to present a second motion for reconsideration in G.R. No.
112044 or to submit the case for hearing by the Court en banc was filed, but to no avail. The Court resolved to deny the same on May
11, 1994.chanrobles.com : law library

On March 14, 1994, the Resolution dated December 13, 1993, in G.R. No. 112044 became final and executory and was entered in the
Book of Entries of Judgment.

On July 4, 1994, private respondent filed with the trial court of origin a motion for execution of the Decision promulgated on April 30,
1992 in Civil Case No. 89-5424. The said motion was granted on July 15, 1994.

Accordingly, on July 15, 1994 a writ of execution issued and, on July 20, 1994, a Notice of Levy and Execution was issued by the
Sheriff concerned, who issued on August 1, 1994 a Notice of Sheriff’s Sale for the auction of subject properties on September 6, 1994.

On August 23, 1994, petitioner filed with the same trial court an Urgent Motion to Quash and Set Aside Writ of Execution ascribing to
it grave abuse of discretion in issuing the questioned Writ of Execution. To support its motion, petitioner invited attention and argued
that the records of the case were still with the Court of Appeals and therefore, issuance of the writ of execution was premature since
the 150-day period for petitioner to pay the judgment obligation had not yet lapsed and petitioner had not yet defaulted in the payment
thereof since no demand for its payment was made by the private Respondent. In petitioner’s own words, the dispute between the
parties was "principally on the issue as to when the 150-day period within which Huerta Alba may exercise its equity of redemption
should be counted."cralaw virtua1aw library

In its Order of September 2, 1994, the lower court denied petitioner’s urgent motion to quash the writ of execution in Civil Case No.
89-5424, opining that subject judgment had become final and executory and consequently, execution thereof was a matter of right and
the issuance of the corresponding writ of execution became its ministerial duty.

Challenging the said order granting execution, petitioner filed once more with the Court of Appeals another petition for  certiorari and
prohibition with preliminary injunction, docketed as C.A.-G.R. SP No. 35086, predicated on the same grounds invoked for its Motion
to Quash Writ of Execution.

On September 6, 1994, the scheduled auction sale of subject pieces of properties proceeded and the private respondent was declared
the highest bidder. Thus, private respondent was awarded subject bidded pieces of property. The covering Certificate of Sale issued in
its favor was registered with the Registry of Deeds on October 21, 1994.chanrob1es virtua1 1aw 1ibrary

On September 7, 1994, petitioner presented an Ex-Parte Motion for Clarification asking the trial court to "clarify" whether or not the
twelve (12) month period of redemption for ordinary execution applied in the case.

On September 26, 1994, the trial court ruled that the period of redemption of subject property should be governed by the rule on the
sale of judicially foreclosed property under Rule 68 of the Rules of Court.

Thereafter, petitioner then filed an Exception to the Order dated September 26, 1994 and Motion to Set Aside Said Order, contending
that the said Order materially altered the Decision dated April 30, 1992 "which declared that the satisfaction of the judgment shall be
in the manner and under the regulation that govern sale of real estate under execution."cralaw virtua1aw library

Meanwhile, in its Decision of September 30, 1994, the Court of Appeals resolved the issues raised by the petitioner in C.A.-G.R. SP
No. 35086, holding that the one hundred-fifty day period within which petitioner may redeem subject properties should be computed
from the date petitioner was notified of the Entry of Judgment in G.R. No. 112044; and that the 150-day period within which
petitioner may exercise its equity of redemption expired on September 11, 1994.

Thus:jgc:chanrobles.com.ph

"Petitioner must have received the resolution of the Supreme Court dated February 16, 1994 denying with finality its motion for
reconsideration in G.R. No. 112044 before March 14, 1994, otherwise the Supreme Court would not have made an entry of judgment
on March 14, 1994. While, computing the 150-day period. Petitioner may have until September 11, 1994. within which to pay the
amounts covered by the judgment, such period has already expired by this time, and therefore, this Court has no more reason to pass
upon the parties’ opposing contentions, the same having become moot and academic." 2 (Emphasis supplied).chanrob1es virtua1 1aw
1ibrary
Petitioner moved for reconsideration of the Decision of the Court of Appeals in C.A.-G.R. SP No. 35086. In its Motion for
Reconsideration dated October 18, 1994, petitioner theorized that the period of one hundred fifty (150) days should not be reckoned
with from Entry of Judgment but from receipt on or before July 29, 1994 by the trial court of the records of Civil Case No. 89-5424
from the Court of Appeals. So also, petitioner maintained that it may not be considered in default, even after the expiration of 150
days from July 29, 1994, because prior demand to pay was never made on it by the private  Respondent. According to petitioner, it was
therefore, premature for the trial court to issue a writ of execution to enforce the judgment.

The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in view of the pendency of petitioner’s Motion
for Reconsideration in CA-G.R. SP No. 35086.

On December 23, 1994, the Court of Appeals denied petitioner’s motion for reconsideration in CA-G.R. SP No. 35086. Absent any
further action with respect to the denial of the subject motion for reconsideration, private respondent presented a Second Motion for
Confirmation of Certificate of Sale before the trial court.

As regards the Decision rendered on September 30, 1994 by the Court of Appeals in CA G.R. SP No. 35086 it became final and
executory on January 25, 1995.

On February 10, 1995, the lower court confirmed the sale of subject properties to the private Respondent. The pertinent Order declared
that all pending incidents relating to the Order dated September 26, 1994 had become moot and academic. Conformably, the Transfer
Certificates of Title to subject pieces of property were then issued to the private Respondent.

On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking "clarification" of the date of
commencement of the one (1) year period for the redemption of the properties in question.

In its Resolution dated March 20, 1995, the Court of Appeals merely noted such Motion for Clarification since its Decision
promulgated on September 30, 1994 had already become final and executory; ratiocinating thus:chanrob1es virtua1 1aw 1ibrary

"We view the motion for clarification filed by petitioner, purportedly signed by its proprietor, but which we believe was prepared by a
lawyer who wishes to hide under the cloak of anonymity, as a veiled attempt to buy time and to delay further the disposition of this
case.

Our decision of September 30, 1994 never dealt on the right and period of redemption of petitioner, but was merely circumscribed to
the question of whether respondent judge could issue a writ of execution in its Civil Case No. 89-5424 . . .

We further ruled that the one-hundred fifty day period within which petitioner may exercise its equity of redemption should be
counted, not from the receipt of respondent court of the records of Civil Case No. 89-5424 but from the date petitioner was notified of
the entry of judgment made by the appellate court.

But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the foreclosure in
this case is judicial. and as such the mortgagor has only the equity not the right of redemption . . . While it may be true that under
Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a bank, banking or credit
institution, whether the foreclosure was done judicially or extrajudicially, has a period of one year from the auction sale within which
to redeem the foreclosed property, the question of whether the Syndicated Management Group,. Inc., is a bank or credit institution was
never brought before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in
its motion for clarification." 3 (Emphasis supplied).

Indeed, if petitioner did really act in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its
pretended right under Section 78 of R.A. No. 337 but it never did so.

At the earliest opportunity, when it filed its answer to the complaint for judicial foreclosure, petitioner should have averred in its
pleading that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337; but again, petitioner did not make any such
allegation in its answer.

From the said Resolution, petitioner took no further step such that on March 31, 1995, the private respondent filed a Motion for
Issuance of Writ of Possession with the trial court.chanrob1es virtua1 1aw 1ibrary

During the hearing called on April 21, 1995, the counsel of record of petitioner entered appearance and asked for time to interpose
opposition to the Motion for Issuance of Writ of Possession.

On May 2, 1995, in opposition to private respondent’s Motion for Issuance of writ of Possession, petitioner filed a "Motion to Compel
Private Respondent to Accept Redemption." It was the first time petitioner ever asserted the right to redeem subject properties under
Section 78 of R.A. No. 337, the General Banking Act; theorizing that the original mortgagee, being a credit institution, its assignment
of the mortgage credit to petitioner did not remove petitioner from the coverage of Section 78 of R.A. No. 337. Therefore, it should
have the right to redeem subject properties within one year from registration of the auction sale, theorized the petitioner which
concluded that in view of its "right of redemption," the issuance of the titles over subject parcels of land to the private respondent was
irregular and premature.

In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan, denied private respondent’s motion for a writ
of possession, opining that Section 78 of the General Banking Act was applicable and therefore, the petitioner had until October 21,
1995 to redeem the said parcels of land, said Order ruled as follows:jgc:chanrobles.com.ph

"It is undisputed that Intercon is a credit institution from which defendant obtained a loan secured with a real estate mortgage over
four (4) parcels of land. Assuming that the mortgage debt had not been assigned to plaintiff, there is then no question that defendant
would have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant to the above quoted Section 78 of RA
337, as amended.

However, the pivotal issue here is whether or not the defendant lost its right of redemption by virtue of the assignment of its mortgage
debt by Intercon to plaintiff, which is not a bank or credit institution. The issue is resolved in the negative. The right of redemption in
this case is vested by law and is therefore an absolute privilege which defendant may not lose even though plaintiff-assignee is not a
bank or credit institution (Tolentino versus Court of Appeals, 106 SCRA 513). Indeed, a contrary ruling will lead to a possible
circumvention of Section 78 because all that may be needed to deprive a defaulting mortgagor of his right of redemption is to assign
his mortgage debt from a bank or credit institution to one which is not. Protection of defaulting mortgagors, which is the avowed
policy behind the provision, would not be achieved if the ruling were otherwise. Consequently, defendant still possesses its right of
redemption which it may exercise up to October 21, 1995 only, which is one year from the date of registration of the certificate of sale
of subject properties (GSIS versus Iloilo, 175 SCRA 19, citing Limpin versus IAC, 166 SCRA 87).chanrob1es virtua1 1aw 1ibrary

Since the period to exercise defendant’s right of redemption has not yet expired, the cancellation of defendant’s transfer certificates of
title and the issuance of new ones in lieu thereof in favor of plaintiff are therefore illegal for being premature, thereby necessitating
reconveyance (see Sec. 63 (a) PD 1529, as amended).

WHEREFORE, the Court hereby rules as follows:chanrob1es virtual 1aw library

(1) The Motion for Issuance of Writ of Possession is hereby denied;

(2) Plaintiff is directed to accept the redemption on or before October 21, 1995 in an amount computed according to the terms stated in
the Writ of Execution dated July 15, 1994 plus all other related costs and expenses mentioned under Section 78, RA 337, as amended;
and

(3) The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to the defendant the following titles of the four (4)
parcels of land, namely TCT Nos. V-38878, V-38879, V-38880, and V-38881, now in the name of plaintiff, and (b) to register the
certificate of sale dated October 7, 1994 and the Order confirming the sale dated February 10, 1995 by a brief memorandum thereof
upon the transfer certificates of title to be issued in the name of defendant, pursuant to Sec. 63 (a) PD 1529, as amended.

The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is now deemed resolved.

SO ORDERED." 4

Private respondent interposed a Motion for Reconsideration seeking the reversal of the Order but to no avail. In its Order dated
September 4, 1995, the trial court denied the same.

To attack and challenge the aforesaid order of July 21, 1995 and subsequent Order of September 4, 1995 of the trial court, the private
respondent filed with this court a Petition for Certiorari, Prohibition and Mandamus, docketed as G.R. No. 121893, but absent any
special and cogent reason shown for entertaining the same, the Court referred the petition to the Court of Appeals, for proper
determination.

Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals gave due course to the petition and set aside the trial
court’s Order dated July 21, 1995 and Order dated September 4, 1995.

In its Resolution of March 11, 1997, the Court of Appeals denied petitioner’s Motion for Reconsideration of the Decision promulgated
on November 14, 1996 in CA-G.R. No. 38747.chanrob1es virtua1 1aw 1ibrary

Undaunted, petitioner has come to this Court via the present petition, placing reliance on the assignment of errors, that:chanrob1es
virtual 1aw library

THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE COURT OF APPEALS (TWELFTH
DIVISION) IN CA G.R. SP NO. 35086 HAD RESOLVED "WITH FINALITY" THAT PETITIONER HUERTA ALBA HAD NO
RIGHT OF REDEMPTION BUT ONLY THE EQUITY OF REDEMPTION.

II

THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN IGNORING THAT PETITIONER HUERTA ALBA
POSSESSES THE ONE-YEAR RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 (THE GENERAL BANKING
ACT).

III

THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT PRIVATE RESPONDENT SYNDICATED
MANAGEMENT GROUP, INC. IS ENTITLED TO THE ISSUANCE OF A WRIT OF POSSESSION OVER THE SUBJECT
PROPERTY. 5

In its comment on the petition, private respondent countered that:jgc:chanrobles.com.ph

"A. THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT RESOLVED WITH FINALITY IN C.A.-G.R. SP
NO. 35086 THAT PETITIONER ONLY HAD THE RIGHT OF REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES.

B. THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO EVADE THE FINALITY OF VARIOUS
DECISIONS, RESOLUTIONS AND ORDERS WHICH HELD THAT, PETITIONER ONLY POSSESSES THE EQUITY OF
REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES.

C. PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY RAISING THE ISSUE OF ITS ALLEGED ‘RIGHT OF
REDEMPTION.chanrob1es virtua1 1aw 1ibrary

D. IN HOLDING THAT THE PETITIONER HAD THE ‘RIGHT OF REDEMPTION’ OVER THE SUBJECT PROPERTIES, THE
TRIAL COURT MADE A MOCKERY OF THE ‘LAW OF THE CASE." ‘ 6

And by way of Reply, petitioner argued, that:chanrob1es virtual 1aw library

I.

THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE POSSIBLY RESOLVED THEREIN — WHETHER
WITH FINALITY OR OTHERWISE - THE ISSUE OF PETITIONER HUERTA ALBA’S RIGHT OF REDEMPTION UNDER
SECTION 78, R.A. NO. 337.

II.

THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED ITS RIGHT OF REDEMPTION UNDER SECTION
78, R.A. NO. 337 IN TIMELY FASHION, i.e., AFTER CONFIRMATION BY THE COURT OF THE FORECLOSURE SALE,
AND WITHIN ONE (1) YEAR FROM THE DATE OF REGISTRATION OF THE CERTIFICATE OF SALE.

III.

THE PRINCIPLE OF ‘THE LAW OF THE CASE’ HAS ABSOLUTELY NO BEARING HERE:chanrob1es virtual 1aw library

(1)

THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN FACT PREDICATED UPON THE FINALITY AND
CORRECTNESS OF THE DECISION IN CIVIL CASE NO. 89-5424.chanrob1es virtua1 1aw 1ibrary

(2)

THUS, THE RTC’S ORDER RECOGNIZING PETITIONER HUERTA ALBA’S RIGHT OF REDEMPTION UNDER SECTION
78, R.A. NO. 37 DOES NOT IN ANY WAY HAVE THE EFFECT OF AMENDING, MODIFYING, OR SETTING ASIDE THE
DECISION IN CIVIL CASE NO. 89-5424.

The above arguments and counter-arguments advanced relate to the pivotal issue of whether or not the petitioner has the one-year right
of redemption of subject properties under Section 78 of Republic Act No. 337 otherwise known as the General Banking Act.

The petition is not visited by merit.

Petitioner’s assertion of right of redemption under Section 78 of Republic Act No. 337 is premised on the submission that the Court of
Appeals did not resolve such issue in CA-G.R. SP No. 35086; contending thus:chanrob1es virtual 1aw library

(1)

BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 BE INTERPRETED TO
MEAN THE COURT OF APPEALS HAD RESOLVED ‘WITH FINALITY’ THE ISSUE OF WHETHER PETITIONER HUERTA
ALBA HAD THE RIGHT OF REDEMPTION WHEN ALL THAT THE RESOLUTION DID WAS TO MERELY NOTE THE
MOTION FOR CLARIFICATION.

(2)

THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A FINAL JUDGMENT, ORDER OR DECREE. IT IS
NOT EVEN A JUDGMENT OR ORDER TO BEGIN WITH. IT ORDERS NOTHING; IT ADJUDICATES NOTHING.

(3)

PETITIONER HUERTA ALBA’S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37 WAS NOT AN ISSUE AND
WAS NOT IN ISSUE, AND COULD NOT HAVE POSSIBLY BEEN AN ISSUE NOR IN ISSUE, IN CA G.R. SP NO. 35086.

(4)

THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING ALREADY BECOME FINAL EVEN BEFORE THE
FILING OF THE MOTION FOR CLARIFICATION, THE COURT OF APPEALS NO LONGER HAD ANY JURISDICTION TO
ACT OF THE MOTION OR ANY OTHER MATTER IN CA G.R. SP NO. 35086, EXCEPT TO MERELY NOTE THE
MOTION.chanrob1es virtua1 1aw 1ibrary

II.

IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBA’S RIGHT OF REDEMPTION UNDER SECTION 78,
R.A. NO. 337 WAS DIRECTLY RAISED AND JOINED BY THE PARTIES, AND THE SAME DULY RESOLVED BY THE
TRIAL COURT.

III.

THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS MANDATORY AND AUTOMATICALLY EXISTS
BY LAW. THE COURTS ARE DUTY-BOUND TO RECOGNIZE SUCH RIGHT.

IV.

EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF PETITIONER HUERTA ALBA, NOT THE LEAST OF
WHICH IS THE WELL-SETTLED POLICY OF THE LAW TO AID RATHER THAN DEFEAT THE RIGHT OF REDEMPTION.

V.

THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS OF THE TRIAL COURT ARE VALID AND PROPER
IN ACCORDANCE WITH THE MANDATE OF THE LAW.

From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been adjudged to have was only the
equity of redemption over subject properties. On the distinction between the equity of redemption and right of redemption, the case of
Gregorio Y. Limpin v. Intermediate Appellate Court, 7 comes to the fore. Held the Court in the said case:jgc:chanrobles.com.ph

"The equity of redemption is, to be sure, different from and should not be confused with the right of redemption.

The right of redemption in relation to a mortgage – understood in the sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale – exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution.

Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the
registration of the sheriff’s certificate of foreclosure sale.

Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial
foreclosure sale ‘when confirmed be an order of the court. . . . shall operate to divest the rights of all the parties to the action and to
vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.’ Such rights exceptionally ‘allowed
by law’ (i.e., even after confirmation by an order of the court) are those granted by the charter of the Philippine National Bank (Acts
No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest or any
judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure — after confirmation by the court of the
foreclosure sale — which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate
of sale in the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a
bank or banking institution. In such a case, the foreclosure sale, ‘when confirmed by an order of the court. . . shall operate to divest the
rights of all the parties to the action and to vest their rights in the purchaser.’ There then exists only what is known as the equity of
redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the
foreclosure sale but prior to its confirmation.

Section 2, Rule 68 provides that —

‘. . If upon the trial . . the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff
upon the mortgage debt or obligation, including interest and costs, and shall render judgment for the sum so found due and order the
same to be paid into court within a period of not less than ninety (90) days from the date of the service of such order, and that in
default of such payment the property be sold to realize the mortgage debt and costs.’

This is the mortgagor’s equity (not right) of redemption which, as above stated, may be exercised by him even beyond the 90-day
period ‘from the date of service of the order,’ and even after the foreclosure sale itself, provided it be before the order of confirmation
of the sale. After such order of confirmation, no redemption can be effected any longer." 8 (Emphasis supplied)chanrob1es virtua1
1aw 1ibrary

Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337.
Petitioner avers in its petition that the Intercom, predecessor in interest of the private respondent, is a credit institution, such that
Section 78 of Republic Act No. 337 should apply in this case. Stated differently, it is the submission of petitioner that it should be
allowed to redeem subject properties within one year from the date of sale as a result of the foreclosure of the mortgage constituted
thereon.

The pivot of inquiry here therefore, is whether the petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to
redeem subject properties.

Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after confirmation by the court of the foreclosure sale, and
within one (1) year from the date of registration of the certificate of sale. Indeed, the facts show that it was only on May 2, 1995 when,
in opposition to the Motion for Issuance of Writ of Possession, did petitioner file a Motion to Compel Private Respondent to Accept
Redemption, invoking for the very first time its alleged right to redeem subject properties under to Section 78 of R.A. No. 337.

In light of the aforestated facts, it was too late in the day for petitioner to invoke a right to redeem under Section 78 of R.A. No. 337.
Petitioner failed to assert a right to redeem in several crucial stages of the proceedings.

For instance, on September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner failed to allege and
prove that private respondent’s predecessor in interest was a credit institution and therefore, Section 78 of R.A. No. 337 was
applicable. Petitioner merely asked the trial court to clarify whether the sale of subject properties was execution sale or judicial
foreclosure sale.

So also, when it presented before the trial court an Exception to the Order and Motion to Set Aside Said Order dated October 13,
1994, petitioner again was silent on its alleged right under Section 78 of R.A. No. 337, even as it failed to show that private
respondent’s predecessor in interest is a credit institution. Petitioner just argued that the aforementioned Order materially altered the
trial court’s Decision of April 30, 1992.

Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest of
private respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the sale of
subject properties in favor of private respondent and declaring that all pending incidents with respect to the Order dated September 26,
1994 had become moot and academic.

Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of
the date of commencement of the one (1) year redemption period for the subject properties, petitioner never intimated any alleged
right under Section 78 of R.A. No. 337 nor did it invite attention to its present stance that private respondent’s predecessor-in-interest
was a credit institution. Consequently, in its Resolution dated March 20, 1995, the Court of Appeals ruled on the said motion
thus:jgc:chanrobles.com.ph

"But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the foreclosure in
this case is judicial, and as such. the mortgagor has only the equity. not the right of redemption . . . While it may be true that under
Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a bank, banking or credit
institution, whether the foreclosure was done judicially or extrajudicially, has a period of one year from the auction sale within which
to redeem the foreclosed property, the question of whether the Syndicated Management Group. Inc., is bank or credit institution was
never brought before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in
its motion for clarification." 9 (Emphasis supplied).chanrob1es virtua1 1aw 1ibrary

If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its alleged
right under Section 78 of R.A. No. 337; but petitioner never did do so.

Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have
alleged that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its
answer regarding any right thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual
question of whether or not private respondent’s predecessor in interest was a credit institution. As was held in Limpin, a judicial
foreclosure sale, "when confirmed by an order of the court, . . shall operate to divest the rights of all the parties to the action and to
vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law’," 10 which confer on the mortgagor,
his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after
confirmation by the court of the judicial foreclosure sale. Thus, the claim that petitioner is entitled to the beneficial provisions of
Section 78 of R.A. No. 337 —since private respondent’s predecessor-in-interest is a credit institution — is in the nature of a
compulsory counterclaim which should have been averred in petitioner’s answer to the compliant for judicial foreclosure.

". . . A counterclaim is, most broadly, a cause of action existing in favor of the defendant against the plaintiff. More narrowly, it is a
claim which. if established, will defeat or in some way qualify a judgment or relief to which plaintiff is otherwise entitled It is
sometimes defined as any cause of action arising in contract available against any action also arising in contract and existing at the
time of the commencement of such an action. It is frequently defined by the codes as a cause of action arising out of the contract or
transaction set forth in the complaint as the foundation of the plaintiff’s claim, or connected with the subject of the action." 11
(Emphasis supplied)

"The counterclaim is in itself a distinct and independent cause of action, so that when properly stated as such, the defendant becomes,
in respect to the matters stated by him, an actor, and there are two simultaneous actions pending between the same parties, wherein
each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as well as a defensive plea and is not necessarily
confined to the justice of the plaintiff’s claim. It represents the right of the defendant to have the claims of the parties counterbalanced
in whole or in part, and judgment to be entered in excess, if any. A counterclaim stands on the same footing, and is to be tested be the
same rules, as if it were an independent action." 12 (Emphasis supplied)chanrob1es virtua1 1aw 1ibrary

The very purpose of a counterclaim would have been served had petitioner alleged in its answer its purported right under Section 78 of
R.A. No. 337:jgc:chanrobles.com.ph

". . . The rules of counterclaim are designed to enable the disposition of a whole controversy of interested parties’ conflicting claims,
at one time and in one action, provided all parties’ be brought before the court and the matter decided without prejudicing the rights of
any party." 13

The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late
stage case. Estoppel may be successfully invoked if the party fails to raise the question in the early stages of the proceedings. 14 Thus,
"a party to a case who failed to invoked his claim in the main case, while having the opportunity to do so, will be precluded,
subsequently, from invoking his claim, even if it were true, after the decision has become final, otherwise the judgment may be
reduced to a mockery and the administration of justice may be placed in disrepute." 15

All things viewed in proper perspective, it is decisively clear that the trial court erred in still allowing petitioner to introduce evidence
that private respondent’s predecessor-in-interest was a credit institution, and to thereafter rule that the petitioner was entitled to avail
of the provisions of Section 78 of R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter failed to
do before the Court of Appeals, that is, to invoke its alleged right under Section 78 of R.A. No. 337 although the Court of Appeals in
CA-G.R. no. 35086 already found that ‘the question of whether the Syndicated Management Council Group, Inc. is a bank or credit
institution was never brought before (the Court of Appeals) squarely." The said pronouncement by the Court of Appeals unerringly
signified that petitioner did not make a timely assertion of any right under Section 78 of R.A. No. 337 in all the stages of the
proceedings below.

Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-in-interest of the private respondent is a
credit institution. Thus, when the trial court, and the Court of Appeals repeatedly passed upon the issue of whether or not petitioner
had the right of redemption or equity of redemption over subject properties in the decisions, resolutions and orders, particularly in
Civil Case no. 89-5424, CA-G.R. CV No. 39243, CA-G.R. SP No. 35086, and CA-G.R. SP No. 38747, it was unmistakable that the
petitioner was adjudged to just have the equity of redemption without any qualification whatsoever, that is, without any right of
redemption allowed by law.chanrob1es virtua1 1aw library

The "law of case" holds that petitioner has the equity of redemption without any qualification.

There is, therefore, merit in private respondent’s contention that to allow petitioner to belatedly invoke its right under Section 78 of
R.A. No. 337 will disturb the "law of the case." However, private respondent’s statement of what constitutes the "law of the case" is
not entirely accurate. The "law of the case" is not simply that the defendant possesses an equity of redemption. As the Court has
stated, the "law of the case" holds that petitioner has the equity of the redemption without any qualification whatsoever, that is,
without the right of redemption afforded by Section 78 of R.A. No. 337. Whether or not the "law of the case" is erroneous is
immaterial, it still remains the "law of the case." A contrary rule will contradict both the letter and spirit of the rulings of the Court of
Appeals in CA-G.R. SP No. 35086, CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the repeated attempts of
petitioner to forestall so simple a matter as making the security given for a just debt to answer for its payment.

Hence, in conformity with the ruling in Limpin, the sale of the subject properties, as confirmed by the Order dated February 10, 1995
of the trial court in Civil Case No. 89-5424 operated to divest the rights of all the parties to the action and to vest their rights in
private Respondent. There then existed only what is known as the equity of redemption, which is simply the right of the petitioner to
extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment
became final. There being an explicit finding on the part of the Court of Appeals in its Decision of September 30, 1994 in CA-G.R.
No. 35086 — that the herein petitioner failed to exercise its equity of redemption within the prescribed period, redemption can no
longer be effected. The confirmation of the sale and the issuance of the transfer certificates of title covering the subject properties to
private respondent was then, in order. The trial court therefore, has the ministerial duty to place private respondent in the possession of
subject properties.chanrob1es virtua1 1aw 1ibrary

WHEREFORE, the petition is DENIED, and the assailed decision of the Court of Appeals, declaring null and void the Order dated 21
July 1995 and Order dated 4 September 1997 of the Regional Trial Court of Makati City in Civil Case No. 89-5424, AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

-Surplus or Deficiency - Rules of Court, Rule 68, Secs. 4, 6; Rule 86, Sec. 7

b. Extrajudicial Foreclosure - Act. No. 3135, A.M. No. 99-10-05-0, as amended

- Notice

 Grand Farms, Inc. & Philippine Shares Corporation v. Court of Appeals, et al., G. R. No. 91779, February 7, 1991, 193
SCRA 748
REGALADO, J.:

The propriety of a summary judgment is raised in issue in the instant petition, with herein petitioners appealing the decision 1 of
respondent court in CA-G.R. SP No. 17535, dated November 29, 1989, which found no grave abuse of discretion on the part of
respondent judge in denying petitioners' motion for summary judgment.2

The antecedents of this case are clear and undisputed. Sometime on April 15, 1988, petitioners filed Civil Case No. 2816-V88 in the
Regional Trial Court of Valenzuela, Metro Manila for annulment and/or declaration of nullity of the extrajudicial foreclosure
proceedings over their mortgaged properties, with damages, against respondents clerk of court, deputy sheriff and herein private
respondent Banco Filipino Savings and Mortgage Bank.3

Soon after private respondent had filed its answer to the complaint, petitioners filed a request for admission by private respondent of
the allegation, inter alia, that no formal notice of intention to foreclose the real estate mortgage was sent by private respondent to
petitioners.4

Private respondent, through its deputy liquidator, responded under oath to the request and countered that petitioners were "notified of
the auction sale by the posting of notices and the publication of notice in the Metropolitan Newsweek, a newspaper of general
circulation in the province where the subject properties are located and in the Philippines on February 13, 20 and 28, 1988." 5

On the basis of the alleged implied admission by private respondent that no formal notice of foreclosure was sent to petitioners, the
latter filed a motion for summary judgment contending that the foreclosure was violative of the provisions of the mortgage contract,
specifically paragraph (k) thereof which provides:

k) All correspondence relative to this Mortgage, including demand letters, summons, subpoena or notifications of any judicial
or extrajudical actions shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given
in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by mail or by personal
delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, and the fact that any
communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the Mortgagee, or that no
person was found at the address given, or that the address is fictitious, or cannot be located, shall not excuse or relieve the
Mortgagor from the effects of such notice;6

The motion was opposed by private respondent which argued that petitioners' reliance on said paragraph (k) of the mortgage contract
fails to consider paragraphs (b) and (d) of the same contract, which respectively provide as follows:

b) . . . For the purpose of extra-judicial foreclosure, the Mortgagor (plaintiff) hereby appoints the Mortgagee (BF) his
attorney-in-fact to sell the property mortgaged, to sign all documents and perform any act requisite and necessary to
accomplish said purpose and to appoint its substitutes as such attorney-in-fact, with the same powers as above-specified. The
Mortgagor hereby expressly waives the term of thirty (30) days or any other term granted or which may hereafter be granted
him by law as the period which must elapse before the Mortgagee shall be entitled to foreclose this mortgage, it being
specifically understood and agreed that the said Mortgagee may foreclose this mortgage at any time after the breach of any
conditions hereof. . . .

x x x           x x x          x x x

d) Effective upon the breach of any conditions of the mortgage and in addition to the remedies herein stipulated, the
Mortgagee is hereby likewise appointed attorney-in-fact of the Mortgagor with full powers and authority, with the use of
force, if necessary, to take actual possession of the mortgaged property, without the necessity for any judicial order or any
permission of power to collect rents, to eject tenants, to lease or sell the mortgaged property, or any part thereof, at public or
private sale without previous notice or adverstisement of any kind and execute the corresponding bills of sale, lease or other
agreement that may be deemed convenient, to make repairs or improvement to the mortgaged property and pay for the same
and perform any other act which the Mortgagor may deem convenient . . .7

On February 27, 1989, the trial court issued an order, denying petitioners' motion for summary judgment. 8 Petitioners' motion for
reconsideration was likewise denied by respondent-judge on the ground that genuine and substantial issues exist which require the
presentation of evidence during the trial, to wit: (a) whether or not the loan has matured; (b) whether or not private respondent notified
petitioners of the foreclosure of their mortgage; (c) whether or not the notice by publication of the foreclosure constitutes sufficient
notice to petitioners under the mortgage contract; (d) whether or not the applicant for foreclosure of the mortgage was a duly
authorized representative of private respondent; and (e) whether or not the foreclosure was enjoined by a resolution of this Court. 9

Petitioners thereafter went on a petition for certiorari to respondent court attacking said orders of denial as having been issued with
grave abuse of discretion. As earlier adverted to, respondent court dismissed the petition, holding that no personal notice was required
to foreclose since private respondent was constituted by petitioners as their attorney-in-fact to sell the mortgaged property. It further
held that paragraph (k) of the mortgage contract merely specified the address where correspondence should be sent and did not impose
an additional condition on the part of private respondent to notify petitioners personally of the foreclosure. Respondent court also
denied petitioners motion for reconsideration, hence the instant petition.

We rule for petitioners.

The Rules of Court authorize the rendition of a summary judgment if the pleadings, depositions and admissions on file, together with
the affidavits, show that, except as to the amount of damages, there is no issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law. 10 Although an issue may be raised formally by the pleadings but there is no genuine issue of
fact, and all the facts are within the judicial knowledge of the court, summary judgment may be granted. 11

The real test, therefore, of a motion for summary judgment is whether the pleadings, affidavits and exhibits in support of the motion
are sufficient to overcome the opposing papers and to justify a finding as a matter of law that there is no defense to the action or that
the claim is clearly meritorious.12

Applying said criteria to the case at bar, we find petitioners' action in the court below for annulment and/or declaration of nullity of the
foreclosure proceedings and damages ripe for summary judgment. Private respondent tacitly admitted in its answer to petitioners'
request for admission that it did not send any formal notice of foreclosure to petitioners. Stated otherwise, and as is evident from the
records, there has been no denial by private respondent that no personal notice of the extrajudicial foreclosure was ever sent to
petitioners prior thereto. This omission, by itself, rendered the foreclosure defective and irregular for being contrary to the express
provisions of the mortgage contract. There is thus no further necessity to inquire into the other issues cited by the trial court, for the
foreclosure may be annulled solely on the basis of such defect.

While private respondent was constituted as their attorney-in-fact by petitioners, the inclusion of the aforequoted paragraph (k) in the
mortgage contract nonetheless rendered personal notice to the latter indispensable. As we stated in Community Savings & Loan
Association, Inc., et al. vs. Court of Appeals, et al.,13 where we had the occasion to construe an identical provision:

On the other important point that militates against the petitioners' first ground for this petition is the fact that no notice of the
foreclosure proceedings was ever sent by CSLA to the deceased mortgagor Antonio Esguerra or his heirs in spite of an
express stipulation in the mortgage agreement to that effect. Said Real Estate Mortgage provides, in Sec. 10 thereof that:

(10) All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notifications
of any judicial or extrajudicial actions shall be sent to the Mortgagor at the address given above  or at the address
that may hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any
correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the
Mortgagor for all legal purposes, . . . (Emphasis in the original text.)

The Court of Appeals, in appreciating the foregoing provision ruled that it is an additional stipulation between the
parties.1âwphi1 As such, it is the law between them and as it not contrary to law, morals, good customs and public policy, the
same should be complied with faithfully (Article 1306, New Civil Code of the Philippines). Thus, while publication of the
foreclosure proceedings in the newspaper of general circulation was complied with, personal notice is still required, as in the
case at bar, when the same was mutually agreed upon by the parties as additional condition of the mortgage contract. Failure
to comply with this additional stipulation would render illusory Article 1306 of the New Civil Code of the Philippines (p.
37, Rollo).

On the issue of whether or not CSLA notified the private respondents of the extrajudicial foreclosure sale in compliance with
Sec. 10 of the mortgage agreement the Court of Appeals found as follows:

As the record is bereft of any evidence which even impliedly indicate that the required notice of the extrajudicial
foreclosure was ever sent to the deceased debtor-mortgagor Antonio Esguerra or to his heirs, the extrajudicial
foreclosure proceedings on the property in question are fatally defective and are not binding on the deceased debtor-
mortgagor or to his heirs (p. 37, Rollo)

Hence, even on the premise that there was no attendant fraud in the proceedings, the failure of the petitioner bank to comply
with the stipulation in the mortgage document is fatal to the petitioners' cause.

We do not agree with respondent court that paragraph (k) of the mortgage contract in question was intended merely to indicate the
address to which the communications stated therein should be sent. This interpretation is rejected by the very text of said paragraph as
above construed. We do not see any conceivable reason why the interpretation placed on an identically worded provision in the
mortgage contract involved in Community Savings & Loan Association, Inc. should not be adopted with respect to the same provision
involved in the case at bar.

Nor may private respondent validly claim that we are supposedly interpreting paragraph (k) in isolation and without taking into
account paragraphs (b) and (d) of the same contract. There is no irreconcillable conflict between, as in fact a reconciliation should be
made of, the provisions of paragraphs (b) and (d) which appear first in the mortgage contract and those in paragraph (k) which follow
thereafter and necessarily took into account the provisions of the preceding two paragraphs. 14 The notices respectively mentioned in
paragraphs (d) and (k) are addressed to the particular purposes contemplated therein. Those mentioned in paragraph (k) are specific
and additional requirements intended for the mortgagors so that, thus apprised, they may take the necessary legal steps for the
protection of their interests such as the payment of the loan to prevent foreclosure or to subsequently arrange for redemption of the
property foreclosed.

What private respondent would want is to have paragraph (k) considered as non-existent and consequently disregarded, a proposition
which palpably does not merit consideration. Furthermore, it bears mention that private respondent having caused the formulation and
preparation of the printed mortgage contract in question, any obscurity that it imputes thereto or which supposedly appears therein
should not favor it as a contracting party.15

Now, as earlier discussed, to still require a trial notwithstanding private respondent's admission of the lack of such requisite notice
would be a superfluity and would work injustice to petitioners whose obtention of the relief to which they are plainly and patently
entitled would be further delayed. That undesirable contingency is obviously one of the reasons why our procedural rules have
provided for summary judgments.
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and this case is REMANDED to the court of
origin for further proceedings in conformity with this decision. This judgment is immediately executory.

SO ORDERED.

 Lim v. Development Bank of the Philippines, G. R. No. 177050, July 1, 2013, 700 SCRA 210

"While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagor’s failure to pay his obligation, it is
imperative that such right be exercised according to its clear mandate. Each and every requirement of the law must be complied with,
lest, the valid exercise of the right would end."1

This Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court assails the February 22, 2007 Decision 3 of the Court of
Appeals (CA) in CA-G.R. CV No. 59275.

Factual Antecedents

On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed Lim, obtained a loan of ₱40,000.00 (Lim Account)
from respondent Development Bank of the Philippines (DBP) to finance their cattle raising business. 4 On the same day, they executed
a Promissory Note5 undertaking to pay the annual amortization with an interest rate of 9% per annum and penalty charge of 11% per
annum.

On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Edmundo, all surnamed Lim; Shirley Leodadia Dizon, Arleen
Lim Fernandez, Juan S. Chua,6 and Trinidad D. Chua7 obtained another loan from DBP8 in the amount of ₱960,000.00 (Diamond L
Ranch Account).9 They also executed a Promissory Note,10 promising to pay the loan annually from August 22, 1973 until August 22,
1982 with an interest rate of 12% per annum and a penalty charge of 1/3% per month on the overdue amortization.

To secure the loans, petitioners executed a Mortgage 11 in favor of DBP over real properties covered by the following titles registered
in the Registry of Deeds for the Province of South Cotabato:

(a) TCT No. T-6005 x x x in the name of Edmundo Lim;

(b) TCT No. T-6182 x x x in the name of Carlos Lim;

(c) TCT No. T-7013 x x x in the name of Carlos Lim;

(d) TCT No. T-7012 x x x in the name of Carlos Lim;

(e) TCT No. T-7014 x x x in the name of Edmundo Lim;

(f) TCT No. T-7016 x x x in the name of Carlito Lim;

(g) TCT No. T-28922 x x x in the name of Consolacion Lim;

(h) TCT No. T-29480 x x x in the name of Shirley Leodadia Dizon;

(i) TCT No. T-24654 x x x in the name of Trinidad D. Chua; and

(j) TCT No. T-25018 x x x in the name of Trinidad D. Chua’s deceased husband Juan Chua.12

Due to violent confrontations between government troops and Muslim rebels in Mindanao from 1972 to 1977, petitioners were forced
to abandon their cattle ranch.13 As a result, their business collapsed and they failed to pay the loan amortizations.14

In 1978, petitioners made a partial payment in the amount of ₱902,800.00, 15 leaving an outstanding loan balance of ₱610,498.30,
inclusive of charges and unpaid interest, as of September 30, 1978.16

In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested from DBP Statements of Account for the "Lim Account"
and the "Diamond L Ranch Account." 17 Quoted below are the computations in the Statements of Account, as of January 31, 1989
which were stamped with the words "Errors & Omissions Excepted/Subject to Audit:"

1âwphi1

Diamond L Ranch Account:

Matured [Obligation]:

Principal P 939,973.33
 Regular Interest 561,037.14

Advances 34,589.45

Additional Interest 2,590,786.26

Penalty Charges 1,068,147.19

Total claims as of January 31,

P 5,194,533.37 18
1989
Lim Account:
Matured [Obligation]:
Principal P 40,000.00
Regular Interest 5,046.97
Additional Interest 92,113.56
Penalty Charges 39,915.46
Total claims as of January 31,
P 177,075.99 19
1989

Claiming to have already paid ₱902,800.00, Edmundo requested for an amended statement of account. 20

On May 4, 1990, Edmundo made a follow-up on the request for recomputation of the two accounts. 21 On May 17, 1990, DBP’s
General Santos Branch informed Edmundo that the Diamond L Ranch Account amounted to ₱2,542,285.60 as of May 31, 1990 22 and
that the mortgaged properties located at San Isidro, Lagao, General Santos City, had been subjected to Operation Land Transfer under
the Comprehensive Agrarian Reform Program (CARP) of the government. 23 Edmundo was also advised to discuss with the
Department of Agrarian Reform (DAR) and the Main Office of DBP24 the matter of the expropriated properties.

Edmundo asked DBP how the mortgaged properties were ceded by DAR to other persons without their knowledge. 25 No reply was
made.26

On April 30, 1991, Edmundo again signified petitioners’ intention to settle the Diamond L Ranch Account. 27 Again, no reply was
made.28

On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled the following day. 29 To stop the foreclosure, he was
advised by the bank’s Chief Legal Counsel to pay an interest covering a 60-days period or the amount of ₱60,000.00 to postpone the
foreclosure for 60 days.30 He was also advised to submit a written proposal for the settlement of the loan accounts.31

In a letter32 dated March 20, 1992, Edmundo proposed the settlement of the accounts through dacion en pago, with the balance to be
paid in equal quarterly payments over five years.

In a reply-letter33 dated May 29, 1992, DBP rejected the proposal and informed Edmundo that unless the accounts are fully settled as
soon as possible, the bank will pursue foreclosure proceedings.

DBP then sent Edmundo the Statements of Account 34 as of June 15, 1992 which were stamped with the words "Errors & Omissions
Excepted/Subject to Audit" indicating the following amounts: (1) Diamond L Ranch: ₱7,210,990.27 and (2) Lim Account:
₱187,494.40.

On June 11, 1992, Edmundo proposed to pay the principal and the regular interest of the loans in 36 equal monthly installments. 35

On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head Bonifacio Tamayo, Jr. (Tamayo). 36 Tamayo promised to
review the accounts.37

On September 21, 1992, Edmundo received another Notice from the Sheriff that the mortgaged properties would be auctioned on
November 22, 1992.38 Edmundo again paid ₱30,000.00 as additional interest to postpone the auction. 39 But despite payment of
₱30,000.00, the mortgaged properties were still auctioned with DBP emerging as the highest bidder in the amount of
₱1,086,867.26.40 The auction sale, however, was later withdrawn by DBP for lack of jurisdiction.41

Thereafter, Tamayo informed Edmundo of the bank’s new guidelines for the settlement of outstanding loan accounts under Board
Resolution No. 0290-92.42 Based on these guidelines, petitioners’ outstanding loan obligation was computed at ₱3,500,000.00
plus.43 Tamayo then proposed that petitioners pay 10% downpayment and the remaining balance in 36 monthly installments. 44 He also
informed Edmundo that the bank would immediately prepare the Restructuring Agreement upon receipt of the downpayment and that
the conditions for the settlement have been "pre-cleared" with the bank’s Regional Credit Committee. 45 Thus, Edmundo wrote a
letter46 on October 30, 1992 manifesting petitioners’ assent to the proposal.
On November 20, 1992, Tamayo informed Edmundo that the proposal was accepted with some minor adjustments and that an initial
payment should be made by November 27, 1992.47

On December 15, 1992, Edmundo paid the downpayment of ₱362,271.75 48 and was asked to wait for the draft Restructuring
Agreement.49

However, on March 16, 1993, Edmundo received a letter 50 from Tamayo informing him that the Regional Credit Committee rejected
the proposed Restructuring Agreement; that it required downpayment of 50% of the total obligation; that the remaining balance should
be paid within one year; that the interest rate should be non prime or 18.5%, whichever is higher; and that the proposal is effective
only for 90 days from March 5, 1993 to June 2, 1993.51

Edmundo, in a letter52 dated May 28, 1993, asked for the restoration of their previous agreement. 53 On June 5, 1993, the bank
replied,54 viz:

This has reference to your letter dated May 28, 1993, which has connection to your desire to restructure the Diamond L Ranch/Carlos
Lim Accounts.

We wish to clarify that what have been agreed between you and the Branch are not final until [the] same has been approved by higher
authorities of the Bank. We did [tell] you during our discussion that we will be recommending the restructuring of your accounts with
the terms and conditions as agreed. Unfortunately, our Regional Credit Committee did not agree to the terms and conditions as
recommended, hence, the subject of our letter to you on March 15, 1993.

Please be informed further, that the Branch cannot do otherwise but to comply with the conditions imposed by the Regional Credit
Committee. More so, the time frame given had already lapsed on June 2, 1993.

Unless we will receive a favorable action on your part soonest, the Branch will be constrained to do appropriate action to protect the
interest of the Bank."55

On July 28, 1993, Edmundo wrote a letter56 of appeal to the Regional Credit Committee.

In a letter57 dated August 16, 1993, Tamayo informed Edmundo that the previous Restructuring Agreement was reconsidered and
approved by the Regional Credit Committee subject to the following additional conditions, to wit:

1) Submission of Board Resolution and Secretary’s Certificate designating you as authorized representative in behalf of
Diamond L Ranch;

2) Payment of March 15 and June 15, 1993 amortizations within 30 days from date hereof; and

3) Submission of SEC registration.

In this connection, please call immediately x x x our Legal Division to guide you for the early documentation of your approved
restructuring.

Likewise, please be reminded that upon failure on your part to sign and perfect the documents and comply [with] other conditions
within (30) days from date of receipt, your approved recommendation shall be deemed CANCELLED and your deposit of
₱362,271.75 shall be applied to your account.

No compliance was made by Edmundo.58

On September 21, 1993, Edmundo received Notice that the mortgaged properties were scheduled to be auctioned on that day. 59 To
stop the auction sale, Edmundo asked for an extension until November 15, 1993 60 which was approved subject to additional
conditions:

Your request for extension is hereby granted with the conditions that:

1) This will be the last and final extension to be granted your accounts; and

2) That all amortizations due from March 1993 to November 1993 shall be paid including the additional interest computed at
straight 18.5% from date of your receipt of notice of approval, viz:

xxxx

Failure on your part to comply with these conditions, the Bank will undertake appropriate legal measures to protect its interest.

Please give this matter your preferential attention.61

On November 8, 1993, Edmundo sent Tamayo a telegram, which reads:

Acknowledge receipt of your Sept. 27 letter. I would like to finalize documentation of restructuring Diamond L Ranch and Carlos Lim
Accounts. However, we would need clarification on amortizations due on NTFI means [sic]. I will call x x x your Legal Department at
DBP Head Office by Nov. 11. Pls. advise who[m] I should contact. Thank you.62

Receiving no response, Edmundo scheduled a meeting with Tamayo in Manila. 63 During their meeting, Tamayo told Edmundo that he
would send the draft of the Restructuring Agreement by courier on November 15, 1993 to the Main Office of DBP in Makati, and that
Diamond L Ranch need not submit the Board Resolution, the Secretary’s Certificate, and the SEC Registration since it is a single
proprietorship.64

On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to Tamayo asking for the draft of the Restructuring
Agreement.65

On November 29, 1993, the documents were forwarded to the Legal Services Department of DBP in Makati for the parties’
signatures. At the same time, Edmundo was required to pay the amount of ₱1,300,672.75, plus a daily interest of ₱632.15 starting
November 16, 1993 up to the date of actual payment of the said amount.66

On December 19, 1993, Edmundo received the draft of the Restructuring Agreement.67

In a letter68 dated January 6, 1994, Tamayo informed Edmundo that the bank cancelled the Restructuring Agreement due to his failure
to comply with the conditions within a reasonable time.

On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that he pay the outstanding amount of ₱6,404,412.92, as of
November 16, 1993, exclusive of interest and penalty charges.69

Edmundo, in a letter70 dated January 18, 1994, explained that his lawyer was not able to review the agreement due to the Christmas
holidays. He also said that his lawyer was requesting clarification on the following points:

Can the existing obligations of the Mortgagors, if any, be specified in the Restructuring Agreement already?

Is there a statement showing all the accrued interest and advances that shall first be paid before the restructuring shall be
implemented?

Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad Chua be required to sign as Mortgagors considering that Mr. Chua is
deceased and the pasture lease which he used to hold has already expired?71

Edmundo also indicated that he was prepared to pay the first quarterly amortization on March 15, 1994 based on the total obligations
of ₱3,260,445.71, as of December 15, 1992, plus interest.72

On January 28, 1994, Edmundo received from the bank a telegram73 which reads:

We refer to your cattle ranch loan carried at our DBP General Santos City Branch.

Please coordinate immediately with our Branch Head not later than 29 January 1994, to forestall the impending foreclosure action on
your account.

Please give the matter your utmost attention.

The bank also answered Edmundo’s queries, viz:

In view of the extended leave of absence of AVP Bonifacio A. Tamayo, Jr. due to the untimely demise of his father, we regret [that]
he cannot personally respond to your letter of January 18, 1994. However, he gave us the instruction to answer your letter on direct to
the point basis as follows:

- Yes to Items No. 1 and 2,

- No longer needed on Item No. 3

AVP Tamayo would like us also to convey to you to hurry up with your move to settle the obligation, while the foreclosure action is
still pending with the legal division. He is afraid you might miss your last chance to settle the account of your parents. 74

Edmundo then asked about the status of the Restructuring Agreement as well as the computation of the accrued interest and
advances75 but the bank could not provide any definite answer.76

On June 8, 1994, the Office of the Clerk of Court and Ex-Officio Provincial Sheriff of the RTC of General Santos City issued a
Notice77 resetting the public auction sale of the mortgaged properties on July 11, 1994. Said Notice was published for three
consecutive weeks in a newspaper of general circulation in General Santos City.78

On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of the mortgaged properties for the satisfaction of petitioners’
total obligations in the amount of ₱5,902,476.34. DBP was the highest bidder in the amount of ₱3,310,176.55.79
On July 13, 1994, the Ex-Officio Sheriff issued the Sheriff’s Certificate of Extra-Judicial Sale in favor of DBP covering 11 parcels of
land.80

In a letter81 dated September 16, 1994, DBP informed Edmundo that their right of redemption over the foreclosed properties would
expire on July 28, 1995, to wit:

This is to inform you that your right of redemption over your former property/ies acquired by the Bank on July 13, 1994, thru Extra-
Judicial Foreclosure under Act 3135 will lapse on July 28, 1995.

In view thereof, to entitle you of the maximum condonable amount (Penal Clause, AI on Interest, PC/Default Charges) allowed by the
Bank, we are urging you to exercise your right within six (6) months from the date of auction sale on or before January 12, 1995.

Further, failure on your part to exercise your redemption right by July 28, 1995 will constrain us to offer your former property/ies in a
public bidding.

Please give this matter your preferential attention. Thank you.82

On July 28, 1995, petitioners filed before the RTC of General Santos City, a Complaint 83 against DBP for Annulment of Foreclosure
and Damages with Prayer for Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order. Petitioners alleged
that DBP’s acts and omissions prevented them from fulfilling their obligation; thus, they prayed that they be discharged from their
obligation and that the foreclosure of the mortgaged properties be declared void. They likewise prayed for actual damages for loss of
business opportunities, moral and exemplary damages, attorney’s fees, and expenses of litigation.84

On same date, the RTC issued a Temporary Restraining Order 85 directing DBP to cease and desist from consolidating the titles over
petitioners’ foreclosed properties and from disposing the same.

In an Order86 dated August 18, 1995, the RTC granted the Writ of Preliminary Injunction and directed petitioners to post a bond in the
amount of ₱3,000,000.00.

DBP filed its Answer, 87 arguing that petitioners have no cause of action; 88 that petitioners failed to pay their loan obligation; 89 that as
mandated by Presidential Decree No. 385, initial foreclosure proceedings were undertaken in 1977 but were aborted because
petitioners were able to obtain a restraining order; 90 that on December 18, 1990, DBP revived its application for foreclosure but it was
again held in abeyance upon petitioners’ request; 91 that DBP gave petitioners written and verbal demands as well as sufficient time to
settle their obligations;92 and that under Act 3135,93 DBP has the right to foreclose the properties.94

Ruling of the Regional Trial Court

On December 10, 1996, the RTC rendered a Decision,95 the dispositive portion of which reads:

WHEREFORE, in light of the foregoing, judgment is hereby rendered:

(1) Declaring that the [petitioners] have fully extinguished and discharged their obligation to the [respondent] Bank;

(2) Declaring the foreclosure of [petitioners’] mortgaged properties, the sale of the properties under the foreclosure
proceedings and the resultant certificate of sale issued by the foreclosing Sheriff by reason of the foreclosure NULL and
VOID;

(3) Ordering the return of the [properties] to [petitioners] free from mortgage liens;

(4) Ordering [respondent] bank to pay [petitioners], actual and compensatory damages of ₱170,325.80;

(5) Temperate damages of ₱50,000.00;

(c) Moral damages of ₱500,000.00;

(d) Exemplary damages of ₱500,000.00;

(e) Attorney’s fees in the amount of ₱100,000.00; and

(f) Expenses of litigation in the amount of ₱20,000.00.

[Respondent] Bank’s counterclaims are hereby DISMISSED.

[Respondent] Bank is likewise ordered to pay the costs of suit.

SO ORDERED.96

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTC Decision. Thus:

WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED. The assailed Decision dated 10 December 1996 is
hereby REVERSED and SET ASIDE. A new judgment is hereby rendered. It shall now read as follows:

WHEREFORE, premises considered, judgment is hereby rendered:

Ordering the dismissal of the Complaint in Civil Case No. 5608;

Declaring the extrajudicial foreclosure of [petitioners’] mortgaged properties as valid;

Ordering [petitioners] to pay the [respondent] the amount of Two Million Five Hundred Ninety Two Thousand Two Hundred Ninety
Nine [Pesos] and Seventy-Nine Centavos (₱2,592,299.79) plus interest and penalties as stipulated in the Promissory Note computed
from 11 July 1994 until full payment; and

Ordering [petitioners] to pay the costs.

SO ORDERED.

SO ORDERED.97

Issues

Hence, the instant recourse by petitioners raising the following issues:

1. Whether x x x respondent’s own wanton, reckless and oppressive acts and omissions in discharging its reciprocal
obligations to petitioners effectively prevented the petitioners from paying their loan obligations in a proper and suitable
manner;

2. Whether x x x as a result of respondent’s said acts and omissions, petitioners’ obligations should be deemed fully complied
with and extinguished in accordance with the principle of constructive fulfillment;

3. Whether x x x the return by the trial Court of the mortgaged properties to petitioners free from mortgage liens constitutes
unjust enrichment;

4. Whether x x x the low bid price made by the respondent for petitioners’ mortgaged properties during the foreclosure sale is
so gross, shocking to the conscience and inherently iniquitous as to constitute sufficient ground for setting aside the
foreclosure sale;

5. Whether x x x the restructuring agreement reached and perfected between the petitioners and the respondent novated and
extinguished petitioners’ loan obligations to respondent under the Promissory Notes sued upon; and

6. Whether x x x the respondent should be held liable to pay petitioners actual and compensatory damages, temperate
damages, moral damages, exemplary damages, attorney’s fees and expenses of litigation.98

Petitioners’ Arguments

Petitioners seek the reinstatement of the RTC Decision which declared their obligation fully extinguished and the foreclosure
proceedings of their mortgaged properties void.

Relying on the Principle of Constructive Fulfillment, petitioners insist that their obligation should be deemed fulfilled since DBP
prevented them from performing their obligation by charging excessive interest and penalties not stipulated in the Promissory Notes,
by failing to promptly provide them with the correct Statements of Account, and by cancelling the Restructuring Agreement even if
they already paid ₱362,271.75 as downpayment. 99 They likewise deny any fault or delay on their part in finalizing the Restructuring
Agreement.100

In addition, petitioners insist that the foreclosure sale is void for lack of personal notice 101 and the inadequacy of the bid price.102 They
contend that at the time of the foreclosure, petitioners’ obligation was not yet due and demandable, 103 and that the restructuring
agreement novated and extinguished petitioners’ loan obligation.104

Finally, petitioners claim that DBP acted in bad faith or in a wanton, reckless, or oppressive manner; hence, they are entitled to actual,
temperate, moral and exemplary damages, attorney’s fees, and expenses of litigation.105

Respondent’s Arguments

DBP, on the other hand, denies acting in bad faith or in a wanton, reckless, or oppressive manner 106 and in charging excessive interest
and penalties.107 According to it, the amounts in the Statements of Account vary because the computations were based on different cut-
off dates and different incentive schemes.108
DBP further argues that the foreclosure sale is valid because gross inadequacy of the bid price as a ground for the annulment of the
sale applies only to judicial foreclosure. 109 It likewise maintains that the Promissory Notes and the Mortgage were not novated by the
proposed Restructuring Agreement.110

As to petitioners’ claim for damages, DBP contends it is without basis because it did not act in bad faith or in a wanton, reckless, or
oppressive manner.111

Our Ruling

The Petition is partly meritorious.

The obligation was not extinguished

or discharged.

The Promissory Notes subject of the instant case became due and demandable as early as 1972 and 1976. The only reason the
mortgaged properties were not foreclosed in 1977 was because of the restraining order from the court. In 1978, petitioners made a
partial payment of ₱902,800.00. No subsequent payments were made. It was only in 1989 that petitioners tried to negotiate the
settlement of their loan obligations. And although DBP could have foreclosed the mortgaged properties, it instead agreed to restructure
the loan. In fact, from 1989 to 1994, DBP gave several extensions for petitioners to settle their loans, but they never did, thus,
prompting DBP to cancel the Restructuring Agreement.

Petitioners, however, insist that DBP’s cancellation of the Restructuring Agreement justifies the extinguishment of their loan
obligation under the Principle of Constructive Fulfillment found in Article 1186 of the Civil Code.

We do not agree.

As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that "the condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment," does not apply in this case, 112 viz:

Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions, which applies when the following three (3)
requisites concur, viz: (1) The condition is suspensive; (2) The obligor actually prevents the fulfillment of the condition; and (3) He
acts voluntarily. Suspensive condition is one the happening of which gives rise to the obligation. It will be irrational for any Bank to
provide a suspensive condition in the Promissory Note or the Restructuring Agreement that will allow the debtor-promissor to be freed
from the duty to pay the loan without paying it.113

Besides, petitioners have no one to blame but themselves for the cancellation of the Restructuring Agreement. It is significant to point
out that when the Regional Credit Committee reconsidered petitioners’ proposal to restructure the loan, it imposed additional
conditions. In fact, when DBP’s General Santos Branch forwarded the Restructuring Agreement to the Legal Services Department of
DBP in Makati, petitioners were required to pay the amount of ₱1,300,672.75, plus a daily interest of ₱632.15 starting November 16,
1993 up to the date of actual payment of the said amount. 114 This, petitioners failed to do. DBP therefore had reason to cancel the
Restructuring Agreement.

Moreover, since the Restructuring Agreement was cancelled, it could not have novated or extinguished petitioners’ loan obligation.
And in the absence of a perfected Restructuring Agreement, there was no impediment for DBP to exercise its right to foreclose the
mortgaged properties.115

The foreclosure sale is not valid.

But while DBP had a right to foreclose the mortgage, we are constrained to nullify the foreclosure sale due to the bank’s failure to
send a notice of foreclosure to petitioners.

We have consistently held that unless the parties stipulate, "personal notice to the mortgagor in extrajudicial foreclosure proceedings is
not necessary"116 because Section 3117 of Act 3135 only requires the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation.

In this case, the parties stipulated in paragraph 11 of the Mortgage that:

11. All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notification of any judicial or
extra-judicial action shall be sent to the Mortgagor at xxx or at the address that may hereafter be given in writing by the Mortgagor or
the Mortgagee;118

However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners about the foreclosure sale scheduled on July 11,
1994. The letters dated January 28, 1994 and March 11, 1994 advising petitioners to immediately pay their obligation to avoid the
impending foreclosure of their mortgaged properties are not the notices required in paragraph 11 of the Mortgage. The failure of DBP
to comply with their contractual agreement with petitioners, i.e., to send notice, is a breach sufficient to invalidate the foreclosure sale.

In Metropolitan Bank and Trust Company v. Wong,119 we explained that:

x x x a contract is the law between the parties and, that absent any showing that its provisions are wholly or in part contrary to law,
morals, good customs, public order, or public policy, it shall be enforced to the letter by the courts. Section 3, Act No. 3135 reads:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also
be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality and city.

The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a newspaper of
general circulation. Personal notice to the mortgagor is not necessary. Nevertheless, the parties to the mortgage contract are not
precluded from exacting additional requirements. In this case, petitioner and respondent in entering into a contract of real estate
mortgage, agreed inter alia:

all correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or notifications of any judicial or
extra-judicial action shall be sent to the MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the address that may hereafter be given
in writing by the MORTGAGOR to the MORTGAGEE.

Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which petitioner might take on the subject
property, thus according him the opportunity to safeguard his rights. When petitioner failed to send the notice of foreclosure sale to
respondent, he committed a contractual breach sufficient to render the foreclosure sale on November 23, 1981 null and
void.120 (Emphasis supplied)

In view of foregoing, the CA erred in finding the foreclosure sale valid.

Penalties and interest rates should

be expressly stipulated in writing.

As to the imposition of additional interest and penalties not stipulated in the Promissory Notes, this should not be allowed. Article
1956 of the Civil Code specifically states that "no interest shall be due unless it has been expressly stipulated in writing." Thus, the
payment of interest and penalties in loans is allowed only if the parties agreed to it and reduced their agreement in writing. 121

In this case, petitioners never agreed to pay additional interest and penalties. Hence, we agree with the RTC that these are illegal, and
thus, void. Quoted below are the findings of the RTC on the matter, to wit:

Moreover, in its various statements of account, [respondent] Bank charged [petitioners] for additional interests and penalties which
were not stipulated in the promissory notes.

In the Promissory Note, Exhibit "A," for the principal amount of ₱960,000.00, only the following interest and penalty charges were
stipulated:

(1) interest at the rate of twelve percent (12%) per annum;

(2) penalty charge of one-third percent (1/3%) per month on overdue amortization;

(3) attorney’s fees equivalent to ten percent (10%) of the total indebtedness then unpaid; and

(4) advances and interest thereon at one percent (1%) per month.

[Respondent] bank, however, charged [petitioners] the following items as shown in its Statement of Account for the period as of 31
January 1989, Exhibit "D:"

(1) regular interest in the amount of ₱561,037.14;

(2) advances in the amount of ₱34,589.45;

(3) additional interest in the amount of ₱2,590,786.26; and

(4) penalty charges in the amount of ₱1,068,147.19.

The Court finds no basis under the Promissory Note, Exhibit "A," for charging the additional interest in the amount of ₱2,590,786.26.
Moreover, it is incomprehensible how the penalty charge of 1/3% per month on the overdue amortization could amount to
₱1,086,147.19 while the regular interest, which was stipulated at the higher rate of 12% per annum, amounted to only ₱561,037.14 or
about half of the amount allegedly due as penalties.

In Exhibit "N," which is the statement of account x x x as of 15 June 1992, [respondent] bank charged plaintiffs the following items:

(1) regular interest in the amount of ₱561,037.14;

(2) advances in the amount of ₱106,893.93;

(3) additional interest on principal in the amount of ₱1,233,893.79;

(4) additional interest on regular interest in the amount of ₱859,966.83;

(5) additional interest on advances in the amount of ₱27,206.45;

(6) penalty charges on principal in the amount of ₱1,639,331.15;

(7) penalty charges on regular interest in the amount of ₱1,146,622.55;

(8) penalty charges on advances in the amount of ₱40,520.53.

Again, the Court finds no basis in the Promissory Note, Exhibit "A," for the imposition of additional interest on principal in the
amount of ₱1,233,893.79, additional interest on regular interest in the amount of ₱859,966.83, penalty charges on regular interest in
the amount of ₱1,146,622.55 and penalty charges on advances in the amount of ₱40,520.53.

In the Promissory Note, Exhibit "C," for the principal amount of ₱40,000.00, only the following charges were stipulated:

(1) interest at the rate of nine percent (9%) per annum;

(2) all unpaid amortization[s] shall bear interest at the rate of eleven percent (11%) per annum; and,

(3) attorney’s fees equivalent to ten percent (10%) of the total indebtedness then unpaid.

In its statement of account x x x as of 31 January 1989, Exhibit "E," [respondent] bank charged [petitioners] with the following items:

(1) regular interest in the amount of ₱5,046.97

(2) additional interest in the amount of ₱92,113.56; and

(3) penalty charges in the amount of ₱39,915.46.

There was nothing in the Promissory Note, Exhibit "C," which authorized the imposition of additional interest. Again, this Court notes
that the additional interest in the amount of ₱92,113.56 is even larger than the regular interest in the amount of ₱5,046.97. Moreover,
based on the Promissory Note, Exhibit "C," if the 11% interest on unpaid amortization is considered an "additional interest," then there
is no basis for [respondent] bank to add penalty charges as there is no other provision providing for this charge. If, on the other hand,
the 11% interest on unpaid amortization is considered the penalty charge, then there is no basis to separately charge plaintiffs
additional interest. The same provision cannot be used to charge plaintiffs both interest and penalties.

In Exhibit "O," which is the statement of account x x x as of 15 June 1992, [respondent] charged [petitioners] with the following:

(1) regular interest in the amount of ₱4,621.25;

(2) additional interest on principal in the amount of ₱65,303.33;

(3) additional interest on regular interest in the amount of ₱7,544.58;

(4) penalty charges on principal in the amount of ₱47,493.33;

(5) penalty charges on regular interest in the amount of ₱5,486.97;

(6) penalty charges on advances in the amount of ₱40,520.53.

[Respondent] bank failed to show the basis for charging additional interest on principal, additional interest on regular interest and
penalty charges on principal and penalty charges on regular interest under items (2), (3), (4) and (5) above.

Moreover, [respondent] bank charged [petitioners] twice under the same provisions in the promissory notes. It categorically admitted
that the additional interests and penalty charges separately being charged [petitioners] referred to the same provision of the Promissory
Notes, Exhibits "A" and "C." Thus, for the Lim Account in the amount of ₱40,000.00, [respondent’s] Mr. Ancheta stated:

Q:

In Exhibit 14, it is stated that for a principal amount of ₱40,000.00 you imposed an additional interest in the amount of ₱65,303.33 in
addition to the regular interest of ₱7,544.58, can you tell us looking [at] the mortgage contract and promissory note what is your basis
for charging that additional interest?

A:

The same as that when I answered Exhibit No. 3, which shall cover amortization on the principal and interest at the above-mentioned
rate. All unpaid amortization[s] shall bear interest at the rate of eleven per centum (11%) per annum.

Q:
You also imposed penalty which is on the principal in the amount of ₱40,000.00 in the amount of ₱47,493.33 in addition to regular
interest of ₱5,486.96. Can you point what portion of Exhibit 3 gives DBP the right to impose such penalty?

A:

The same paragraph as stated.

Q:

Can you please read the portion referring to penalty?

A:

All unpaid amortization shall bear interest at the rate of 11% per annum.

Q:

The additional interest is based on 11% per annum and the penalty is likewise based on the same rate?

A:

Yes, it is combined (TSN, 28 May 1996, pp. 39-40.)

With respect to the Diamond L. Ranch account in the amount of ₱960,000.00, Mr. Ancheta testified as follows:

Q:

Going back to Exhibit 14 Statement of Accounts. Out of the principal of ₱939,973.33 you imposed an additional interest of
₱1,233,893.79 plus ₱859,966.83 plus ₱27,206.45. Can you tell us what is the basis of the imposition?

A:

As earlier stated, it is only the Promissory Note as well as the Mortgage Contract.

Q:

Please point to us where in the Promissory Note is the specific portion?

A:

In Exhibit 1: "in case of failure to pay in full any amortization when due, a penalty charge of 1/3% per month on the overdue
amortization shall be paid."

Q:

What is the rate?

A:

1/3% per month.

Q:

So, the imposition of the additional interest and the penalty charge is based on the same provision?

A:

Yes (TSN, 28 May 1996, pp. 41-42.)

A perusal of the promissory notes, however, failed to justify [respondent] bank’s computation of both interest and penalty under the
same provision in each of the promissory notes.

[Respondent] bank also admitted that the additional interests and penalties being charged [petitioners] were not based on the
stipulations in the Promissory Notes but were imposed unilaterally as a matter of its internal banking policies. (TSN, 19 March 1996,
pp. 23-24.) This banking policy, however, has been declared null and void in Philippine National Bank vs. CA, 196 SCRA 536 (1991).
The act of [respondent] bank in unilaterally changing the stipulated interest rate is violative of the principle of mutuality of contracts
under 1308 of the Civil Code and contravenes 1956 of the Civil Code. [Respondent] bank completely ignored [petitioners’] "right to
assent to an important modification in their agreement and (negated) the element of mutuality in contracts." (Philippine National Bank
vs. CA, G.R. No. 109563, 9 July 1996; Philippine National Bank vs. CA, 238 SCRA 20 1994). As in the PNB cases, [petitioners]
herein never agreed in writing to pay the additional interest, or the penalties, as fixed by [respondent] bank; hence [respondent] bank’s
imposition of additional interest and penalties is null and void.122 (Emphasis supplied)

Consequently, this case should be remanded to the RTC for the proper determination of petitioners’ total loan obligation based on the
interest and penalties stipulated in the Promissory Notes.

DBP did not act in bad faith or in a

wanton, reckless, or oppressive manner.

Finally, as to petitioners’ claim for damages, we find the same devoid of merit.

DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in cancelling the Restructuring Agreement. As we have
said, DBP had reason to cancel the Restructuring Agreement because petitioners failed to pay the amount required by it when it
reconsidered petitioners’ request to restructure the loan.

Likewise, DBP’s failure to send a notice of the foreclosure sale to petitioners and its imposition of additional interest and penalties do
not constitute bad faith. There is no showing that these contractual breaches were done in bad faith or in a wanton, reckless, or
oppressive manner.1âwphi1

In Philippine National Bank v. Spouses Rocamora,123 we said that:

Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the defendant acted
fraudulently or in bad faith or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious or in
bad faith, and oppressive or abusive. Likewise, a breach of contract may give rise to exemplary damages only if the guilty party acted
in a wanton, fraudulent, reckless, oppressive or malevolent manner.

We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or in wanton disregard of its contractual obligations,
simply because it increased the interest rates and delayed the foreclosure of the mortgages. Bad faith cannot be imputed simply
because the defendant acted with bad judgment or with attendant negligence. Bad faith is more than these; it pertains to a dishonest
purpose, to some moral obliquity, or to the conscious doing of a wrong, a breach of a known duty attributable to a motive, interest or
ill will that partakes of the nature of fraud. Proof of actions of this character is undisputably lacking in this case. Consequently, we do
not find the spouses Rocamora entitled to an award of moral and exemplary damages. Under these circumstances, neither should they
recover attorney’s fees and litigation expense. These awards are accordingly deleted. 124 (Emphasis supplied)

WHEREFORE, the Petition is PARTLY GRANTED. The assailed February 22, 2007 Decision of the Court of Appeals in CA-G.R.
CV No. 59275 is hereby MODIFIED in accordance with this Decision. The case is hereby REMANDED to the Regional Trial Court
of General Santos City, Branch 22, for the proper determination of petitioners’ total loan obligations based on the interest and
penalties stipulated in the Promissory Notes dated November 24, 1969 and December 30, 1970. The foreclosure sale of the mortgaged
properties held on July 11, 1994 is DECLARED void ab initio for failure to comply with paragraph 11 of the Mortgage, without
prejudice to the conduct of another foreclosure sale based on the recomputed amount of the loan obligations, if necessary.

SO ORDERED.

-Right of Redemption

Act No. 3135, Sec. 6

General Banking Law, Art. III, Sec. 47

 A.M. No. 99-10-05-0, as amended, Sec. 10

Rules of Court, Rule 39, Secs, 27-30

 Medida, et al. v. Court of Appeals, et al., G. R. No. 98334, May 8, 1992, 208 SCRA 887

The core issue in this case is whether or not a mortgagor, whose property has been extrajudicially foreclosed and sold at the
corresponding foreclosure sale, may validly execute a mortgage contract over the same property in favor of a third party during the
period of redemption.

The present appeal by certiorari assails the decision 1 of respondent Court of Appeals in CA-G.R. CV No. 12678 where it answered
the question posed by the foregoing issue in the negative and modified the decision 2 of the then Court of First Instance of Cebu in
Civil Case No. R-18616 wherein the validity of said subsequent mortgage was assumed and the case was otherwise disposed of on
other grounds.

The facts which gave rise to the institution of the aforesaid civil case in the trial court, as found by respondent Court of Appeals, are as
follows:

On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption over lot 4731 of the Cebu City
Cadastre and embraced under TCT No. 14272 from Mr. Juan Gandioncho, purchaser of the aforesaid lot at the
foreclosure sale of the previous mortgage in favor of Cebu City Development Bank, went to Teotimo Abellana,
president of defendant Association, to obtain a loan of P30,000.00. Prior thereto or on October 3, 1974, their son
 Teofredo Dolino filed a similar loan application for Twenty-Five Thousand (P25,000.00) Pesos with lot No. 4731
offered as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant association. Subsequently, they
executed a promissory note in favor of defendant association. Both documents indicated that the principal obligation
is for Thirty Thousand (P30,000.00) Pesos payable in one year with interest at twelve (12%) percent per annum.

When the loan became due and demandable without plaintiff paying the same, defendant association caused the
extrajudicial foreclosure of the mortgage on March 16, 1976. After the posting and publication requirements were
complied with, the land was sold at public auction on April 19, 1976 to defendant association being the highest
bidder. The certificate of sale was issued on April 20, 1976 and registered on May 10, 1976 with the Register of
Deeds of Cebu.

On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT No. 14272 was cancelled and in
lieu thereof TCT No. 68041 was issued in the name of defendant association.3

x x x           x x x          x x x

On October 18, 1979, private respondents filed the aforestated Civil Case No. R-18616 in the court a quo for the annulment of the sale
at public auction conducted on April 19, 1976, as well as the corresponding certificate of sale issued pursuant thereto.

In their complaint, private respondents, as plaintiffs therein, assailed the validity of the extrajudicial foreclosure sale of their property,
claiming that the same was held in violation of Act No. 3135, as amended, and prayed,  inter alia, for the cancellation of Transfer
Certificate of Title No. 68041 issued in favor of therein defendant City Savings and Loan Association, Inc., now known as City
Savings Bank and one of the petitioners herein.

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

On January 12, 1983, after trial on the merits, the court below rendered judgment upholding the validity of the loan and the real estate
mortgage, but annulling the extrajudicial foreclosure sale inasmuch as the same failed to comply with the notice requirements in Act
No. 3135, as amended, under the following dispositive part:

WHEREFORE, the foregoing premises considered and upon the view taken by the Court of this case, judgment is
hereby rendered, as follows:

1. Declaring ineffective the extrajudicial foreclosure of the mortgage over Lot No. 4731 of the Cadastral Survey of
Cebu;

2. Ordering the cancellation of Transfer Certificate of Title No. 68041 of the Registry of Deeds of the City of Cebu
in the name of defendant Cebu City Savings and Loan Association, Inc. the corresponding issuance of a new transfer
certificate to contain all the annotations made in TCT No. 14272 of the plaintiffs Pascuala Sabellano, married to
Andres Dolino;

3. Ordering the plaintiffs aforenamed to pay the defendant Cebu City Savings and Loan Association, Inc. the unpaid
balance of the loan, plus interest; and reimbursing said defendant the value of any necessary and useful expenditures
on the property after deducting any income derived by said defendant from the property.

For this purpose, defendant Association is given 15 days from receipt hereof within which to submit its statement of
the amount due it from the plaintiffs Dolino, with notice to them. The payment to be made by the plaintiffs shall be
within ninety (90) days from their receipt of the order approving the amount due the defendant Cebu City Savings
and Loan Association, Inc.

No award of damages or costs to either party.

SO ORDERED. 4

Not satisfied therewith, herein private respondents interposed a partial appeal to respondent court with respect to the second and third
paragraphs of the aforequoted decretal portion, contending that the lower court erred in (1) declaring that the mortgage executed by
the therein plaintiff spouses Dolino is valid; (2) permitting therein Cebu City Savings and Loan Association, Inc. to collect interest
after the same foreclosure proceedings and auction sale which are null and void from the beginning; (3) not ordering the forfeiture of
the capital or balance of the loan with usurious interest; and (4) not sentencing therein defendant to pay damages and attorney's fees to
plaintiffs. 5

On September 28, 1990, respondent Court of Appeals promulgated its decision modifying the decision of the lower court, with this
adjudication:

WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby MODIFIED declaring as void
and ineffective the real estate mortgage executed by plaintiffs in favor of defendant association. With this
modification, the decision is AFFIRMED in other respects. 6
Herein petitioners then filed a motion for reconsideration which was denied by respondent court in its resolution dated March 5, 1991,
hence the present petition which, in synthesis, postulates that respondent court erred in declaring the real estate mortgage void, and
also impugns the judgment of the trial court declaring ineffective the extrajudicial foreclosure of said mortgage and ordering the
cancellation of Transfer Certificate of Title No. 68041 issued in favor of the predecessor of petitioner bank. 7

The first submission assailing the judgment of respondent Court of Appeals is meritorious.

Said respondent court declared the real estate mortgage in question null and void for the reason that the mortgagor spouses, at the time
when the said mortgage was executed, were no longer the owners of the lot, having supposedly lost the same when the lot was sold to
a purchaser in the foreclosure sale under the prior mortgage. This holding cannot be sustained.

Preliminarily, the issue of ownership of the mortgaged property was never alleged in the complaint nor was the same raised during the
trial, hence that issue should not have been taken cognizance of by the Court of Appeals. An issue which was neither averred in the
complaint nor ventilated during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the
basic rule of fair play, justice and due process. 8

Nonetheless, since respondent Court took cognizance thereof and, in fact, anchored its modificatory judgment on its ratiocination of
that issue, we are inclined to liberalize the rule so that we can in turn pass upon the correctness of its conclusion. We may consider
such procedure as analogous to the rule that an unassigned error closely related to an error properly assigned, or upon which the
determination of the question properly assigned is dependent, may be considered by an appellate court.  9 We adopt this approach
since, after all, both lower courts agreed upon the invalidity of the extrajudicial foreclosure but differed only on the matter of the
validity of the real estate mortgage upon which the extrajudicial foreclosure was based.

In arriving at its conclusion, respondent court placed full reliance on what obviously is an  obiter dictum laid down in the course of the
disquisition in Dizon vs. Gaborro, et al. which we shall analyze. 10 For, as explicitly stated therein by the Court, "(t)he basic issue to
be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage' and the 'Option to Purchase Real Estate,' two
instruments executed by and between petitioner Jose P. Dizon and Alfredo G. Gaborro (defendant below) on the same day, October 6,
1959, constitute in truth and in fact an absolute sale of the three parcels of land therein described or merely an equitable mortgage or
conveyance thereof by way of security for reimbursement or repayment by petitioner Jose P. Dizon of any and all sums which may
have been paid to the Development Bank of the Philippines and the Philippine National Bank by Alfredo G. Gaborro . . . ." Said
documents were executed by the parties and the payments were made by Gaborro for the debt of Dizon to said banks after the
Development Bank of the Philippines had foreclosed the mortgage executed by Dizon and during the period of redemption after the
foreclosure sale of the mortgaged property to said creditor bank.

The trial court held that the true agreement between the parties therein was that Gaborro would assume and pay the indebtedness of
Dizon to the banks and, in consideration thereof, Gaborro was given the possession and enjoyment of the properties in question until
Dizon shall have reimbursed him for the amount paid to the creditor banks. Accordingly, the trial court ordered the reformation of the
documents to the extent indicated and such particular relief was affirmed by the Court of Appeals. This Court held that the agreement
between the parties is one of those innominate contracts under Article 1307 of the Civil Code whereby the parties agreed "to give and
to do" certain rights and obligations, but partaking of the nature of antichresis.

Hence, on appeal to this Court, the judgment of the Court of Appeals in that case was affirmed but with the following
pronouncements:

The two instruments sought to be reformed in this case appear to stipulate rights and obligations between the parties
thereto pertaining to and involving parcels of land that had already been foreclosed and sold extrajudicially, and
purchased by the mortgage creditor, a third party. It becomes, therefore, necessary, to determine the legality of said
rights and obligations arising from the foreclosure and sale proceedings not only between the two contracting parties
to the instruments executed between them but also in so far as the agreement affects the rights of the third party, the
purchaser Bank.

xxx xxx xxx

Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the property
foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of the property sold, he
is entitled to retain it, and receive the fruits, the purchaser not being entitled to such possession. (Riosa vs. Verzosa,
26 Phil. 86; Velasco vs. Rosenberg's, Inc., 32 Phil. 72; Pabico vs. Pauco, 43 Phil. 572; Power vs. PNB, 54 Phil. 54;
Gorospe vs. Gochangco, L-12735, Oct. 30, 1959).

xxx xxx xxx

Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27,
Revised Rules of Court). After the termination of the period of redemption and no redemption having been made,
the purchaser is entitled to a deed of conveyance and to the possession of the properties. (Section 35, Revised Rules
of Court). The weight of authority is to the effect that the purchaser of land sold at public auction under a writ of
execution has only an inchoate right to the property, subject to be defeated and terminated within the period of 12
months from the date of sale, by a redemption on the part of the owner. Therefore, the judgment debtor in
possession of the property is entitled to remain therein during the period for redemption. (Riosa vs. Verzosa, 26 Phil.
86, 89; Gonzales vs. Calimbas, 51 Phil. 355).

In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right
to redeem the lands, the possession, use and enjoyment of the same during the period of redemption. And these are
 the only rights that Dizon could legally transfer, cede and convey unto respondent Gaborro under the instrument
captioned Deed of Sale with Assumption of Mortgage (Exh. A-Stipulation), likewise the same rights that said
respondent could acquire in consideration of the latter's promise to pay and assume the loan of petitioner Dizon with
DBP and PNB.

Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly, because
there was absolutely no money consideration therefor, as admittedly stipulated, the sum of P131,831.91 mentioned
in the document as the consideration "receipt of which was acknowledged" was not actually paid; and, secondly,
because the properties had already been previously sold by the sheriff at the foreclosure sale, thereby divesting the
petitioner of his full right as owner thereof to dispose and sell the lands. (Emphasis ours.)

It was apparently the second reason stated by the Court in said case which was relied upon by respondent court in the present case on
which to premise its conclusion. Yet, as demonstrated by the relevant excerpts above quoted, not only was that obiter therein
unnecessary since evidently no sale was concluded, but even inaccurate, if not inconsistent, when considered in the context of the
discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale merely acquired an inchoate right to the property which
could ripen into ownership only upon the lapse of the redemption period without his credit having been discharged, it is illogical to
hold that during that same period of twelve months the mortgagor was "divested" of his ownership, since the absurd result would be
that the land will consequently be without an owner although it remains registered in the name of the mortgagor.

That is why the discussion in said case carefully and felicitously states that what is divested from the mortgagor is only his "full right
as owner thereof to dispose (of) and sell the lands," in effect, merely clarifying that the mortgagor does not have the unconditional
power to absolutely sell the land since the same is encumbered by a lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the lapse of the period of redemption. Even on that score, it may plausibly
be argued that what is delimited is not the mortgagor's jus dispodendi, as an attribute of ownership, but merely the rights conferred by
such act of disposal which may correspondingly be restricted.

At any rate, even the foregoing considerations and arguments would have no application in the case at bar and need not here be
resolved since what is presently involved is a mortgage, not a sale, to petitioner bank. Such mortgage does not involve a transfer,
cession or conveyance of the property but only constitutes a lien thereon. There is no obstacle to the legal creation of such a lien even
after the auction sale of the property but during the redemption period, since no distinction is made between a mortgage constituted
over the property before or after the auction sale thereof.

Thus, a redemptioner is defined as a creditor having a lien by attachment, judgment or mortgage on the property sold, or on some part
thereof, subsequent to the judgment under which the property was sold. 11 Of course, while in extrajudicial foreclosure the sale
contemplated is not under a judgment but the proceeding pursuant to which the mortgaged property was sold, a subsequent mortgage
could nevertheless be legally constituted thereafter with the subsequent mortgagee becoming and acquiring the rights of a
redemptioner, aside from his right against the mortgagor.

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

Coming back to the present controversy, it is undisputed that the real estate mortgage in favor of petitioner bank was executed by
respondent spouses during the period of redemption. We reiterate that during said period it cannot be said that the mortgagor is no
longer the owner of the foreclosed property since the rule up to now is that the right of a purchaser at a foreclosure sale is merely
inchoate until after the period of redemption has expired without the right being exercised.  12 The title to land sold under mortgage
foreclosure remains in the mortgagor or his grantee until the expiration of the redemption period and conveyance by the master's
deed. 13 To repeat, the rule has always been that it is only upon the expiration of the redemption period, without the judgment debtor
having made use of his right of redemption, that the ownership of the land sold becomes consolidated in the purchaser. 14

Parenthetically, therefore, what actually is effected where redemption is seasonably exercised by the judgment or mortgage debtor is
not the recovery of ownership of his land, which ownership he never lost, but the elimination from his title thereto of the lien created
by the levy on attachment or judgment or the registration of a mortgage thereon. The American rule is similarly to the effect that the
redemption of property sold under a foreclosure sale defeats the inchoate right of the purchaser and restores the property to the same
condition as if no sale had been attempted. Further, it does not give to the mortgagor a new title, but merely restores to him the title
freed of the encumbrance of the lien foreclosed. 15

We cannot rule on the plaint of petitioners that the trial court erred in declaring ineffective the extrajudicial foreclosure and the sale of
the property to petitioner bank. The court below spelled out at length in its decision the facts which it considered as violative of the
provisions of Act No. 3135, as amended, by reason of which it nullified the extrajudicial foreclosure proceeding and its effects. Such
findings and ruling of the trial court are already final and binding on petitioners and can no longer be modified, petitioners having
failed to appeal therefrom.

An appellee who has not himself appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in
the decision of the court below. 16 He cannot impugn the correctness of a judgment not appealed from by him. He cannot assign such
errors as are designed to have the judgment modified. All that said appellee can do is to make a counter-assignment of errors or to
argue on issues raised at the trial only for the purpose of sustaining the judgment in his favor, even on grounds not included in the
decision of the court a quo nor raised in the appellant's assignment of errors or arguments.17
WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the judgment of the trial court, is REVERSED and
SET ASIDE. The judgment of said trial court in Civil Case No. R-18616, dated January 12, 1983, is hereby REINSTATED.

SO ORDERED.

 Spouses Yap v. Spouses Dy, et al., G. R. No. 171991 and 171868, July 27, 2011, 654 SCRA 593.

May persons to whom several mortgaged lands were transferred without the knowledge and consent of the creditor redeem only
several parcels if all the lands were sold together for a single price at the foreclosure sale? This is the principal issue presented to us
for resolution in these two petitions for review on certiorari assailing the May 17, 2005 Decision 1 and March 15, 2006 Resolution 2 of
the Court of Appeals (CA) in CA-G.R. C.V. No. 57205.

The antecedents are as follows:

The spouses Tomas Tirambulo and Salvacion Estorco (Tirambulos) are the registered owners of several parcels of land located in
Ayungon, Negros Oriental, registered under Transfer Certificate of Title (TCT) Nos. T-14794, T-14777, T-14780, T-14781, T-14783
and T-20301 of the Registry of Deeds of Negros Oriental, and more particularly designated as follows:

(1) TCT No. T-14777 Lot 1 of Plan Pcs-11728 61,371 sq.m.

(2) TCT No. T-20301
(3) TCT No. T-14780
(4) TCT No. T-14794
(5) TCT No. T-14781
(6) TCT No. T-14783
Lot 3 of Plan Psu-124376 17,373 sq.m.
Lot 4 of Plan Pcs-11728 27,875 sq.m.
Lot 5 of Plan Psu-124376 2,900 sq.m.
Lot 6 of Plan Pcs-11728 16,087 sq.m.
Lot 8 of Plan Pcs-11728 39,888 sq.m

The Tirambulos likewise own a parcel of land denominated as Lot 846, covered by Tax Declaration No. 08109.

On December 3, 1976, the Tirambulos executed a Real Estate Mortgage 3 over Lots 1, 4, 5, 6 and 8 in favor of the Rural Bank of
Dumaguete, Inc., predecessor of Dumaguete Rural Bank, Inc. (DRBI), to secure a ₱105,000 loan extended by the latter to them. Later,
the Tirambulos obtained a second loan for ₱28,000 and also executed a Real Estate Mortgage 4 over Lots 3 and 846 in favor of the
same bank on August 3, 1978.

Subsequently, on October 27, 1979, the Tirambulos sold all seven mortgaged lots to the spouses Zosimo Dy, Sr. and Natividad Chiu
(the Dys) and the spouses Marcelino C. Maxino and Remedios Lasola (the Maxinos) without the consent and knowledge of DRBI.
This sale, which was embodied in a Deed of Absolute Sale, 5 was followed by a default on the part of the Tirambulos to pay their loans
to DRBI. Thus, DRBI extrajudicially foreclosed the December 3, 1976 mortgage and had Lots 1, 4, 5, 6 and 8 sold at public auction
on March 31, 1982.

At the auction sale, DRBI was proclaimed the highest bidder and bought said lots for ₱216,040.93. The Sheriff’s Certificate of
Sale6 stated that the "sale is subject to the rights of redemption of the mortgagor (s) or any other persons authorized by law so to do,
within a period of one (1) year from registration hereof." 7 The certificate of sale, however, was not registered until almost a year later,
or on June 24, 1983.

On July 6, 1983, or twelve (12) days after the sale was registered, DRBI sold Lots 1, 3 and 6 to the spouses Francisco D. Yap and
Whelma D. Yap (the Yaps) under a Deed of Sale with Agreement to Mortgage. 8 It is important to note, however, that Lot 3 was not
among the five properties foreclosed and bought by DRBI at public auction.

On August 8, 1983, or well within the redemption period, the Yaps filed a Motion for Writ of Possession 9 alleging that they have
acquired all the rights and interests of DRBI over the foreclosed properties and are entitled to immediate possession of the same
because the one-year redemption period has lapsed without any redemption being made. Said motion, however, was ordered
withdrawn on August 22, 198310 upon motion of the Yaps, who gave no reason therefor. 11 Three days later, or on August 25, 1983, the
Yaps again filed a Motion for Writ of Possession. 12 This time the motion was granted, and a Writ of Possession 13 over Lots 1, 3 and 6
was issued in favor of the Yaps on September 5, 1983. They were placed in possession of Lots 1, 3 and 6 seven days later.

On May 22, 1984, roughly a month before the one-year redemption period was set to expire, the Dys and the Maxinos attempted to
redeem Lots 1, 3 and 6. They tendered the amount of ₱40,000.00 to DRBI and the Yaps, 14 but both refused, contending that the
redemption should be for the full amount of the winning bid of ₱216,040.93 plus interest for all the foreclosed properties.

Thus, on May 28, 1984, the Dys and the Maxinos went to the Office of the Sheriff of Negros Oriental and paid ₱50,625.29
(₱40,000.00 for the principal plus ₱10,625.29 for interests and Sheriff’s Commission) to effect the redemption. 15 Noticing that Lot 3
was not included in the foreclosure proceedings, Benjamin V. Diputado, Clerk of Court and Provincial Sheriff, issued a Certificate of
Redemption16 in favor of the Dys and the Maxinos only for Lots 1 and 6, and stated in said certificate that Lot 3 is not included in the
foreclosure proceedings. By letter 17 of even date, Atty. Diputado also duly notified the Yaps of the redemption of Lots 1 and 6 by the
Dys and the Maxinos, as well as the non-inclusion of Lot 3 among the foreclosed properties. He advised the Yaps to personally claim
the redemption money or send a representative to do so.
In a letter to the Provincial Sheriff on May 31, 1984, the Yaps refused to take delivery of the redemption price arguing that one of the
characteristics of a mortgage is its indivisibility and that one cannot redeem only some of the lots foreclosed because all the parcels
were sold for a single price at the auction sale.18

On June 1, 1984, the Provincial Sheriff wrote the Dys and the Maxinos informing them of the Yaps’ refusal to take delivery of the
redemption money and that in view of said development, the tender of the redemption money was being considered as a
consignation.19

On June 15, 1984, the Dys and the Maxinos filed Civil Case No. 8426 with the Regional Trial Court of Negros Oriental for
accounting, injunction, declaration of nullity (with regard to Lot 3) of the Deed of Sale with Agreement to Mortgage, and damages
against the Yaps and DRBI. In their complaint,20 they prayed

a) That the Deed of Sale With Agreement to Mortgage … be declared null and void ab initio;

b) That defendant Yap[s’] possession of Lot No. 3, TCT No. T20301 based as it was on a void sale, be declared illegal from
the very beginning;

c) That defendants be ordered to render to plaintiffs a fair accounting of the harvests and income which defendants made
from said Lot No. 3 and, in addition, be ordered to pay to plaintiffs damages for wrongfully depriving plaintiffs of the use
and enjoyment of said property;

d) That the redemption which plaintiffs made of Lot No. 1, TCT No. 14777, and Lot No. 6, TCT No. 14781, through the
Provincial Sheriff of Negros Oriental, be declared valid and binding on the defendants, thereby releasing and freeing said
parcels of land from whatever liens or claims that said defendants might have on them;

e) That defendants be likewise ordered to render to plaintiffs full and fair accounting of all the harvests, fruits, and income
that they or either of them might have derived from said two parcels of land starting from the time defendant Yap first took
possession thereof and harvested the coconuts in September, 1983;

f) That, after the accounting herein prayed for, defendants be required to deliver to plaintiffs the net proceeds of the income
from the three parcels of land subject of this case, together with interest at the legal rate;

g) That for his acts of misrepresentation and deceit in obtaining a writ of possession over the three parcels of land subject of
this case, and for the highly irregular and anomalous procedures and maneuvers employed by defendant Yap in securing said
writ, as well as for harvesting the coconuts even after knowing that plaintiffs had already fully redeemed the properties in
question and, with respect to Lot No. 3, after knowing that the same was not in fact included in the foreclosure and, therefore,
could not have been validly sold by the bank to him, said defendant Yap be condemned to pay plaintiffs moral damages in
the amount of ₱200,000.00, plus punitive and exemplary damages in the amount of ₱100,000.00;

h) That for falsifying the Sheriff’s Certificate of Sale and selling unlawfully Lot No. 3, TCT No. T-20301, to its co-defendant
Yap, defendant DRBI be condemned to pay to plaintiffs actual damages in the amount of ₱50,000.00; moral damages in the
amount of ₱200,000.00; and punitive and exemplary damages in the amount of ₱100,000.00;

i) That defendants be condemned to pay solidarily to plaintiffs attorney’s fees in the amount of ₱50,000.00; other legitimate
expenses of litigation in the amount of ₱30,000.00; and the costs of suit;

j) That pending hearing of this case, a writ of preliminary injunction be issued enjoining and restraining the defendants,
particularly defendant Yap, from disturbing and interfering the plaintiffs’ possession and other rights of ownership over the
land in question;

k) That pending hearing of the petition for preliminary injunction, a temporary restraining order be issued against the
defendants, particularly against defendant Yap, to serve the same purpose for which the writ of preliminary injunction is
herein prayed for; and

l) That, after hearing of the main case, said preliminary injunction be made permanent.

Furthermore, plaintiffs pray for all other reliefs which may be just and equitable in the premises. 21

Thereafter, on June 19, 1984, the Dys and the Maxinos consigned to the trial court an additional sum of ₱83,850.50 plus sheriff’s
commission fee of ₱419.25 representing the remaining balance of the purchase price that the Yaps still owed DRBI by virtue of the
sale to them by the DRBI of Lots 1, 3 and 6.22

Meanwhile, by letter23 dated June 27, 1984, the Yaps told DRBI that no redemption has been made by the Tirambulos or their
successors-in-interest and requested DRBI to consolidate its title over the foreclosed properties by requesting the Provincial Sheriff to
execute the final deed of sale in favor of the bank so that the latter can transfer the titles of the two foreclosed properties to them.

On the same date, the Yaps also wrote the Maxinos informing the latter that during the last harvest of the lots bought from DRBI, they
excluded from the harvest Lot 3 to show their good faith. Also, they told the Maxinos that they were formally turning over the
possession of Lot 3 to the Maxinos, without prejudice to the final determination of the legal implications concerning Lot 3. As to Lots
1 and 6, however, the Yaps stated that they intended to consolidate ownership over them since there has been no redemption as
contemplated by law. Included in the letter was a liquidation of the copra proceeds harvested from September 7, 1983 to April 30,
1984 for Lots 1, 3 and 6.24

Later, on July 5, 1984, the Yaps filed Civil Case No. 8439 for consolidation of ownership, annulment of certificate of redemption, and
damages against the Dys, the Maxinos, the Provincial Sheriff of Negros Oriental and DRBI. In their complaint, 25 the Yaps prayed

1. That [they] be declared the exclusive owners of Lot No. 1 covered by TCT No. T-14777 and Lot No. 6 covered by TCT
No. T-14781 for failure on the part of defendants Zosimo Dy, Sr., and Marcelino Maxino to redeem the properties in question
within one (1) year from the auction sale.

2. That defendants be [declared] solidarily liable to pay moral damages in the amount of ONE HUNDRED THOUSAND
PESOS (₱100,000.00), THIRTY[-]FIVE THOUSAND PESOS (₱35,000.00) as attorney’s fees and FIFTEEN THOUSAND
PESOS (₱15,000.00) as exemplary damages;

3. That the Provincial Sheriff be required to execute the final Deed of Sale in favor of the bank and the bank be in turn
required to transfer the property to the plaintiffs in accordance with the Deed of Sale with Mortgage.

4. That the court grant such other relief as may be deemed just and equitable under the premises.26

Civil Case Nos. 8426 and 8439 were tried jointly.

On October 24, 1985, the Yaps, by counsel, filed a motion to withdraw from the provincial sheriff the redemption money amounting
to ₱50,373.42.27 Said motion was granted on October 28, 1985 after a Special Power of Attorney executed by Francisco Yap in favor
of his brother Valiente Yap authorizing the latter to receive the ₱50,373.42 redemption money was presented in court. 28

On February 12, 1997, the trial court rendered decision29 in favor of the Yaps. The fallo reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Dismissing the complaint of Dy and Maxino spouses in Civil Case No. 8426 as well as the bank and the Yap spouses
counterclaim for lack of factual and legal basis;

2. In Civil Case No. 8439:

a) Declaring the Yap spouses, plaintiffs therein, the exclusive owners of Lot No. 1 covered by TCT No. T-14777
and Lot No. 6 covered by TCT No. T-14781 for failure on the part of the Dy and Maxino spouses, defendants
therein, to redeem the properties in question within one (1) year from the auction sale.

b) Directing the Provincial Sheriff of Negros Oriental to execute the Final Deed of Sale in favor of the bank and the
latter to transfer the subject properties to the Yap spouses in accordance with the Deed of Sale With Mortgage….

SO ORDERED.30

On March 7, 1997, the trial court amended the above dispositive portion upon motion of DRBI, as follows:

Wherefore, judgment is hereby rendered as follows:

1. The Certificate of Redemption issued by the Provincial Sheriff (Exh. "M") is hereby declared null and void;

2. The Provincial Sheriff of Negros Oriental is hereby ordered to execute a Final Deed of Sale of the foreclosed properties in
favor of the defendant Dumaguete Rural Bank, Inc., subject to the rights of the Yap spouses acquired in accordance with the
Deed of Sale with Mortgage…;

3. The Deed of Sale dated [October] 27, 1979, made by Tirambulo and Estorco in favor of the Dys and Maxinos covering all
the seven (7) parcels of land in question, is hereby declared null and void;

4. In Civil Case No. 8439, declaring the Yap Spouses, the exclusive owners of Lot No. 1, covered by TCT No. T-14777, and
Lot No. 6, covered by TCT No. T-14781, for failure on the part of the Dy and Maxino Spouses, to redeem said properties
within one (1) year from the date of the registration of the auction sale;

5. All other claims and counterclaims are hereby dismissed for lack of merit.

SO ORDERED.31

The trial court held that the Dys and the Maxinos failed to formally offer their evidence; hence, the court could not consider the same.
It also upheld the Deed of Sale with Agreement to Mortgage between the Yaps and DRBI, ruling that its genuineness and due
execution has been admitted by the Dys and the Maxinos and that it is not contrary to law, morals, good customs, public policy or
public order. Thus, ownership of Lots 1, 3 and 6 was transferred to the Yaps.
The trial court further held that the Dys and the Maxinos failed to exercise their rights of redemption properly and timely. They merely
deposited the amount of ₱50,625.29 with the Sheriff, whereas the amount due on the mortgage deed is ₱216,040.93.

Aggrieved by the above ruling, the Dys and the Maxinos elevated the case to the CA. They argued that the trial court erred in:

1) ... failing to consider plaintiffs’ evidence [testimonial, including the testimony of the Provincial Sheriff of Negros Oriental
(Attorney Benjamin V. Diputado) and plaintiff Attorney Marcelino C. Maxino] and documentary [Exhibits A through TT
(admitted under Order of 3 March 1995)];

2) …failing to declare void or annul the purported contract of sale by Dumaguete Rural Bank, Inc. to Francisco D. Yap and
Whelma S. Yap of Lots 1, 3, and 6, during the redemption period [the purported seller (bank) not being the owner thereof,
and Lot 3 not being included in the foreclosure/auction sale and could not have been acquired by the Bank thereat];

3) …not holding that the parcels of land had been properly and validly redeemed in good faith, defendant Yap, the Provincial
Sheriff, the Clerk of Court, and Mr. Mario Dy, having accepted redemption/consignation (or, in not fixing the redemption
price and allowing redemption);

4) …not holding that by withdrawing the redemption money consigned/deposited by plaintiffs to the Court, and turning over
possession of the parcels of land to plaintiffs, defendants Yap accepted, ratified, and confirmed redemption by plaintiffs of
the parcels of land acquired at foreclosure/auction sale by the Bank and purportedly sold by it to and purchased by Yap;

5) …not finding and holding that all the parcels of land covered by the foreclosed mortgage held by Dumaguete Rural Bank
had been acquired by and are in the possession of plaintiffs as owners and that defendants bank and Yap had disposed of
and/or lost their rights and interests and/or any cause of action and their claims had been extinguished and mooted or
otherwise settled, waived and/or merged in plaintiffs-appellants;

6) …not holding that defendants Yap have no cause of action to quiet title as they had no title or possession of the parcels of
land in question and in declaring defendants Yap spouses the exclusive owners of Lot No. 1 covered by TCT No. T-14777
and Lot No. 6 covered by TCT No. T-14781 and in directing the Provincial Sheriff to execute the final deed of sale in favor
of the bank and the latter to transfer the subject properties to the Yap spouses in accordance with the Deed of Sale with
Mortgage which included Lot No. 3 which was not foreclosed by the Sheriff and was not included in the certificate of sale
issued by him and despite their acceptance, ratification, and confirmation of the redemption as well as acknowledgment of
possession of the parcels of land by plaintiffs;

7) …issuing an amended decision after perfection of plaintiff’s appeal and without waiting for their comment (declaring the
Certificate of Redemption issued by the Provincial Sheriff (Exh. "M") null and void; ordering the Provincial Sheriff of
Negros Oriental to execute a Final Deed of Sale of the foreclosed properties in favor of the defendant Dumaguete Rural
Bank, Inc., subject to the rights of the Yap spouses acquired in accordance with the Deed of Sale with Mortgage (Exh. "B"-
Maxino and Dy; Exh. "1" –Yap); declaring null and void the Deed of Sale dated Oct[ober] 27, 1979, made by Tirambulo and
Estorco in favor of the Dys and Maxinos covering all the seven (7) parcels of land in question; in Civil Case No. 8439,
declaring the Yap spouses, the exclusive owners of Lot No. 1, covered by TCT No. T-14777, and Lot No. 6, covered by TCT
No. T-14781, for failure on the part of the Dy and Maxino spouses, to redeem said properties within (1) year from the date of
registration of the auction sale) after plaintiffs had perfected appeal of the 12 February 1997 decision, without hearing or
awaiting plaintiffs’ comment, and in the face of the records showing that the issues were never raised, much less litigated,
insofar as Tirambulo, as well in the face of the foregoing circumstances, especially dismissal of defendants’ claims and
counterclaims and acquisition of ownership and possession of the parcels of land by plaintiffs as well as disposition and/or
loss of defendants rights and interests and cause of action in respect thereof and/or settlement, waiver, and/or extinguishment
of their claims, and merger in plaintiffs-appellants, and without stating clearly the facts and the law upon which it is based[;
and]

8) …not finding, holding and ruling that defendants acted in bad faith and in an abusive and oppressive manner, if not
contrary to law; and in not awarding plaintiffs damages.32

On May 17, 2005, the CA rendered a decision reversing the March 7, 1997 amended decision of the trial court. The dispositive portion
of the assailed CA decision reads:

IN LIGHT OF THE FOREGOING, this appeal is GRANTED. The decision as well as the amended decision of the Regional Trial
Court is REVERSED AND SET ASIDE. In lieu thereof[,] judgment is hereby rendered as follows:

1. Declaring the sale made by Dumaguete Rural Bank Inc. to Sps. Francisco and Whelma Yap with respect to Lot No. 3
under TCT No. T-20301 as null and void;

2. Declaring the redemption made by Spouses Dy and Spouses Maxino with regards to Lot No. 6 under TCT No. T-14781
and Lot No. 1 under TCT No. [T-]14777 as valid;

3. Ordering defendants, Sps. Yap, to deliver the possession and ownership thereof to Sps. Dy and Sps. Maxino; to give a fair
accounting of the proceeds of these three parcels of land and to tender and deliver the corresponding amount of income from
October 24, 1985 until the finality of this judgment[; and]

4. Condemning the defendant bank to pay damages to Spouses Dy and Spouses Maxino the amount of ₱20,000.00 as moral
damages and ₱200,000.00 as exemplary damages and attorney’s fees in the amount of ₱50,000.00.
All other claims are dismissed.

Costs against the appellees.

SO ORDERED.33

The CA held that the trial court erred in ruling that it could not consider the evidence for the Dys and the Maxinos allegedly because
they failed to formally offer the same. The CA noted that although the testimonies of Attys. Marcelino C. Maxino and Benjamin V.
Diputado were not formally offered, the procedural lapse was cured when the opposing counsel cross-examined said witnesses. Also,
while the original TSNs of the witnesses for the plaintiffs in Civil Case No. 8426 were burned, the latter’s counsel who had copies
thereof, furnished the Yaps copies for their scrutiny and comment. The CA further noted that the trial court also admitted all the
documentary exhibits of the Dys and the Maxinos on March 3, 1995. Unfortunately, however, the trial court simply failed to locate the
pertinent documents in the voluminous records of the cases.

On the merits, the CA ruled that the Dys and the Maxinos had proven their cause of action sufficiently. The CA noted that their claim
that Lot 3 was not among the properties foreclosed was duly corroborated by Atty. Diputado, the Provincial Sheriff who conducted the
foreclosure sale. The Yaps also failed to rebut their contention regarding the former’s acceptance of the redemption money and their
delivery of the possession of the three parcels of land to the Dys and the Maxinos. The CA also noted that not only did the Yaps
deliver possession of Lot 3 to the Dys and the Maxinos, they also filed a Motion to Withdraw the Redemption Money from the
Provincial Sheriff and withdrew the redemption money.

As to the question whether the redemption was valid or not, the CA found no need to discuss the issue. It found that the bank was in
bad faith and therefore cannot insist on the protection of the law regarding the need for compliance with all the requirements for a
valid redemption while estoppel and unjust enrichment operate against the Yaps who had already withdrawn the redemption money.

Upon motion for reconsideration of the Yaps, however, the CA amended its decision on March 15, 2006 as follows:

IN LIGHT OF THE FOREGOING, this appeal is GRANTED. The decision as well as the amended decision of the Regional Trial
Court is REVERSED AND SET ASIDE. In lieu thereof[,] judgment is hereby rendered as follows:

1.Declaring the sale made by Dumaguete Rural Bank Inc. to Sps. Francisco and Whelma Yap with respect to Lot No. 3 under
TCT No. T-20301 null and void;

2.Declaring the redemption made by Spouses Dy and Spouses Maxino with regards to Lot No. 6 under TCT No. T-14781 and
Lot No. 1 under TCT No. [T-]14777 as valid;

3. Condemning the defendant bank to pay damages to Spouses Dy and Spouses Maxino the amount of ₱20,000.00 as moral
damages and ₱200,000.00 as exemplary damages and attorney’s fees in the amount of ₱50,000.00.

All other claims are dismissed.

Costs against the appellees.

SO ORDERED.34

Hence, the consolidated petitions assailing the appellate court’s decision.

The Yaps argue in the main that there is no valid redemption of the properties extrajudicially foreclosed. They contend that the
₱40,000.00 cannot be considered a valid tender of redemption since the amount of the auction sale is ₱216,040.93. They also argue
that a valid tender of payment for redemption can only be made to DRBI since at that time, their rights were subordinate to the final
consolidation of ownership by the bank.

DRBI, aside from insisting that all seven mortgaged properties (which thus includes Lot 3) were validly foreclosed, argues, for its part,
that the appellate court erred in sustaining the redemption made by the Dys and Maxinos. It anchors its argument on the fact that the
sale of the Tirambulos to the Dys and Maxinos was without the bank’s consent. The Dys and Maxinos therefore could not have
assumed the character of debtors because a novation of the contract of mortgage between the Tirambulos and DRBI did not take place
as such a novation is proscribed by Article 1293 of the Civil Code. And there being no valid redemption within the contemplation of
law and DRBI being the highest bidder during the auction sale, DRBI has become the absolute owner of the properties mortgaged
when the redemption period expired.

DRBI further argues that it was unfair and unjust for them to be held liable for damages for supposedly wrongfully foreclosing on Lot
3, depriving the Dys and the Maxinos of the use of the land, and registering the Certificate of Sale which included Lot 3 when it
should have excluded the same. DRBI argues that as a juridical person, it only authorized and consented, through its Board of
Directors, to lawful processes. The unlawful acts of the Sheriff, who is considered as an agent of the bank in the foreclosure
proceedings, cannot bind DRBI. Moreover, DRBI cannot be liable for damages on the basis of an affidavit that was submitted only
before the CA as the bank had no chance to cross-examine the affiant and determine the veracity and propriety of the statements
narrated in said affidavit.
Thus, the issues to be resolved in the instant case are essentially as follows: (1) Is Lot 3 among the foreclosed properties? (2) To
whom should the payment of redemption money be made? (3) Did the Dys and Maxinos validly redeem Lots 1 and 6? and (4) Is
DRBI liable for damages?

As to the first issue, we find that the CA correctly ruled that the Dys and Maxinos were able to prove their claim that Lot 3 was not
among the properties foreclosed and that it was merely inserted by the bank in the Sheriff’s Certificate of Sale. As Atty. Diputado, the
Provincial Sheriff, testified, the application for foreclosure was only for five parcels of land, namely, Lots 1, 4, 5, 6 and 8.
Accordingly, only said five parcels of land were included in the publication and sold at the foreclosure sale. When he was shown a
copy of the Sheriff’s Certificate of Sale consisting of three pages, he testified that it was altered because Lot 3 and Lot 846 were
included beyond the "xxx" that marked the end of the enumeration of the lots foreclosed. 35 Also, a perusal of DRBI’s application for
foreclosure of real estate mortgage36 shows that it explicitly refers to only one deed of mortgage to settle the Tirambulos’ indebtedness
amounting to ₱216,040.93. This is consistent with the Notice of Extrajudicial Sale of Mortgaged Property, published in the
Dumaguete Star Informer on February 18, 25 and March 4, 1982,37 announcing the sale of Lots 1, 4, 5, 6 and 8 for the satisfaction of
the indebtedness amounting to ₱216,040.93. It is also consistent with the fact that Lots 1, 4, 5, 6 and 8 are covered by only one real
estate mortgage, the Real Estate Mortgage 38 dated December 3, 1976. Indeed, that the foreclosure sale refers only to Lots 1, 4, 5, 6 and
8 is clear from the fact that Lots 1, 4, 5, 6 and 8 and Lot 3 are covered by  two separate real estate mortgages. DRBI failed to refute
these pieces of evidence against it.

As to the second issue regarding the question as to whom payment of the redemption money should be made, Section 31, 39 Rule 39 of
the Rules of Court then applicable provides:

SEC. 31. Effect of redemption by judgment debtor, and a certificate to be delivered and recorded thereupon. To whom payments on
redemption made.—If the judgment debtor redeem, he must make the same payments as are required to effect a redemption by a
redemptioner, whereupon the effect of the sale is terminated and he is restored to his estate, and the person to whom the payment is
made must execute and deliver to him a certificate of redemption acknowledged or approved before a notary public or other officer
authorized to take acknowledgments of conveyances of real property. Such certificate must be filed and recorded in the office of the
registrar of deeds of the province in which the property is situated, and the registrar of deeds must note the record thereof on the
margin of the record of the certificate of sale. The payments mentioned in this and the last preceding sections may be made to the
purchaser or redemptioner, or for him to the officer who made the sale. (Emphasis supplied.)

Here, the Dys and the Maxinos complied with the above-quoted provision. Well within the redemption period, they initially attempted
to pay the redemption money not only to the purchaser, DRBI, but also to the Yaps. Both DRBI and the Yaps however refused,
insisting that the Dys and Maxinos should pay the whole purchase price at which all the foreclosed properties were sold during the
foreclosure sale. Because of said refusal, the Dys and Maxinos correctly availed of the alternative remedy by going to the sheriff who
made the sale. As held in Natino v. Intermediate Appellate Court, 40 the tender of the redemption money may be made to the purchaser
of the land or to the sheriff. If made to the sheriff, it is his duty to accept the tender and execute the certificate of redemption.

But were the Dys and Maxinos entitled to redeem Lots 1 and 6 in the first place? We rule in the affirmative.

The Dys and the Maxinos have legal personality to redeem the subject properties.

Contrary to petitioners’ contention, the Dys and Maxinos have legal personality to redeem the subject properties despite the fact that
the sale to the Dys and Maxinos was without DRBI’s consent. In Litonjua v. L & R Corporation, 41 this Court declared valid the sale by
the mortgagor of mortgaged property to a third person notwithstanding the lack of written consent by the mortgagee, and likewise
recognized the third person’s right to redeem the foreclosed property, to wit:

Coming now to the issue of whether the redemption offered by PWHAS on account of the spouses Litonjua is valid, we rule in the
affirmative. The sale by the spouses Litonjua of the mortgaged properties to PWHAS is valid. Therefore, PWHAS stepped into the
shoes of the spouses Litonjua on account of such sale and was in effect, their successor-in-interest. As such, it had the right to redeem
the property foreclosed by L & R Corporation. Again, Tambunting, supra, clarifies that –

"x x x. The acquisition by the Hernandezes of the Escuetas’ rights over the property carried with it the assumption of the obligations
burdening the property, as recorded in the Registry of Property, i.e., the mortgage debts in favor of the RFC (DBP) and the
Tambuntings. The Hernandezes, by stepping into the Escuetas’ shoes as assignees, had the obligation to pay the mortgage debts,
otherwise, these debts would and could be enforced against the property subject of the assignment. Stated otherwise, the Hernandezes,
by the assignment, obtained the right to remove the burdens on the property subject thereof by paying the obligations thereby secured;
that is to say, they had the right of redemption as regards the first mortgage, to be exercised within the time and in the manner
prescribed by law and the mortgage deed; and as regards the second mortgage, sought to be judicially foreclosed but yet unforeclosed,
they had the so-called equity of redemption."

The right of PWHAS to redeem the subject properties finds support in Section 6 of Act 3135 itself which gives not only the
mortgagor-debtor the right to redeem, but also his successors-in-interest. As vendee of the subject properties, PWHAS qualifies as
such a successor-in-interest of the spouses Litonjua.42

Likewise, we rule that the Dys and the Maxinos validly redeemed Lots 1 and 6.

The requisites of a valid redemption are present

The requisites for a valid redemption are: (1) the redemption must be made within twelve (12) months from the time of the registration
of the sale in the Office of the Register of Deeds; (2) payment of the purchase price of the property involved, plus 1% interest per
month thereon in addition, up to the time of redemption, together with the amount of any assessments or taxes which the purchaser
may have paid thereon after the purchase, also with 1% interest on such last named amount; and (3) written notice of the redemption
must be served on the officer who made the sale and a duplicate filed with the Register of Deeds of the province. 43

There is no issue as to the first and third requisites. It is undisputed that the Dys and the Maxinos made the redemption within the 12-
month period from the registration of the sale. The Dys and Maxinos effected the redemption on May 24, 1984, when they deposited
₱50,373.42 with the Provincial Sheriff, and on June 19, 1984, when they deposited an additional ₱83,850.50. Both dates were well
within the one-year redemption period reckoned from the June 24, 1983 date of registration of the foreclosure sale. Likewise, the
Provincial Sheriff who made the sale was properly notified of the redemption since the Dys and Maxinos deposited with him the
redemption money after both DRBI and the Yaps refused to accept it.

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

The Yaps argue that ₱40,000.00 cannot be a valid tender of redemption since the amount of the auction sale was ₱216,040.93. They
further contend that the mortgage is indivisible so in order for the tender to be valid and effectual, it must be for the entire auction
price plus legal interest.

We cannot subscribe to the Yaps’ argument on the indivisibility of the mortgage. As held in the case of Philippine National Bank v.
De los Reyes,44 the doctrine of indivisibility of mortgage does not apply once the mortgage is extinguished by a complete foreclosure
thereof as in the instant case. The Court held:

The parties were accordingly embroiled in a hermeneutic disparity on their aforesaid contending positions. Yet, the rule on the
indivisibility of mortgage finds no application to the case at bar. The particular provision of the Civil Code referred to provides:

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or
of the creditor.

Therefore, the debtor’s heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage
as long as the debt is not completely satisfied.

Neither can the creditor’s heir who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other
heirs who have not been paid.

From these provisions is excepted the case in which, there being several things given in mortgage or pledge, each one of these
guarantees only a determinate portion of the credit.

The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each
thing is specially answerable is satisfied.

From the foregoing, it is apparent that what the law proscribes is the foreclosure of only a portion of the property or a number of the
several properties mortgaged corresponding to the unpaid portion of the debt where before foreclosure proceedings partial payment
was made by the debtor on his total outstanding loan or obligation. This also means that the debtor cannot ask for the release of any
portion of the mortgaged property or of one or some of the several lots mortgaged unless and until the loan thus, secured has been
fully paid, notwithstanding the fact that there has been a partial fulfillment of the obligation. Hence, it is provided that the debtor who
has paid a part of the debt cannot ask for the proportionate extinguishment of the mortgage as long as the debt is not completely
satisfied.

That the situation obtaining in the case at bar is not within the purview of the aforesaid rule on indivisibility is obvious since the
aggregate number of the lots which comprise the collaterals for the mortgage had already been foreclosed and sold at public auction.
There is no partial payment nor partial extinguishment of the obligation to speak of. The aforesaid doctrine, which is actually intended
for the protection of the mortgagee, specifically refers to the release of the mortgage which secures the satisfaction of the indebtedness
and naturally presupposes that the mortgage is existing. Once the mortgage is extinguished by a complete foreclosure thereof, said
doctrine of indivisibility ceases to apply since, with the full payment of the debt, there is nothing more to secure. 45 (Emphasis
supplied.)

Nothing in the law prohibits the piecemeal redemption of properties sold at one foreclosure proceeding. In fact, in several early cases
decided by this Court, the right of the mortgagor or redemptioner to redeem one or some of the foreclosed properties was recognized.

In the 1962 case of Castillo v. Nagtalon, 46 ten parcels of land were sold at public auction. Nagtalon, who owned three of the ten
parcels of land sold, wanted to redeem her properties. Though the amount she tendered was found as insufficient to effectively release
her properties, the Court held that the tender of payment was made timely and in good faith and thus, in the interest of justice,
Nagtalon was given the opportunity to complete the redemption purchase of three of the ten parcels of land foreclosed.

Also, in the later case of Dulay v. Carriaga, 47 wherein Dulay redeemed eight of the seventeen parcels of land sold at public auction, the
trial court declared the piecemeal redemption of Dulay as void. Said order, however, was annulled and set aside by the Court on
certiorari and the Court upheld the redemption of the eight parcels of land sold at public auction.

Clearly, the Dys and Maxinos can effect the redemption of even only two of the five properties foreclosed. And since they can effect a
partial redemption, they are not required to pay the ₱216,040.93 considering that it is the purchase price for all the five properties
foreclosed.
So what amount should the Dys and Maxinos pay in order for their redemption of the two properties be deemed valid considering that
when the five properties were auctioned, they were not separately valued?

Contrary to the Yaps’ contention, the amount paid by the Dys and Maxinos within the redemption period for the redemption of just
two parcels of land was not only ₱40,000.00 but totaled to ₱134,223.92 (₱50,373.42 paid on May 28, 1984 plus ₱83,850.50 paid on
June 19, 1984). That is more than 60% of the purchase price for the five foreclosed properties, to think the Dys and Maxinos were
only redeeming two properties. We find that it can be considered a sufficient amount if we were to base the proper purchase price on
the proportion of the size of Lots 1 and 6 with the total size of the five foreclosed properties, which had the following respective sizes:

Lot 1 61,371 square meters

Lot 6 16,087 square meters
Lot 5 2,900 square meters
Lot 4 27,875 square meters
Lot 8 39,888 square meters
TOTAL 148,121 square meters

The two subject properties to be redeemed, Lots 1 and 6, have a total area of 77,458 square meters or roughly 52% of the total area of
the foreclosed properties. Even with this rough approximation, we rule that there is no reason to invalidate the redemption of the Dys
and Maxinos since they tendered 60% of the total purchase price for properties constituting only 52% of the total area. However, there
is a need to remand the case for computation of the pro-rata value of Lots 1 and 6 based on their true values at that time of redemption
for the purposes of determining if there is any deficiency or overpayment on the part of the Dys and Maxinos.

As to the award of damages in favor of the Dys and Maxinos, we agree with the appellate court for granting the same.

The CA correctly observed that the act of DRBI in falsifying the Sheriff’s Certificate of Sale to include Lots 3 and 846, even if said
additional lots were not among the properties foreclosed, was the proximate cause of the pecuniary loss suffered by the Dys and
Maxinos in the form of lost income from Lot 3.

Likewise, the CA also correctly awarded moral damages. Paragraph 10, Article 2219 of the Civil Code provides that moral damages
may be recovered in case of acts and actions referred to in Article 21 of the same Code. Article 21 reads:

ART. 21 Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.

As previously discussed, DRBI’s act of maliciously including two additional properties in the Sheriff’s Certificate of Sale even if they
were not included in the foreclosed properties caused the Dys and Maxinos pecuniary loss. Hence, DRBI is liable to pay moral
damages.

The award of exemplary damages is similarly proper. Exemplary or corrective damages are imposed, by way of example or correction
for the public good, in addition to the moral, temperate, liquidated or compensatory damages. 48 We cannot agree more with the
following ratio of the appellate court in granting the same:

Additionally, what is alarming to the sensibilities of the Court is the deception employed by the bank in adding other properties in the
certificate of sale under public auction without them being included in the public auction conducted. It cannot be overemphasized that
being a lending institution, prudence dictates that it should employ good faith and due diligence with the properties entrusted to it. It
was the bank which submitted the properties ought to be foreclosed to the sheriff. It only submitted five (5) properties for foreclosure.
Yet, it caused the registration of the Certificate of Sale under public auction which listed more properties than what was foreclosed.
On this aspect, exemplary damages in the amount of ₱200,000.00 are in order.49

There being an award of exemplary damages, the award of attorney’s fees is likewise proper as provided in paragraph 1, Article 2208
of the Civil Code.

WHEREFORE, the petitions for review on certiorari are DENIED for lack of merit. The Decision dated May 17, 2005 and Resolution
dated March 15, 2006 of the Court of Appeals in CA-G.R. C.V. No. 57205 are hereby AFFIRMED with the MODIFICATION that
the case is REMANDED to the Regional Trial Court of Negros Oriental, Branch 44, Dumaguete City, for the computation of the pro-
rata value of properties covered by TCT No. T-14777 (Lot 1) and TCT No. T-14781 (Lot 6) of the Registry of Deeds of Negros
Oriental at the time of redemption to determine if there is a deficiency to be settled by or overpayment to be refunded to respondent
Spouses Zosimo Dy, Sr. and Natividad Chiu and Spouses Marcelino C. Maxino and Remedios Lasola with regard to the redemption
money they paid.

With costs against the petitioners.

SO ORDERED.

 Goldenway Merchandising Corporation v. Equitble PCI Bank, G. R. No. 195540, March 13, 2013, 693 SCRA 439.

Before the Court is a petition for review on certiorari which seeks to reverse and set aside the Decision 1 dated November 19, 2010 and
Resolution2 dated January 31, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed the Decision 3 dated
January 8, 2007 of the Regional Trial Court (RTC) of- Valenzuela City, Branch 171 dismissing the complaint in Civil Case No. 295-V
-01.
The facts are undisputed.

On November 29, 1985, Goldenway Merchandising Corporation (petitioner) executed a Real Estate Mortgage in favor of Equitable
PCI Bank (respondent) over its real properties situated in Valenzuela, Bulacan (now Valenzuela City) and covered by Transfer
Certificate of Title (TCT) Nos. T-152630, T-151655 and T-214528 of the Registry of Deeds for the Province of Bulacan. The
mortgage secured the Two Million Pesos (P2,000,000.00) loan granted by respondent to petitioner and was duly
registered.4chanroblesvirtualawlibrary

As petitioner failed to settle its loan obligation, respondent extrajudicially foreclosed the mortgage on December 13, 2000. During the
public auction, the mortgaged properties were sold for P3,500,000.00 to respondent. Accordingly, a Certificate of Sale was issued to
respondent on January 26, 2001. On February 16, 2001, the Certificate of Sale was registered and inscribed on TCT Nos. T-152630,
T-151655 and T-214528.5chanroblesvirtualawlibrary

In a letter dated March 8, 2001, petitioner's counsel offered to redeem the foreclosed properties by tendering a check in the amount
of P3,500,000.00. On March 12, 2001, petitioner's counsel met with respondent's counsel reiterating petitioner's intention to exercise
the right of redemption. 6 However, petitioner was told that such redemption is no longer possible because the certificate of sale had
already been registered. Petitioner also verified with the Registry of Deeds that title to the foreclosed properties had already been
consolidated in favor of respondent and that new certificates of title were issued in the name of respondent on March 9, 2001.

On December 7, 2001, petitioner filed a complaint 7 for specific performance and damages against the respondent, asserting that it is
the one-year period of redemption under Act No. 3135 which should apply and not the shorter redemption period provided in Republic
Act (R.A.) No. 8791. Petitioner argued that applying Section 47 of R.A. 8791 to the real estate mortgage executed in 1985 would
result in the impairment of obligation of contracts and violation of the equal protection clause under the Constitution. Additionally,
petitioner faulted the respondent for allegedly failing to furnish it and the Office of the Clerk of Court, RTC of Valenzuela City with a
Statement of Account as directed in the Certificate of Sale, due to which petitioner was not apprised of the assessment and fees
incurred by respondent, thus depriving petitioner of the opportunity to exercise its right of redemption prior to the registration of the
certificate of sale.

In its Answer with Counterclaim, 8 respondent pointed out that petitioner cannot claim that it was unaware of the redemption price
which is clearly provided in Section 47 of R.A. No. 8791, and that petitioner had all the opportune time to redeem the foreclosed
properties from the time it received the letter of demand and the notice of sale before the registration of the certificate of sale. As to
the check payment tendered by petitioner, respondent said that even assuming arguendo such redemption was timely made, it was not
for the amount as required by law.

On January 8, 2007, the trial court rendered its decision dismissing the complaint as well as the counterclaim. It noted that the issue of
constitutionality of Sec. 47 of R.A. No. 8791 was never raised by the petitioner during the pre-trial and the trial. Aside from the fact
that petitioner's attempt to redeem was already late, there was no valid redemption made because Atty. Judy Ann Abat-Vera who
talked to Atty. Joseph E. Mabilog of the Legal Division of respondent bank, was not properly authorized by petitioner's Board of
Directors to transact for and in its behalf; it was only a certain Chan Guan Pue, the alleged President of petitioner corporation, who
gave instruction to Atty. Abat-Vera to redeem the foreclosed properties.9chanroblesvirtualawlibrary

Aggrieved, petitioner appealed to the CA which affirmed the trial court's decision. According to the CA, petitioner failed to justify
why Section 47 of R.A. No. 8791 should be declared unconstitutional. Furthermore, the appellate court concluded that a reading of
Section 47 plainly reveals the intention to shorten the period of redemption for juridical persons and that the foreclosure of the
mortgaged properties in this case when R.A. No. 8791 was already in effect clearly falls within the purview of the said
provision.10chanroblesvirtualawlibrary

Petitioner's motion for reconsideration was likewise denied by the CA.

In the present petition, it is contended that Section 47 of R.A. No. 8791 is inapplicable considering that the contracting parties
expressly and categorically agreed that the foreclosure of the real estate mortgage shall be in accordance with Act No. 3135. Citing Co
v. Philippine National Bank11 petitioner contended that the right of redemption is part and parcel of the Deed of Real Estate Mortgage
itself and attaches thereto upon its execution, a vested right flowing out of and made dependent upon the law governing the contract of
mortgage and not on the mortgagee's act of extrajudicially foreclosing the mortgaged properties. This Court thus held in said case that
"Under the terms of the mortgage contract, the terms and conditions under which redemption may be exercised are deemed part and
parcel thereof whether the same be merely conventional or imposed by law."

Petitioner then argues that applying Section 47 of R.A. No. 8791 to the present case would be a substantial impairment of its vested
right of redemption under the real estate mortgage contract. Such impairment would be violative of the constitutional proscription
against impairment of obligations of contract, a patent derogation of petitioner's vested right and clearly changes the intention of the
contracting parties. Moreover, citing this Court's ruling in Rural Bank of Davao City, Inc. v. Court of Appeals 12 where it was held that
"Section 119 prevails over statutes which provide for a shorter period of redemption in extrajudicial foreclosure sales", and in Sulit

v. Court of Appeals,13 petitioner stresses that it has always been the policy of this Court to aid rather than defeat the mortgagor's right
to redeem his property.

Petitioner further argues that since R.A. No. 8791 does not provide for its retroactive application, courts therefore cannot retroactively
apply its provisions to contracts executed and consummated before its effectivity. Also, since R.A. 8791 is a general law pertaining to
the banking industry while Act No. 3135 is a special law specifically governing real estate mortgage and foreclosure, under the rules
of statutory construction that in case of conflict a special law prevails over a general law regardless of the dates of enactment of both
laws, Act No. 3135 clearly should prevail on the redemption period to be applied in this case.
The constitutional issue having been squarely raised in the pleadings filed in the trial and appellate courts, we shall proceed to resolve
the same.

The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135, 14 as amended by Act No. 4118. Section 6 thereof
provides:chanroblesvirtualawlibrary

SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors-
in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the
mortgage or deed of

trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale;
and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of

Civil Procedure,15 in so far as these are not inconsistent with the provisions of this Act.

The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case, the parties
provided in their real estate mortgage contract that upon petitioner's default and the latter's entire loan obligation becoming due,
respondent may immediately foreclose the mortgage judicially in accordance with the Rules of Court, or extrajudicially in accordance
with Act No. 3135, as amended.

However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking Law of 2000" which took effect on June 13, 2000,
amended Act No. 3135. Said provision reads:chanroblesvirtualawlibrary

SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure, whether judicially or extrajudicially, of any mortgage
on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has
been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem
the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the
costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom.
However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter
upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same
in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he
will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right
to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with
the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners
of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their
expiration. (Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons which are allowed to exercise the right of redemption
only "until, but not after, the registration of the certificate of foreclosure sale" and in no case more than three (3) months after
foreclosure, whichever comes first.16chanroblesvirtualawlibrary

May the foregoing amendment be validly applied in this case when the real estate mortgage contract was executed in 1985 and the
mortgage foreclosed when R.A. No. 8791 was already in effect?

We answer in the affirmative.

When confronted with a constitutional question, it is elementary that every court must approach it with grave care and considerable
caution bearing in mind that every statute is presumed valid and every reasonable doubt should be resolved in favor of its
constitutionality.17 For a law to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution. The
ground for nullity must be clear and beyond reasonable doubt.18 Indeed, those who petition this Court to declare a law, or parts thereof,
unconstitutional must clearly establish the basis therefor. Otherwise, the petition must fail. 19chanroblesvirtualawlibrary

Petitioner's contention that Section 47 of R.A. 8791 violates the constitutional proscription against impairment of the obligation of
contract has no basis.

The purpose of the non-impairment clause of the Constitution 20 is to safeguard the integrity of contracts against unwarranted
interference by the State. As a rule, contracts should not be tampered with by subsequent laws that would change or modify the rights
and obligations of the parties.21 Impairment is anything that diminishes the efficacy of the contract. There is an impairment if a
subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or
withdraws remedies for the enforcement of the rights of the parties.22chanroblesvirtualawlibrary

Section 47 did not divest juridical persons of the right to redeem their foreclosed properties but only modified the time for the exercise
of such right by reducing the one-year period originally provided in Act No. 3135. The new redemption period commences from the
date of foreclosure sale, and expires upon registration of the certificate of sale or three months after foreclosure, whichever is earlier.
There is likewise no retroactive application of the new redemption period because Section 47 exempts from its operation those
properties foreclosed prior to its effectivity and whose owners shall retain their redemption rights under Act No. 3135.
Petitioner's claim that Section 47 infringes the equal protection clause as it discriminates mortgagors/property owners who are
juridical persons is equally bereft of merit.

The equal protection clause is directed principally against undue favor and individual or class privilege. It is not intended to prohibit
legislation which is limited to the object to which it is directed or by the territory in which it is to operate. It does not require absolute
equality, but merely that all persons be treated alike under like conditions both as to privileges conferred and liabilities
imposed.23 Equal protection permits of reasonable classification. 24 We have ruled that one class may be treated differently from
another where the groupings are based on reasonable and real distinctions. 25 If classification is germane to the purpose of the law,
concerns all members of the class, and applies equally to present and future conditions, the classification does not violate the equal
protection guarantee.26chanroblesvirtualawlibrary

We agree with the CA that the legislature clearly intended to shorten the period of redemption for juridical persons whose properties
were foreclosed and sold in accordance with the provisions of Act No. 3135.27chanroblesvirtualawlibrary

The difference in the treatment of juridical persons and natural persons was based on the nature of the properties foreclosed whether
these are used as residence, for which the more liberal one-year redemption period is retained, or used for industrial or commercial
purposes, in which case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property and enable
mortgagee-banks to dispose sooner of these acquired assets. It must be underscored that the General Banking Law of 2000, crafted in
the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by fashioning a legal
framework for maintaining a safe and sound banking system.28 In this context, the amendment introduced by Section 47 embodied one
of such safe and sound practices aimed at ensuring the solvency and liquidity of our banks. It cannot therefore be disputed that the said
provision amending the redemption period in Act 3135 was based on a reasonable classification and germane to the purpose of the
law.

This legitimate public interest pursued by the legislature further enfeebles petitioner's impairment of contract theory.

The right of redemption being statutory, it must be exercised in the manner prescribed by the statute, 29 and within the prescribed time
limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has to give way to police power
exercised for public welfare. 30 The concept of police power is well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." Its scope,
ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an
efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. 31chanroblesvirtualawlibrary

The freedom to contract is not absolute; all contracts and all rights are subject to the police power of the State and not only may
regulations which affect them be established by the State, but all such regulations must be subject to change from time to time, as the
general well-being of the community may require, or as the circumstances may change, or as experience may demonstrate the
necessity.32 Settled is the rule that the non-impairment clause of the Constitution must yield to the loftier purposes targeted by the
Government. The right granted by this provision must submit to the demands and necessities of the State's power of regulation. 33 Such
authority to regulate businesses extends to the banking industry which, as this Court has time and again emphasized, is undeniably
imbued with public interest.34chanroblesvirtualawlibrary

Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we find no reversible error committed by the CA in
holding that petitioner can no longer exercise the right of redemption over its foreclosed properties after the certificate of sale in favor
of respondent had been registered.

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The Decision dated November 19, 2010 and
Resolution dated January 31, 2011 of the Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.

With costs against the petitioner.

 Ermitano v. Paglas, G. R. No. 174436, January 23, 2013, 689 SCRA 158

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the
Decision1 and Resolution2 dated September 8, 2004 and August 16, 2006, respectively, of the Court of Appeals (CA) in CA-G.R. SP
No. 77617.

On November 5, 1999, herein respondent and petitioner, through her representative, lsabelo R. Ermitaño, executed a Contract of Lease
wherein petitioner leased in favor of respondent a 336 square meter residential lot and a house standing thereon located at No. 20
Columbia St., Phase l, Doña Vicenta Village, Davao City. The contract period is one (1) year, which commenced on November 4,
1999, with a monthly rental rate of ₱13,500.00. Pursuant to the contract, respondent paid petitioner ₱2,000.00 as security deposit to
answer for unpaid rentals and damage that may be cause to the leased unit.

Subsequent to the execution of the lease contract, respondent received information that sometime in March 1999, petitioner mortgaged
the subject property in favor of a certain Charlie Yap (Yap) and that the same was already foreclosed with Yap as the purchaser of the
disputed lot in an extra-judicial foreclosure sale which was registered on February 22, 2000. Yap's brother later offered to sell the
subject property to respondent. Respondent entertained the said offer and negotiations ensued. On June 1, 2000, respondent bought the
subject property from Yap for ₱950,000.00. A Deed of Sale of Real Property was executed by the parties as evidence of the contract.
However, it was made clear in the said Deed that the property was still subject to petitioner's right of redemption.

Prior to respondent's purchase of the subject property, petitioner filed a suit for the declaration of nullity of the mortgage in favor of
Yap as well as the sheriff's provisional certificate of sale which was issued after the disputed house and lot were sold on foreclosure.
Meanwhile, on May 25, 2000, petitioner sent a letter demanding respondent to pay the rentals which are due and to vacate the leased
premises. A second demand letter was sent on March 25, 2001. Respondent ignored both letters.

On August 13, 2001, petitioner filed with the Municipal Trial Court in Cities (MTCC), Davao City, a case of unlawful detainer against
respondent.

In its Decision dated November 26, 2001, the MTCC, Branch 6, Davao City dismissed the case filed by petitioner and awarded
respondent the amounts of ₱25,000.00 as attorney's fees and ₱2,000.00 as appearance fee.

Petitioner filed an appeal with the Regional Trial Court (RTC) of Davao City.

On February 14, 2003, the RTC rendered its Decision, the dispositive portion of which reads as follows:

WHEREFORE, PREMISES CONSIDERED, the assailed Decision is AFFIRMED with MODIFICATION. AFFIRMED insofar as it
dismissed the case for unlawful detainer but modified in that the award of attorney's fees in defendant's herein respondent's favor is
deleted and that the defendant respondent is ordered to pay plaintiff herein petitioner the equivalent of ten months unpaid rentals on
the property or the total sum of ₱135,000.00.

SO ORDERED.3

The RTC held that herein respondent possesses the right to redeem the subject property and that, pending expiration of the redemption
period, she is entitled to receive the rents, earnings and income derived from the property.

Aggrieved by the Decision of the RTC, petitioner filed a petition for review with the CA.

On September 8, 2004, the CA rendered its assailed Decision disposing, thus:

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 16, 11th Judicial Region, Davao City
is AFFIRMED with the MODIFICATIONS as follows:

(a) Private respondent's obligation to pay the petitioner the amount of ONE HUNDRED THIRTY-FIVE THOUSAND
PESOS (₱135,000.00) equivalent of ten (10) months is hereby DELETED;

(b) Attorney's fees and litigation expenses were correctly awarded by the trial court having compelled the private respondent
to litigate and incur expenses to protect her interests by reason of the unjustified act of petitioner (Producers Bank of the
Philippines vs. Court of Appeals, 365 SCRA 326), Thus: litigation expenses of only TEN THOUSAND PESOS (₱10,000.00)
not TWENTY-FIVE THOUSAND PESOS (₱25,000.00); and

(c) Attorney's fees REI NSTAT ED in the amount of TEN THOUSAND PESOS (₱10,000.00) instead of only TWO
THOUSAND PESOS (₱2,000.00).

SO ORDERED.4

Quoting extensively from the decision of the MTCC as well as on respondent's comment on the petition for review, the CA ruled that
respondent did not act in bad faith when she bought the property in question because she had every right to rely on the validity of the
documents evidencing the mortgage and the foreclosure proceedings.

Petitioner filed a Motion for Reconsideration, but the CA denied it in its Resolution dated August 16, 2006.

Hence, the instant petition for review on certiorari raising the following assignment of errors:

A.WHETHER OR NOT THE COURT OF APPEALS ERRED IN DISMISSING THE UNLAWFUL DETAINER CASE BY
RULING THAT A SHERIFF'S FINAL CERTIFICATE OF SALE WAS ALREADY ISSUED WHICH DECISION IS NOT
BASED ON THE EVIDENCE AND IN ACCORDANCE WITH THE APPLICABLE LAWS AND JURISPRUDENCE.

B. WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT RULED THAT PRIVATE RESPONDENT WAS
A BUYER IN GOOD FAITH EVEN IF SHE WAS INFORMED BY PETITIONER THROUGH A LETTER ADVISING
HER THAT THE REAL ESTATE MORTGAGE CONTRACT WAS SHAM, FICTITIOUS AS IT WAS A PRODUCT OF
FORGERY BECAUSE PETITIONER'S PURPORTED SIGNATURE APPEARING THEREIN WAS SIGNED AND
FALSIFIED BY A CERTAIN ANGELA CELOSIA.

C. WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT AWARDED ATTORNEY'S FEES WHICH WAS
DELETED BY RTC-BRANCH 16 OF DAVAO CITY DESPITE THE ABSENCE OF ANY EXPLANATION AND/OR
JUSTIFICATION IN THE BODY OF THE DECISION.5

At the outset, it bears to reiterate the settled rule that the only question that the courts resolve in ejectment proceedings is: who is
entitled to the physical possession of the premises, that is, to the possession de facto and not to the possession de jure. 6 It does not
even matter if a party's title to the property is questionable. 7 In an unlawful detainer case, the sole issue for resolution is the physical or
material possession of the property involved, independent of any claim of ownership by any of the party litigants. 8 Where the issue of
ownership is raised by any of the parties, the courts may pass upon the same in order to determine who has the right to possess the
property.9 The adjudication is, however, merely provisional and would not bar or prejudice an action between the same parties
involving title to the property.10

In the instant case, pending final resolution of the suit filed by petitioner for the declaration of nullity of the real estate mortgage in
favor of Yap, the MTCC, the RTC and the CA were unanimous in sustaining the presumption of validity of the real estate mortgage
over the subject property in favor of Yap as well as the presumption of regularity in the performance of the duties of the public
officers who subsequently conducted its foreclosure sale and issued a provisional certificate of sale. Based on the presumed validity of
the mortgage and the subsequent foreclosure sale, the MTCC, the RTC and the CA also sustained the validity of respondent's purchase
of the disputed property from Yap. The Court finds no cogent reason to depart from these rulings of the MTCC, RTC and CA. Thus,
for purposes of resolving the issue as to who between petitioner and respondent is entitled to possess the subject property, this
presumption stands.

Going to the main issue in the instant petition, it is settled that in unlawful detainer, one unlawfully withholds possession thereof after
the expiration or termination of his right to hold possession under any contract, express or implied. 11 In such case, the possession was
originally lawful but became unlawful by the expiration or termination of the right to possess; hence, the issue of rightful possession is
decisive for, in such action, the defendant is in actual possession and the plaintiff’s cause of action is the termination of the
defendant’s right to continue in possession.12

In the instant petition, petitioner's basic postulate in her first and second assigned errors is that she remains the owner of the subject
property. Based on her contract of lease with respondent, petitioner insists that respondent is not permitted to deny her title over the
said property in accordance with the provisions of Section 2 (b), Rule 131 of the Rules of Court.

The Court does not agree.

The conclusive presumption found in Section 2 (b), Rule 131 of the Rules of Court, known as estoppel against tenants, provides as
follows:

Sec. 2. Conclusive presumptions. – The following are instances of conclusive presumptions:

xxxx

(b) The tenant is not permitted to deny the title of his landlord at the time of the commencement of the relation of landlord and tenant
between them. (Emphasis supplied).

It is clear from the abovequoted provision that what a tenant is estopped from denying is the title of his landlord at the time of the
commencement of the landlord-tenant relation. 13 If the title asserted is one that is alleged to have been acquired subsequent to the
commencement of that relation, the presumption will not apply. 14 Hence, the tenant may show that the landlord's title has expired or
been conveyed to another or himself; and he is not estopped to deny a claim for rent, if he has been ousted or evicted by title
paramount.15 In the present case, what respondent is claiming is her supposed title to the subject property which she acquired
subsequent to the commencement of the landlord-tenant relation between her and petitioner. Hence, the presumption under Section 2
(b), Rule 131 of the Rules of Court does not apply.

The foregoing notwithstanding, even if respondent is not estopped from denying petitioner's claim for rent, her basis for such denial,
which is her subsequent acquisition of ownership of the disputed property, is nonetheless, an insufficient excuse from refusing to pay
the rentals due to petitioner.

There is no dispute that at the time that respondent purchased Yap's rights over the subject property, petitioner's right of redemption as
a mortgagor has not yet expired. It is settled that during the period of redemption, it cannot be said that the mortgagor is no longer the
owner of the foreclosed property, since the rule up to now is that the right of a purchaser at a foreclosure sale is merely inchoate until
after the period of redemption has expired without the right being exercised. 16 The title to land sold under mortgage foreclosure
remains in the mortgagor or his grantee until the expiration of the redemption period and conveyance by the master's deed. 17 Indeed,
the rule has always been that it is only upon the expiration of the redemption period, without the judgment debtor having made use of
his right of redemption, that the ownership of the land sold becomes consolidated in the purchaser. 18

Stated differently, under Act. No. 3135, the purchaser in a foreclosure sale has, during the redemption period, only an inchoate right
and not the absolute right to the property with all the accompanying incidents. 19 He only becomes an absolute owner of the property if
it is not redeemed during the redemption period.20

Pending expiration of the period of redemption, Section 7 of Act No. 3135,21 as amended, provides:

Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or
place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond
in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the
sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made
under oath and filed in [the] form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in
special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the
Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds
in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees
specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act
Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue,
addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.
Thus, it is clear from the abovequoted provision of law that, as a consequence of the inchoate character of the purchaser's right during
the redemption period, Act. No. 3135, as amended, allows the purchaser at the foreclosure sale to take possession of the property only
upon the filing of a bond, in an amount equivalent to the use of the property for a period of twelve (12) months, to indemnify the
mortgagor in case it be shown that the sale was made in violation of the mortgage or without complying with the requirements of the
law. In Cua Lai Chu v. Laqui, 22 this Court reiterated the rule earlier pronounced in Navarra v. Court of Appeals 23 that the purchaser at
an extrajudicial foreclosure sale has a right to the possession of the property even during the one-year redemption period provided the
purchaser files an indemnity bond. That bond, nonetheless, is not required after the purchaser has consolidated his title to the property
following the mortgagor's failure to exercise his right of redemption for in such a case, the former has become the absolute owner
thereof.24

It, thus, clearly follows from the foregoing that, during the period of redemption, the mortgagor, being still the owner of the foreclosed
property, remains entitled to the physical possession thereof subject to the purchaser's right to petition the court to give him possession
and to file a bond pursuant to the provisions of Section 7 of Act No. 3135, as amended. The mere purchase and certificate of sale alone
do not confer any right to the possession or beneficial use of the premises.25

In the instant case, there is neither evidence nor allegation that respondent, as purchaser of the disputed property, filed a petition and
bond in accordance with the provisions of Section 7 of Act No. 3135. In addition, respondent defaulted in the payment of her rents.
Thus, absent respondent's filing of such petition and bond prior to the expiration of the period of redemption, coupled with her failure
to pay her rent, she did not have the right to possess the subject property.

On the other hand, petitioner, as mortgagor and owner, was entitled not only to the possession of the disputed house and lot but also to
the rents, earnings and income derived therefrom. In this regard, the RTC correctly cited Section 32, Rule 39 of the Rules of Court
which provides as follows:

Sec. 32. Rents, earnings and income of property pending redemption. – The purchaser or a redemptioner shall not be entitled to
receive the rents, earnings and income of the property sold on execution, or the value of the use and occupation thereof when such
property is in the possession of a tenant. All rents, earnings and income derived from the property pending redemption shall belong to
the judgment obligor until the expiration of his period of redemption. (Emphasis supplied)

While the above rule refers to execution sales, the Court finds no cogent reason not to apply the same principle to a foreclosure sale, as
in this case.

The situation became different, however, after the expiration of the redemption period on February 23, 2001. Since there is no
allegation, much less evidence, that petitioner redeemed the subject property within one year from the date of registration of the
certificate of sale, respondent became the owner thereof. Consolidation of title becomes a right upon the expiration of the redemption
period.26 Having become the owner of the disputed property, respondent is then entitled to its possession.

As a consequence, petitioner's ejectment suit filed against respondent was rendered moot when the period of redemption expired on
February 23, 2001 without petitioner having redeemed the subject property, for upon expiration of such period petitioner lost his
possessory right over the same. Hence, the only remaining right that petitioner can enforce is his right to the rentals during the time
that he was still entitled to physical possession of the subject property – that is from May 2000 until February 23, 2001.1âwphi1

In this regard, this Court agrees with the findings of the MTCC that, based on the evidence and the pleadings filed by petitioner,
respondent is liable for payment of rentals beginning May 2000 until February 2001, or for a period of ten (10) months. However, it is
not disputed that respondent already gave to petitioner the sum of ₱27,000.00, which is equivalent to two (2) months’ rental, as
deposit to cover for any unpaid rentals. It is only proper to deduct this amount from the rentals due to petitioner, thus leaving
₱108,000.00 unpaid rentals.

As to attorney’s fees and litigation expenses, the Court agrees with the RTC that since petitioner is, in entitled to unpaid rentals, her
complaint which, among others, prays for the payment of unpaid rentals, is justified. Thus, the award of attorney'’ and litigation
expenses to respondent should be deleted.

WHEREFORE, the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 77617, dated September 8, 2004 and August
16, 2006, respectively, are AFFIRMED with the following MODIFICATIONS: (1) respondent is ORDERED to pay petitioner
₱108,000.00 as and for unpaid rentals; (2) the award of attorney’s fees and litigation expenses to respondent is DELETED.

SO ORDERED.

-Surplus or Deficiency

Rules of Court, Rule 86, Sec. 7

 Suico v. Philippine National Bank, G. R. No. 170215, August 28, 2007, 531 SCRA 514

Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine National Bank (PNB) secured by a
real estate mortgage1 on real properties in the name of the former. The petitioners were unable to pay their obligation prompting the
PNB to extrajudicially foreclose the mortgage over the subject properties before the City Sheriff of Mandaue City under EJF Case No.
92-5-15.

The petitioners thereafter filed a Complaint against the PNB before the Regional Trial Court (RTC) of Mandaue City, Branch 55,
docketed as Civil Case No. MAN-2793 for Declaration of Nullity of Extrajudicial Foreclosure of Mortgage. 2
The Complaint alleged that on 6 May 1992, PNB filed with the Office of the Mandaue City Sheriff a petition for the extrajudicial
foreclosure of mortgage constituted on the petitioners’ properties (subject properties) for an outstanding loan obligation amounting to
₱1,991,770.38 as of 10 March 1992. The foreclosure case before the Office of the Mandaue City Sheriff, which was docketed as EJF
Case No. 92-5-15, covered the following properties:

TCT NO. 13196

"A parcel of land (Lot 701, plan 11-5121 Amd-2) situated at Mandaue City, bounded on the NE., and SE., by lot no. 700; on the SW.
by lots nos. 688 and 702; on the NW. by lot no. 714, containing an area of 2,078 sq. m. more or less."

TAX DECL. NO. 00553

"A parcel of land situated at Tabok, Mandaue City, Cad. Lot No. 700-C-1; bounded on the North by Lot No. 701 & 700-B; on the
South by Lot No. 700-C-3; on the East by lot no. 700-C-3 and on the West by Lot no. 688, containing an area of 200 square meters,
more or less."

TAX DECL. NO. 00721

"Two (2) parcels of land situated at Tabok, Mandaue City, Cad. lot nos. 700-C-3 and 700-C-2; bounded on the North by Lot Nos. 700-
C-1 and 700-B; on the South by Lot No. 700-D; on the East by Lot Nos. 695 and 694; and on the West by Lot Nos. 688 and 700-C-1,
containing an aggregate area of 1,683 sq. m. more or less."

TAX DECL. NO. 0237

"A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-B. Bounded on the NE. by (Lot 699) 109, (Lot No. 69) 110, on
the SE (Lot 700-C) 115, on the NW. (Lot 700-A) 112 and on the SW. (Lot 701) 113; containing an area of .1785 HA more or less."

TAX DECL. NO. 9267

"A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-A. Bounded on the NE. by (Lot 699) 109, on the South West by
(Lot 701) 113, on the SE. by (Lot 700-B) 111, and on the NW. by (lot 714) 040039; containing an area of .1785 HA more or less."3

Petitioners claimed that during the foreclosure sale of the subject properties held on 30 October 1992, PNB, as the lone bidder, offered
a bid in the amount of ₱8,511,000.00. By virtue of the said bid, a Certificate of Sale of the subject properties was issued by the
Mandaue City Sheriff in favor of PNB. PNB did not pay to the Sheriff who conducted the auction sale the amount of its bid which was
₱8,511,000.00 or give an accounting of how said amount was applied against petitioners’ outstanding loan, which, as of 10 March
1992, amounted only to ₱1,991,770.38. Since the amount of the bid grossly exceeded the amount of petitioners’ outstanding
obligation as stated in the extrajudicial foreclosure of mortgage, it was the legal duty of the winning bidder, PNB, to deliver to the
Mandaue City Sheriff the bid price or what was left thereof after deducting the amount of petitioners’ outstanding obligation. PNB
failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very least, the amount of such bid in excess of
petitioners’ outstanding obligation.

One year after the issuance of the Certificate of Sale, PNB secured a Certificate of Final Sale from the Mandaue City Sheriff and, as a
result, PNB transferred registration of all the subject properties to its name.

Owing to the failure of PNB as the winning bidder to deliver to the petitioners the amount of its bid or even just the amount in excess
of petitioners’ obligation, the latter averred that the extrajudicial foreclosure conducted over the subject properties by the Mandaue
City Sheriff, as well as the Certificate of Sale and the Certificate of Finality of Sale of the subject properties issued by the Mandaue
City Sheriff, in favor of PNB, were all null and void.

Petitioners, in their Complaint in Civil Case No. MAN-2793, prayed for:

a) Declaring the Nullity of Extra-judicial Foreclosure of Mortgage under EJF Case No. 92-5-15 including the certificate of
sale and the final deed of sale of the properties affected;

b) Order[ing] the cancellation of the certificates of titles and tax declaration already in the name of [herein respondent] PNB
and revert the same back to herein [petitioners’] name;

c) Ordering the [PNB] to pay [petitioners] moral damages amounting to more than ₱1,000,000,00; Exemplary damages of
₱500,000.00; Litigation expenses of ₱100,000.00 and attorney’s fees of ₱300,000.00.4

PNB filed a Motion to Dismiss 5 Civil Case No. MAN-2793 citing the pendency of another action between the same parties,
specifically Civil Case No. CEB-15236 before the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo and Elizabeth Suico where PNB
was seeking the payment of the balance of petitioners’ obligation not covered by the proceeds of the auction sale held on 30 October
1992. PNB argued that these two cases involve the same parties. Petitioners opposed the Motion to Dismiss filed by
PNB.6 Subsequently, the Motion to Dismiss Civil Case No. MAN-2793 was denied in the Order of the RTC dated 15 July 1997; 7 thus,
PNB was constrained to file its Answer.8

PNB disputed petitioners’ factual narration. PNB asserted that petitioners had other loans which had likewise become due. Petitioners’
outstanding obligation of ₱1,991,770.38 as of 10 March 1992 was exclusive of attorney’s fees, and other export related obligations
which it did not consider due and demandable as of said date. PNB maintained that the outstanding obligation of the petitioners under
their regular and export- related loans was already more than the bid price of ₱8,511,000.00, contradicting the claim of surplus
proceeds due the petitioners. Petitioners were well aware that their total principal outstanding obligation on the date of the auction sale
was ₱5,503,293.21.

PNB admitted the non-delivery of the bid price to the sheriff and the execution of the final deed of sale, but claimed that it had not
transferred in its name all the foreclosed properties because the petition to register in its name Transfer Certificates of Title (TCT) No.
37029 and No. 13196 were still pending.

On 2 February 1999, the RTC rendered its Decision 9 in Civil Case No. MAN-2793 for the declaration of nullity of the extrajudicial
foreclosure of mortgage, the dispositive portion of which states:

WHEREFORE, based on the foregoing, judgment is rendered in favor of [herein petitioners] Sps. Esmeraldo & Elizabeth Suico and
against [herein respondent], Philippine National Bank (PNB), declaring the nullity of Extrajudicial Foreclosure of Mortgage under EJF
Case No. 92-5-15, including the certificate of sale and the final deed of sale of the subject properties; ordering the cancellation of the
certificates of titles and tax declaration already in the name of [respondent] PNB, if any, and revert the same back to the [petitioners’]
name; ordering [respondent] PNB to cause a new foreclosure proceeding, either judicially or extra-judicially.

Furnish parties thru counsels copy of this order.10

In granting the nullification of the extrajudicial foreclosure of mortgage, the RTC reasoned that given that petitioners had other loan
obligations which had not yet matured on 10 March 1992 but became due by the date of the auction sale on 30 October 1992, it does
not justify the shortcut taken by PNB and will not excuse it from paying to the Sheriff who conducted the auction sale the excess bid
in the foreclosure sale. To allow PNB to do so would constitute fraud, for not only is the filing fee in the said foreclosure inadequate
but, worse, the same constitutes a misrepresentation regarding the amount of the indebtedness to be paid in the foreclosure sale as
posted and published in the notice of sale. 11 Such misrepresentation is fatal because in an extrajudicial foreclosure of mortgage, notice
of sale is jurisdictional. Any error in the notice of sale is fatal and invalidates the notice. 12

When the PNB appealed its case to the Court of Appeals, 13 the appellate court rendered a Decision14 dated 12 April 2005, the fallo of
which provides:

WHEREFORE, premises considered, the instant appeal is GRANTED. The questioned decision of the Regional Trial Court of
Mandaue City, Branch 55 dated February 2, 1999 is hereby REVERSED and SET ASIDE. Accordingly, the extra judicial foreclosure
of mortgage under EJF 92-5-15 including the certificate of sale and final deed of sale executed appurtenant thereto are hereby declared
to be valid and binding.15

In justifying reversal, the Court of Appeals held:

A careful scrutiny of the evidence extant on record would show that in a letter dated January 12, 1994, [petitioners] expressly admitted
that their outstanding principal obligation amounted to ₱5.4 Million and in fact offered to redeem the properties at ₱6.5 Million. They
eventually increased their offer at ₱7.5 Million as evidenced by that letter dated February 4, 1994. And finally on May 16, 1994, they
offered to redeem the foreclosed properties by paying the whole amount of the obligation by installment in a period of six years. All
those offers made by the [petitioners] not only contradicted their very assertion that their obligation is merely that amount appearing
on the petition for foreclosure but are also indicative of the fact that they have admitted the validity of the extra judicial foreclosure
proceedings and in effect have cured the impugned defect. Thus, for the [petitioners] to insist that their obligation is only over a
million is unworthy of belief. Oddly enough, it is evident from their acts that they themselves likewise believe otherwise.

Even assuming that indeed there was a surplus and the [PNB] is retaining more than the proceeds of the sale than it is entitled, this fact
alone will not affect the validity of the sale but simply gives the [petitioners] a cause of action to recover such surplus. In fine, the
failure of the [PNB] to remit the surplus, if any, is not tantamount to a non-compliance of statutory requisites that could constitute a
jurisdictional defect invalidating the sale. This situation only gives rise to a cause of action on the part of the [petitioners] to recover
the alleged surplus from the [PNB]. This ruling is in harmony with the decisional rule that in suing for the return of the surplus
proceeds, the mortgagor is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made. 16

Petitioners filed a Motion for Reconsideration 17 of the foregoing Decision, but the Court of Appeals was not persuaded. It maintained
the validity of the foreclosure sale and, in its Amended Decision dated 28 September 2005, it merely directed PNB to pay the
deficiency in the filing fees, holding thus:

WHEREFORE, Our decision dated April 12, 2005 is hereby AMENDED. [Herein respondent PNB] is hereby required to pay the
deficiency in the filing fees due on the petition for extra judicial foreclosure sale to be based on the actual amount of mortgage debts at
the time of filing thereof. In all other respects, Our decision subject of herein petitioners’] motion for reconsideration is hereby
AFFIRMED.18

Unflinching, petitioners elevated the case before this Court via the present Petition for Review essentially seeking the nullification of
the extrajudicial foreclosure of the mortgage constituted on the subject properties. Petitioners forward two reasons for declaring null
and void the said extrajudicial foreclosure: (1) the alleged defect or misrepresentation in the notice of sheriff’s sale; and/or (2) failure
of PNB to pay and tender the price of its bid or the surplus thereof to the sheriff.

Petitioners argue that since the Notice of Sheriff’s Sale stated that their obligation was only ₱1,991,770.38 and PNB bidded
₱8,511,000.00, the said Notice as well as the consequent sale of the subject properties were null and void.
It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and
that even slight deviations therefrom will invalidate the notice and render the sale at least voidable. 19 Nonetheless, we must not also
lose sight of the fact that the purpose of the publication of the Notice of Sheriff’s Sale is to inform all interested parties of the date,
time and place of the foreclosure sale of the real property subject thereof. Logically, this not only requires that the correct date, time
and place of the foreclosure sale appear in the notice, but also that any and all interested parties be able to determine that what is about
to be sold at the foreclosure sale is the real property in which they have an interest.20

Considering the purpose behind the Notice of Sheriff’s Sale, we disagree with the finding of the RTC that the discrepancy between the
amount of petitioners’ obligation as reflected in the Notice of Sale and the amount actually due and collected from the petitioners at
the time of the auction sale constitute fraud which renders the extrajudicial foreclosure sale null and void.

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained, immaterial
errors and mistakes will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes
or omissions will be fatal to the validity of the notice, and also to the sale made pursuant thereto. 21

All these considered, we are of the view that the Notice of Sale in this case is valid. Petitioners failed to convince this Court that the
difference between the amount stated in the Notice of Sale and the amount of PNB’s bid resulted in discouraging or misleading
bidders, depreciated the value of the property or prevented it from commanding a fair price.

The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals 22 refers to a Notice of Sheriff’s Sale
which did not state the correct number of the transfer certificates of title of the property to be sold. This Court considered the oversight
as a substantial and fatal error which resulted in invalidating the entire notice. The case of Community Savings and Loan Association,
Inc. v. Court of Appeals23 is also inapplicable, because the said case refers to an extrajudicial foreclosure tainted with fraud committed
by therein petitioners, which denied therein respondents the right to redeem the property. It actually has no reference to a Notice of
Sale.

We now proceed to the effect of the non-delivery by PNB of the bid price or the surplus to the petitioners.

The following antecedents are not disputed:

For failure to pay their loan obligation secured by a real estate mortgage on the subject properties, PNB foreclosed the said mortgage.
In its petition for foreclosure sale under ACT No. 3135 filed before the Mandaue City Sheriff, PNB stated therein that petitioners’
total outstanding obligation amounted to ₱1,991,770.38. 24 PNB bidded the amount of ₱8,511,000.00. Admittedly, PNB did not pay its
bid in cash or deliver the excess either to the City Sheriff who conducted the bid or to the petitioners after deducting the difference
between the amount of its bid and the amount of petitioners’ obligation in the Notice of Sale. The petitioners then sought to declare the
nullity of the foreclosure, alleging that their loan obligation amounted only to ₱1,991,770.38 in the Notice of Sale, and that PNB did
not pay its bid in cash or deliver to petitioner the surplus, which is required under the law. 25

On the other hand, PNB claims that petitioners’ loan obligation reflected in the Notice of Sale dated 10 March 1992 did not include
their other obligations, which became due at the date of the auction sale on 10 October 1992; as well as interests, penalties, other
charges, and attorney’s fees due on the said obligation.26

Pertinent provisions under Rule 39 of the Rules of Court on extrajudicial foreclosure sale provide:

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 his judgment. If it does, he shall pay only the excess. (Emphasis
supplied.)

SEC. 39. Obligor may pay execution against obligee. – After a writ of execution against property has been issued, a person indebted to
the judgment obligor may pay to the sheriff holding the writ of execution the amount of his debt or so much thereof as may be
necessary to satisfy the judgment, in the manner prescribed in section 9 of this Rule, and the sheriff’s receipt shall be a sufficient
discharge for the amount so paid or directed to be credited by the judgment obligee on the execution.

Conspicously emphasized under Section 21 of Rule 39 is that if the amount of the loan is equal to the amount of the bid, there is no
need to pay the amount in cash. Same provision mandates that in the absence of a third-party claim, the purchaser in an execution sale
need not pay his bid if it does not exceed the amount of the judgment; otherwise, he shall pay only the excess. 271avvphi1

The raison de etre is that it would obviously be senseless for the Sheriff or the Notary Public conducting the foreclosure sale to go
through the idle ceremony of receiving the money and paying it back to the creditor, under the truism that the lawmaking body did not
contemplate such a pointless application of the law in requiring that the creditor must bid under the same conditions as any other
bidder. It bears stressing that the rule holds true only where the amount of the bid represents the total amount of the mortgage debt. 28

The question that needs to be addressed in this case is: considering the amount of PNB’s bid of ₱8,511,000.00 as against the amount
of the petitioners’ obligation of ₱1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess?

Petitioners insist that the PNB should deliver the excess. On the other hand PNB counters that on the date of the auction sale on 30
October 1992, petitioners’ other loan obligation already exceeded the amount of ₱1,991,770.38 in the Notice of Sale.

Rule 68, Section 4 of the Rules of Court provides:

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.

Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows:

(a) first, pay the costs

(b) secondly, pay off the mortgage debt

(c) thirdly, pay the junior encumbrancers, if any in the order of priority

(d) fourthly, give the balance to the mortgagor, his agent or the person entitled to it.29

Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first mortgagee/senior mortgagee, the
claim of the second mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The application of the proceeds from the
sale of the mortgaged property to the mortgagor’s obligation is an act of payment, not payment by dacion; hence, it is the mortgagee’s
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.30

Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not
affect the validity of the sale but simply give the mortgagor a cause of action to recover such surplus. 31

In the case before us, PNB claims that petitioners’ loan obligations on the date of the auction sale were already more than the amount
of ₱1,991,770.38 in the Notice of Sale. In fact, PNB claims that on the date of the auction sale, petitioners’ principal obligation, plus
penalties, interests, attorneys fees and other charges were already beyond the amount of its bid of ₱8,511,000.00.

After a careful review of the evidence on record, we find that the same is insufficient to support PNB’s claim. Instead, what is
available on record is petitioner’s Statement of Account as prepared by PNB and attached as Annex A 32 to its Answer with
counterclaim.33 In this Statement of Account, petitioners’ principal obligation with interest/penalty and attorney’s fees as of 30
October 1992 already amounted to ₱6,409,814.92.

Although petitioners denied the amounts reflected in the Statement of Account from PNB, they did not interpose any defense to refute
the computations therein. Petitioners’ mere denials, far from being compelling, had nothing to offer by way of evidence. This then
enfeebles the foundation of petitioners’ protestation and will not suffice to overcome the computation of their loan obligations as
presented in the Statement of Account submitted by PNB.34

Noticeably, this Statement of Account is the only piece of evidence available before us from which we can determine the outstanding
obligations of petitioners to PNB as of the date of the auction sale on 10 October 1992.

It did not escape the attention of this Court that petitioners wrote a number of letters to PNB almost two years after the auction
sale,35 in which they offered to redeem the property. In their last letter, petitioners offered to redeem their foreclosed properties for
₱9,500,000.00. However, these letters by themselves cannot be used as bases to support PNB’s claim that petitioners’ obligation is
more than its bid of ₱8,500,000.00, without any other evidence. There was no computation presented to show how petitioners’
obligation already reached ₱9,500,000.00. Petitioners could very well have offered such an amount on the basis of the value of the
foreclosed properties rather than their total obligation to PNB. We cannot take petitioners’ offer to redeem their properties in the
amount of ₱9,500,000.00 on its face as an admission of the amount of their obligation to PNB without any supporting evidence.

Given that the Statement of Account from PNB, being the only existing documentary evidence to support its claim, shows that
petitioners’ loan obligations to PNB as of 30 October 1992 amounted to ₱6,409,814.92, and considering that the amount of PNB’s bid
is ₱8,511,000.00, there is clearly an excess in the bid price which PNB must return, together with the interest computed in accordance
with the guidelines laid down by the court in Eastern Shipping Lines v. Court of Appeals, 36 regarding the manner of computing legal
interest, viz:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the
 claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

In Philippine National Bank v. Court of Appeals,37 it was held that:

The rate of 12% interest referred to in Cir. 416 applies only to:

Loan or forbearance of money, or to cases where money is transferred from one person to another and the obligation to return the
same or a portion thereof is adjudged. Any other monetary judgment which does not involve or which has nothing to do with loans or
forbearance of any, money, goods or credit does not fall within its coverage for such imposition is not within the ambit of the authority
granted to the Central Bank. When an obligation not constituting a loan or forbearance of money is breached then an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209
of the Civil Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or forbearance of money,
hence the proper imposable rate of interest is six (6%) per cent.

Using the above rule as yardstick, since the responsibility of PNB arises not from a loan or forbearance of money which bears an
interest rate of 12%, the proper rate of interest for the amount which PNB must return to the petitioners is only 6%. This interest
according to Eastern Shipping shall be computed from the time of the filing of the complaint. However, once the judgment becomes
final and executory, the "interim period from the finality of judgment awarding a monetary claim and until payment thereof, is deemed
to be equivalent to a forbearance of credit." Thus, in accordance with the pronouncement in Eastern Shipping, the rate of 12% per
annum should be imposed, to be computed from the time the judgment becomes final and executory until fully satisfied.

It must be emphasized, however, that our holding in this case does not preclude PNB from proving and recovering in a proper
proceeding any deficiency in the amount of petitioners’ loan obligation that may have accrued after the date of the auction sale.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 12 April 2005 is MODIFIED in that the PNB is
directed to return to the petitioners the amount of ₱2,101,185.08 with interest computed at 6% per annum from the time of the filing of
the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate
shall be 12% per annum computed from the time the judgment became final and executory until fully satisfied. Costs against private
respondent.

SO ORDERED.

-Right to Possession

Act No. 3135, Secs. 7-9

Rules of Court, Rule 39, Secs. 33, 16

 Cua Lai Chu, et al. v. Lacqui & Philippine Bank of Communications, G. R. No. 169190, February 11, 2010, 612 SCRA 227

This is a petition for review1 of the 29 April 2005 and 4 August 2005 Resolutions2 of the Court of Appeals in CA-G.R. SP No. 88963.
In its 29 April 2005 Resolution, the Court of Appeals dismissed the petition for certiorari 3 of petitioner spouses Claro G. Castro and
Juanita Castro and petitioner Cua Lai Chu (petitioners). In its 4 August 2005 Resolution, the Court of Appeals denied petitioners’
motion for reconsideration.

The Facts

In November 1994, petitioners obtained a loan in the amount of ₱3,200,000 from private respondent Philippine Bank of
Communication. To secure the loan, petitioners executed in favor of private respondent a Deed of Real Estate Mortgage 4 over the
property of petitioner spouses covered by Transfer Certificate of Title No. 22990. In August 1997, petitioners executed an
Amendment to the Deed of Real Estate Mortgage 5 increasing the amount of the loan by ₱1,800,000, bringing the total loan amount to
₱5,000,000.

For failure of petitioners to pay the full amount of the outstanding loan upon demand, 6 private respondent applied for the extrajudicial
foreclosure of the real estate mortgage.7 Upon receipt of a notice8 of the extrajudicial foreclosure sale, petitioners filed a petition to
annul the extrajudicial foreclosure sale with a prayer for temporary restraining order (TRO). The petition for annulment was filed in
the Regional Trial Court of Quezon City and docketed as Q-02-46184.9

The extrajudicial foreclosure sale did not push through as originally scheduled because the trial court granted petitioners’ prayer for
TRO. The trial court subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29 May 2002. At the foreclosure sale,
private respondent emerged as the highest bidder. A certificate of sale 10 was executed on 4 June 2002 in favor of private respondent.
On 7 June 2002, the certificate of sale was annotated as Entry No. 185511 on TCT No. 22990 covering the foreclosed property.
After the lapse of the one-year redemption period, private respondent filed in the Registry of Deeds of Quezon City an affidavit of
consolidation to consolidate its ownership and title to the foreclosed property. Forthwith, on 8 July 2003, the Register of Deeds
cancelled TCT No. 22990 and issued in its stead TCT No. 25183512 in the name of private respondent.

On 18 August 2004, private respondent applied for the issuance of a writ of possession of the foreclosed property. 13 Petitioners filed an
opposition.14 The trial court granted private respondent’s motion for a declaration of general default and allowed private respondent to
present evidence ex parte. The trial court denied petitioners’ notice of appeal.

Undeterred, petitioners filed in the Court of Appeals a petition for certiorari. The appellate court dismissed the petition. It also denied
petitioners’ motion for reconsideration.

The Orders of the Trial Court

The 8 October 2004 Order15 granted private respondent’s motion for a declaration of general default and allowed private respondent to
present evidence ex parte. The 6 January 2005 Order16 denied petitioners’ motion for reconsideration of the prior order. The 24
February 2005 Order17 denied petitioners’ notice of appeal.

The Ruling of the Court of Appeals

The Court of Appeals dismissed on both procedural and substantive grounds the petition for certiorari filed by petitioners. The
appellate court noted that the counsel for petitioners failed to indicate in the petition the updated PTR Number, a ground for outright
dismissal of the petition under Bar Matter No. 1132. Ruling on the merits, the appellate court held that a proceeding for the issuance of
a writ of possession is ex parte in nature. As such, petitioners’ right to due process was not violated even if they were not given a
chance to file their opposition. The appellate court also ruled that there was no violation of the rule against forum shopping since the
application for the issuance of a writ of possession is not affected by a pending case questioning the validity of the extrajudicial
foreclosure sale.

The Issue

Petitioners raise the question of whether the writ of possession was properly issued despite the pendency of a case questioning the
validity of the extrajudicial foreclosure sale and despite the fact that petitioners were declared in default in the proceeding for the
issuance of a writ of possession.

The Court’s Ruling

The petition has no merit.

Petitioners contend they were denied due process of law when they were declared in default despite the fact that they had filed their
opposition to private respondent’s application for the issuance of a writ of possession. Further, petitioners point out that the issuance
of a writ of possession will deprive them not only of the use and possession of their property, but also of its ownership. Petitioners cite
Bustos v. Court of Appeals18 and Vda. De Legaspi v. Avendaño19 in asserting that physical possession of the property should not be
disturbed pending the final determination of the more substantial issue of ownership. Petitioners also allege forum shopping on the
ground that the application for the issuance of a writ of possession was filed during the pendency of a case questioning the validity of
the extrajudicial foreclosure sale.

Private respondent, on the other hand, maintains that the application for the issuance of a writ of possession in a foreclosure
proceeding is ex parte in nature. Hence, petitioners’ right to due process was not violated even if they were not given a chance to file
their opposition. Private respondent argues that the issuance of a writ of possession may not be stayed by a pending case questioning
the validity of the extrajudicial foreclosure sale. It contends that the former has no bearing on the latter; hence, there is no violation of
the rule against forum shopping. Private respondent asserts that there is no judicial determination involved in the issuance of a writ of
possession; thus, the same cannot be the subject of an appeal.

At the outset, we must point out that the authorities relied upon by petitioners are not in point and have no application here. In Bustos
v. Court of Appeals,20 the Court simply ruled that the issue of possession was intertwined with the issue of ownership in the
consolidated cases of unlawful detainer and accion reinvindicatoria. In Vda. De Legaspi v. Avendaño,21 the Court merely stated that in
a case of unlawful detainer, physical possession should not be disturbed pending the resolution of the issue of ownership. Neither case
involved the right to possession of a purchaser at an extrajudicial foreclosure of a mortgage.

Banco Filipino Savings and Mortgage Bank v. Pardo22 squarely ruled on the right to possession of a purchaser at an extrajudicial
foreclosure of a mortgage. This case involved a real estate mortgage as security for a loan obtained from a bank. Upon the mortgagor’s
default, the bank extrajudicially foreclosed the mortgage. At the auction sale, the bank was the highest bidder. A certificate of sale was
duly issued and registered. The bank then applied for the issuance of a writ of possession, which the lower court dismissed. The Court
reversed the lower court and held that the purchaser at the auction sale was entitled to a writ of possession pending the lapse of the
redemption period upon a simple motion and upon the posting of a bond.1avvphi1

In Navarra v. Court of Appeals, 23 the purchaser at an extrajudicial foreclosure sale applied for a writ of possession after the lapse of
the one-year redemption period. The Court ruled that the purchaser at an extrajudicial foreclosure sale has a right to the possession of
the property even during the one-year redemption period provided the purchaser files an indemnity bond. After the lapse of the said
period with no redemption having been made, that right becomes absolute and may be demanded by the purchaser even without the
posting of a bond. Possession may then be obtained under a writ which may be applied for ex parte pursuant to Section 7 of Act No.
3135,24 as amended by Act No. 4118,25 thus:
SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or
place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond
in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the
sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion x x x and the court shall, upon approval of the bond, order that a writ of possession
issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. (Emphasis
supplied)

In the present case, the certificate of sale of the foreclosed property was annotated on TCT No. 22990 on 7 June 2002. The redemption
period thus lapsed on 7 June 2003, one year from the registration of the sale. 26 When private respondent applied for the issuance of a
writ of possession on 18 August 2004, the redemption period had long lapsed. Since the foreclosed property was not redeemed within
one year from the registration of the extrajudicial foreclosure sale, private respondent had acquired an absolute right, as purchaser, to
the writ of possession. It had become the ministerial duty of the lower court to issue the writ of possession upon mere motion pursuant
to Section 7 of Act No. 3135, as amended.

Moreover, once ownership has been consolidated, the issuance of the writ of possession becomes a ministerial duty of the court, upon
proper application and proof of title.27 In the present case, when private respondent applied for the issuance of a writ of possession, it
presented a new transfer certificate of title issued in its name dated 8 July 2003. The right of private respondent to the possession of
the property was thus founded on its right of ownership. As the purchaser of the property at the foreclosure sale, in whose name title
over the property was already issued, the right of private respondent over the property had become absolute, vesting in it the corollary
right of possession.

Petitioners are wrong in insisting that they were denied due process of law when they were declared in default despite the fact that
they had filed their opposition to the issuance of a writ of possession. The application for the issuance of a writ of possession is in the
form of an ex parte motion. It issues as a matter of course once the requirements are fulfilled. No discretion is left to the court. 28

Petitioners cannot oppose or appeal the court’s order granting the writ of possession in an ex parte proceeding. The remedy of
petitioners is to have the sale set aside and the writ of possession cancelled in accordance with Section 8 of Act No. 3135, as amended,
to wit:

SEC. 8. 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 cancelled, specifying the damages suffered by him,
because the mortgage was not violated or the sale was not made in accordance with the provisions hereof. x x x

Any question regarding the validity of the extrajudicial foreclosure sale and the resulting cancellation of the writ may be determined in
a subsequent proceeding as outlined in Section 8 of Act No. 3135, as amended. Such question should not be raised as a justification
for opposing the issuance of a writ of possession since under Act No. 3135, as amended, the proceeding for this is ex parte.

Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is not affected by a pending case questioning the
validity of the foreclosure proceeding. The latter is not a bar to the former. Even pending such latter proceeding, the purchaser at a
foreclosure sale is entitled to the possession of the foreclosed property. 29

Lastly, we rule that petitioners’ claim of forum shopping has no basis. Under Act No. 3135, as amended, a writ of possession is issued
ex parte as a matter of course upon compliance with the requirements. It is not a judgment on the merits that can amount to res
judicata, one of the essential elements in forum shopping.30

The Court of Appeals correctly dismissed the petition for certiorari filed by petitioners for lack of merit.

WHEREFORE, we DENY the petition for review. We AFFIRM the 29 April 2005 and 4 August 2005 Resolutions of the Court of
Appeals in CA-G.R. SP No. 88963.

SO ORDERED.

 Spouses tolosa v. United Coconut Planters Bank, G. R. No. 183058, April 3, 2013, 695 SCRA 138

Before the Court is the petition for review on certiorari, 1 filed by Donna C. Nagtalon (petitioner), assailing the decision 2 dated
September 23, 2005 and the resolution3 dated April 21;2006 of the Court of Appeals (CA) in CA-G.R. SP No. 82631. The CA
reversed and set aside the orders 4 dated November 3, 2003 and December 19, 2003 of the Regional Trial Court (RTC), Kalibo, Aklan,
Branch 5, in CAD Case No. 2895.

The Factual Antecedents

Roman Nagtalon and the petitioner (Spouses Nagtalon) entered into a credit accommodation agreement (credit agreement) with
respondent United Coconut Planters Bank. In order to secure the credit agreement, Spouses Nagtalon, together with the Spouses
Vicente and Rosita Lao, executed deeds of real estate mortgage over several properties in Kalibo, Aklan. After the Spouses Nagtalon
failed to abide and comply with the terms and conditions Officio Provincial Sheriff a verified petition 5 for extrajudicial foreclosure of
the mortgage, pursuant to Act 3135, as amended.6

The mortgaged properties were consequently foreclosed and sold at public auction for the sum of ₱3,215,880.30 to the respondent
which emerged as the sole and highest bidder. After the issuance of the sheriff’s certificate of sale, the respondent caused the entry of
the sale in the records of the Registry of Deeds of Kalibo, Aklan and its annotation on the transfer certificates of titles (TCTs) on
January 6, 1999.7 With the lapse of the one year redemption period and the petitioner’s failure to exercise her right to redeem the
foreclosed properties, the respondent consolidated the ownership over the properties, resulting in the cancellation of the titles in the
name of the petitioner and the issuance of TCTs in the name of the respondent, to wit: (a) TCT No. T-29470; (b) TCT No. T-29472;
(c) TCT No. T-29471; (d) TCT No. T-29469; (e) TCT No. T-29474; (f) TCT No. T-29475; and (g) TCT No. T-29473. 8 The new TCTs
were registered with the Register of Deeds of Kalibo, Aklan on April 28, 2000.9

On April 30, 2003, the respondent filed an ex parte petition for the issuance of a writ of possession with the RTC, docketed as CAD
Case No. 2895. In the petition, the respondent alleged that it had been issued the corresponding TCTs to the properties it purchased,
and has the right to acquire the possession of the subject properties as the current registered owner of these properties.

The petitioner opposed the petition, citing mainly the pendency of Civil Case No. 6602 10 (for declaration of nullity of foreclosure,
fixing of true indebtedness, redemption, damages and injunction with temporary restraining order) still pending with the RTC. In this
civil case, the petitioner challenged the alleged nullity of the provisions in the credit agreement, particularly the rate of interest in the
promissory notes. She also sought the nullification of the foreclosure and the sale that followed. To the petitioner, the issuance of a
writ of possession was no longer a ministerial duty on the part of the court in view of the pendency of the case.

The RTC Ruling

On November 3, 2003, the RTC issued an order, 11 holding in abeyance the issuance of the writ of possession of the properties covered
by TCT Nos. T-29470, T-29472, T-29471, T-29469 and T-29474 on the ground of prematurity. The RTC ruled that due to the
pendency of Civil Case No. 6602 — where the issue on nullity of the credit agreement and foreclosure have yet to be resolved — the
obligation of the court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage property ceases to be
ministerial.

The respondent filed a motion for reconsideration, but the RTC denied the motion, citing equitable grounds and substantial justice as
reasons.12

The respondent then filed a petition for certiorari13 with the CA.

The CA Ruling

In its September 23, 2005 decision,14 the CA reversed and set aside the RTC orders, noting that while it is the ministerial duty of the
court to issue a writ of possession after the lapse of the one-year period of redemption, the rule admits of exceptions and the present
case at bar was not one of them.

The CA held that equitable and peculiar circumstances must first be shown to exist before the issuance of a writ of possession may be
deferred. The CA then ruled that the petitioner failed to prove that these equitable circumstances are present in this case, citing for this
purpose the ruling in Vaca v. Court of Appeals. 15 Based on the Vaca ruling, the CA ordered the RTC to issue the corresponding writ of
possession.

The Petition

The petitioner submits that the CA erred in its findings; the equitable circumstances present in the case fully justified the RTC’s
order16 to hold in abeyance the issuance of the writ of possession. The petitioner contends that the RTC found prima facie merit in the
allegations in Civil Case No. 6602 that the foreclosure and the mortgage were void. The petitioner adds that the CA’s reliance on the
Vaca case, in support of its decision, is misplaced because no peculiar circumstances were present in this cited case which are
applicable to the present case.

The petitioner lastly maintains that the CA decision violated her constitutional right to due process of law, as it deprived her of the
possession of her properties without the opportunity of hearing.

The Case for the Respondent

The respondent essentially echoes the pronouncement of this Court in the Vaca case that the CA adopted and maintains that: (1) the
pendency of a civil case challenging the validity of the mortgage cannot bar the issuance of the writ of possession because such
issuance is a ministerial act; (2) the peculiar and equitable circumstances, which would justify an exception to the rule, are not present
in the present case; and (3) contrary to the allegation of the petitioner, it is the respondent who was deprived of possession of the
properties due to the petitioner’s persistent efforts to frustrate the respondent’s claim.

The Issue

The case presents to us the issue of whether the pendency of a civil case challenging the validity of the credit agreement, the
promissory notes and the mortgage can bar the issuance of a writ of possession after the foreclosure and sale of the mortgaged
properties and the lapse of the one-year redemption period.

Our Ruling

We see no merit in the petition, and rule that the CA did not commit any reversible error in the assailed decision.

The issuance of a writ of possession is a ministerial function of the court

The issue this Court is mainly called upon to resolve is far from novel; jurisprudence is replete with cases holding that the issuance of
a writ of possession to a purchaser in a public auction is a ministerial function of the court, which cannot be enjoined or restrained,
even by the filing of a civil case for the declaration of nullity of the foreclosure and consequent auction sale.

We have long recognized the rule that once title to the property has been consolidated in the buyer’s name upon failure of the
mortgagor to redeem the property within the one-year redemption period, the writ of possession becomes a matter of right belonging
to the buyer. Consequently, the buyer can demand possession of the property at anytime. Its right to possession has then ripened into
the right of a confirmed absolute owner 17 and the issuance of the writ becomes a ministerial function that does not admit of the
exercise of the court’s discretion.18 The court, acting on an application for its issuance, should issue the writ as a matter of course and
without any delay.

The right to the issuance of a writ of possession is outlined in Sections 6 and 7 of Act 3135, as amended by Act 4118, to wit:

Sec. 6. In all cases in which an extrajudicial sale is made x x x, the debtor, his successors in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which
the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

Sec 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place
where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under
oath and filed in form of an ex parte motion x x x and the court shall, upon approval of the bond, order that a writ of possession issue,
addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. [emphasis and
underscore ours]

In Spouses Ruben and Violeta Sagun v. Philippine Bank of Communications and Court of Appeals, 19 the Court laid down the
established rule on the issuance of a writ of possession, pursuant to Act 3135, as amended. The Court said that a writ of possession
may be issued either (1) within the one-year redemption period, upon the filing of a bond, or (2) after the lapse of the redemption
period, without need of a bond.

During the one-year redemption period, as contemplated by Section 7 of the above-mentioned law, a purchaser may apply for a writ of
possession by filing an ex parte motion under oath in the registration or cadastral proceedings if the property is registered, or in special
proceedings in case the property is registered under the Mortgage Law. In this case, a bond is required before the court may issue a
writ of possession.

On the other hand, upon the lapse of the redemption period, a writ of possession may be issued in favor of the purchaser in a
foreclosure sale, also upon a proper ex parte motion. This time, no bond is necessary for its issuance; the mortgagor is now considered
to have lost any interest over the foreclosed property. 20 The purchaser then becomes the owner of the foreclosed property, and he can
demand possession at any time following the consolidation of ownership of the property and the issuance of the corresponding TCT in
his/her name. It is at this point that the right of possession of the purchaser can be considered to have ripened into the absolute right of
a confirmed owner. The issuance of the writ, upon proper application, is a ministerial function that effectively forbids the exercise by
the court of any discretion. This second scenario is governed by Section 6 of Act 3135, in relation to Section 35, Rule 39 of the
Revised Rules of Court.21

The correctness of the issuance of the writ in the second scenario is strengthened by the fact that after the consolidation of ownership
and issuance of titles to the purchaser, the latter’s right to possession not only finds support in Section 7 of Act 3135, but also on its
right to possession as an incident of ownership.22 The Court, in Espinoza v. United Overseas Bank Philippines, 23 noted that the basis of
the right to possession is the purchaser’s ownership of the property.

Moreover, if the court has the ministerial power to issue a writ of possession even during the redemption period, upon proper motion
and posting of the required bond, as clearly provided by Section 7 of Act 3135, then with more reason should the court issue the writ
of possession after the expiration of the redemption period, as the purchaser has already acquired an absolute right to possession on the
basis of his ownership of the property.24 The right to possess a property follows ownership.25

Based on these rulings, we find it clear that the law directs in express terms that the court issue a writ of possession without delay to
the purchaser after the latter has consolidated ownership and has been issued a new TCT over the property. The law then does not
provide any room for discretion as the issuance has become a mere ministerial function of the court.

The petitioner resists the above views with the argument that the nullity of the loan documents due to the unilateral fixing of the
interest and her failure to receive the proceeds of the loan, among others, are peculiar circumstances that would necessitate the
deferment of the issuance of the writ of possession. These are the same arguments the petitioner propounded in the civil case she filed
to question the nullity of the foreclosure.

We do not find the argument convincing.

Pendency of a civil case questioning the

mortgage and foreclosure not a bar to
the issuance of a writ of execution
The petitioner’s submitted arguments on the presence of peculiar and equitable circumstances are of no moment. These peculiar
circumstances are nothing but mere allegations raised by the petitioner in support of her complaint for annulment of mortgage and
foreclosure. We have ruled in the past that any question regarding the validity of the mortgage or its foreclosure is not a legal ground
for refusing the issuance of a writ of execution/writ of possession.26

In the case of Spouses Montano T. Tolosa and Merlinda Tolosa v. United Coconut Planters Bank, 27 a case closely similar to the
present petition, the Court explained that a pending action for annulment of mortgage or foreclosure (where the nullity of the loan
documents and mortgage had been alleged) does not stay the issuance of a writ of possession. It reiterated the well-established rule
that as a ministerial function of the court, the judge need not look into the validity of the mortgage or the manner of its foreclosure, as
these are the questions that should be properly decided by a court of competent jurisdiction in the pending case filed before it. It added
that questions on the regularity and the validity of the mortgage and foreclosure cannot be invoked as justification for opposing the
issuance of a writ of possession in favor of the new owner.

In the cited case, the petitioner, in opposition to the respondent’s ex parte application for a writ of possession, likewise pointed to the
prima facie merit of the allegations in her complaint for annulment of mortgage, foreclosure and sale. She alleged that the apparent
nullity of the mortgage obligation and the sale of the properties justify, at the very least, the deferment of the issuance of the writ of
possession.

We pointedly ruled in this cited case that no reason existed to depart from our previous pronouncements. That the issuance of a writ of
possession remains a ministerial duty of the court until the issues raised in the civil case for annulment of mortgage and/or foreclosure
are decided by a court of competent jurisdiction 28 has long been settled. While conceding that the general rule on the ministerial duty
of the courts to issue a writ of possession is not without exceptions, the Court was quick to add that the Tolosa case 29 does not fall
under the exceptions.

Exceptions to the rule that issuance of a writ

of possession is a ministerial function

A review of the Court’s ruling in the Tolosa case would reveal a discussion of the few jurisprudential exceptions worth reiterating.

(1)Gross inadequacy of purchase price

In Cometa v. Intermediate Appellate Court 30 which involved an execution sale, the court took exception to the general rule in view of
the unusually lower price (₱57,396.85 in contrast to its true value of ₱500,000.00) for which the subject property was sold at public
auction. The Court perceived that injustice could result in issuing a writ of possession under the given factual scenario and upheld the
deferment of the issuance of the writ.

(2)Third party claiming right adverse to debtor/mortgagor

In Barican v. Intermediate Appellate Court, 31 consistent with Section 35, Rule 39 of the Rules of Court, the Court held that the
obligation of a court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage case ceases to be ministerial
when a third-party in possession of the property claims a right adverse to that of the debtor-mortgagor. In this case, there was a
pending civil suit involving the rights of third parties who claimed ownership over the disputed property. The Court found the
circumstances to be peculiar, necessitating an exception to the general rule. It thus ruled that where such third party claim and
possession exist, the trial court should conduct a hearing to determine the nature of the adverse possession.

(3) Failure to pay the surplus proceeds of the sale to mortgagor

We also deemed it proper to defer the issuance of a writ in Sulit v. Court of Appeals 32 in light of the given facts, particularly the
mortgagee’s failure to return to the mortgagor the surplus from the proceeds of the sale (equivalent to an excess of approximately 40%
of the total mortgage debt). We ruled that equitable considerations demanded the deferment of the issuance of the writ as it would be
highly unfair and iniquitous for the mortgagor, who as a redemptioner might choose to redeem the foreclosed property, to pay the
equivalent amount of the bid clearly in excess of the total mortgage debt.

We stress that the petitioner’s present case is not analogous to any of the above-mentioned exceptions. The facts are not only different
from those cited above; the alleged peculiar circumstances pertain to the validity of the mortgage, a matter that may be determined by
a competent court after the issuance of the writ of possession.33

In these lights, we hold that the CA correctly ruled that the present case does not present peculiar circumstances that would merit an
exception from the well-entrenched rule on the issuance of the writ.

Petitioner was accorded due process

The petitioner lastly argues that the issuance of a writ of possession, despite its "prima-facie meritorious claim of nullity of loan and
mortgage,"34 constitutes a violation of her constitutional right to due process of law.

The petitioner’s contention is unmeritorious. We note that the ex parte petition for the issuance of a writ of possession under Sections
6 and 7 of Act 3135 is not, strictly speaking, a "judicial process." As discussed in Idolor v. Court of appeals, 35 it is not an ordinary suit
by which one party "sues another for the enforcement of a wrong or protection of a right, or the prevention or redress of a
wrong."36 Being ex parte, it is a non-litigious proceeding where the relief is granted without requiring an opportunity for the person
against whom the relief is sought to be heard.
That the petitioner would or could be denied due process if the writ of possession would be issued before she is given the opportunity
to be heard on her prima facie defense of nullity of the loan and mortgage is clearly out of the question. The law does not require that
the writ of possession be granted only after the issues raised in a civil case on nullity of the loan and mortgage are resolved and
decided with finality. To do so would completely defeat the purpose of an ex parte petition under Sections 6 and 7 of Act 3135 that, by
its nature, should be summary; we stress that it would render nugatory the right given to a purchaser to acquire possession of the
property after the expiration of the redemption period.

At any rate, the petitioner is not left without a remedy as the same law provides the mortgagor the right to petition for the nullification
of the sale and the cancellation of the writ of possession under Section 8 of Act. No. 3135, which remedy the petitioner was aware of.
In her petition for review, she averred that "the said Act 3135 x x x does not however prohibit or negate the filing of a separate civil
case for the nullification of loan indebtedness x x x or x x x mortgage contract." 37 Thus, she cannot claim that she has been denied of
due process merely on the basis of the ex parte nature of the respondent's petition.

WHEREFORE, all premises considered, the instant petition is DENIED for lack of merit. Accordingly, the decision dated September
23, 2005 and the resolution dated April 21, 2006 of the Court of Appeals in CA-G.R. SP No. 82631 are AFIRMED in toto.

SO ORDERED.

 BPI Family Savings Bank, Inc. v. Golden Power Diesel Sales Center, Inc., G. R. No. 176019, January 12, 2011, 639 SCRA
405

This is a petition for review1 of the 13 March 2006 Decision2 and 19 December 2006 Resolution3 of the Court of Appeals in CA-G.R.
SP No. 78626. In its 13 March 2006 Decision, the Court of Appeals denied petitioner BPI Family Savings Bank, Inc.ʼs (BPI Family)
petition for mandamus and certiorari. In its 19 December 2006 Resolution, the Court of Appeals denied BPI Familyʼs motion for
reconsideration.

The Facts

On 26 October 1994, CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of land covered by Transfer Certificate of Title (TCT)
Nos. 134327 and 134328 situated in Malibay, Pasay City, including all the improvements thereon (properties), in favor of BPI Family
to secure a loan of ₱6,570,000. On the same day, the mortgage was duly annotated on the titles under Entry No. 94-2878. On 5 April
and 27 November 1995, CEDEC obtained from BPI Family additional loans of ₱2,160,000 and ₱1,140,000, respectively, and again
mortgaged the same properties. These latter mortgages were duly annotated on the titles under Entry Nos. 95-6861 and 95-11041,
respectively, on the same day the loans were obtained.

Despite demand, CEDEC defaulted in its mortgage obligations. On 12 October 1998, BPI Family filed with the ex-officio sheriff of
the Regional Trial Court of Pasay City (RTC) a verified petition for extrajudicial foreclosure of real estate mortgage over the
properties under Act No. 3135, as amended.4

On 10 December 1998, after due notice and publication, the sheriff sold the properties at public auction. BPI Family, as the highest
bidder, acquired the properties for ₱13,793,705.31. On 14 May 1999, the Certificate of Sheriffʼs Sale, dated 24 February 1999, was
duly annotated on the titles covering the properties.

On 15 May 1999, the one-year redemption period expired without CEDEC redeeming the properties. Thus, the titles to the properties
were consolidated in the name of BPI Family. On 13 September 2000, the Registry of Deeds of Pasay City issued new titles, TCT
Nos. 142935 and 142936, in the name of BPI Family.

However, despite several demand letters, CEDEC refused to vacate the properties and to surrender possession to BPI Family. On 31
January 2002, BPI Family filed an Ex-Parte Petition for Writ of Possession over the properties with Branch 114 of the Regional Trial
Court of Pasay City (trial court). In its 27 June 2002 Decision, the trial court granted BPI Familyʼs petition. 5 On 12 July 2002, the trial
court issued the Writ of Possession.

On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. and Renato C. Tan 6 (respondents) filed a Motion to Hold
Implementation of the Writ of Possession.7 Respondents alleged that they are in possession of the properties which they acquired from
CEDEC on 10 September 1998 pursuant to the Deed of Absolute Sale with Assumption of Mortgage (Deed of Sale). 8 Respondents
argued that they are third persons claiming rights adverse to CEDEC, the judgment obligor and they cannot be deprived of possession
over the properties. Respondents also disclosed that they filed a complaint before Branch 111 of the Regional Trial Court of Pasay
City, docketed as Civil Case No. 99-0360, for the cancellation of the Sheriffʼs Certificate of Sale and an order to direct BPI Family to
honor and accept the Deed of Absolute Sale between CEDEC and respondents.9

On 12 September 2002, the trial court denied respondents’ motion. 10 Thereafter, the trial court issued an alias writ of possession which
was served upon CEDEC and all other persons claiming rights under them.

However, the writ of possession expired without being implemented. On 22 January 2003, BPI Family filed an Urgent Ex-Parte
Motion to Order the Honorable Branch Clerk of Court to Issue Alias Writ of Possession. In an Order dated 27 January 2003, the trial
court granted BPI Familyʼs motion.

Before the alias writ could be implemented, respondent Renato C. Tan filed with the trial court an Affidavit of Third Party Claim 11 on
the properties. Instead of implementing the writ, the sheriff referred the matter to the trial court for resolution.
On 11 February 2003, BPI Family filed an Urgent Motion to Compel Honorable Sheriff and/or his Deputy to Enforce Writ of
Possession and to Break Open the properties. In its 7 March 2003 Resolution, the trial court denied BPI Familyʼs motion and ordered
the sheriff to suspend the implementation of the alias writ of possession. 12 According to the trial court, "the order granting the alias
writ of possession should not affect third persons holding adverse rights to the judgment obligor." The trial court admitted that in
issuing the first writ of possession it failed to take into consideration respondents’ complaint before Branch 111 claiming ownership of
the property. The trial court also noted that respondents were in actual possession of the properties and had been updating the payment
of CEDECʼs loan balances with BPI Family. Thus, the trial court found it necessary to amend its 12 September 2002 Order and
suspend the implementation of the writ of possession until Civil Case No. 99-0360 is resolved.

BPI Family filed a motion for reconsideration. In its 20 June 2003 Resolution, the trial court denied the motion. 13

BPI Family then filed a petition for mandamus and certiorari with application for a temporary restraining order or preliminary
injunction before the Court of Appeals. BPI Family argued that the trial court acted with grave abuse of discretion amounting to lack
or excess of jurisdiction when it ordered the suspension of the implementation of the alias writ of possession. According to BPI
Family, it was the ministerial duty of the trial court to grant the writ of possession in its favor considering that it was now the owner of
the properties and that once issued, the writ should be implemented without delay.

The Court of Appeals dismissed BPI Familyʼs petition. The dispositive portion of the 13 March 2006 Decision reads:

WHEREFORE, the instant Petition for Writ of Mandamus and Writ of Certiorari with Application for a TRO and/or Preliminary
Injunction is hereby DENIED. The twin Resolutions dated March 7, 2003 and June 20, 2003, both issued by the public respondent in
LRC Case No. 02-0003, ordering the sheriff to suspend the implementation of the Alias Writ of Possession issued in favor of the
petitioner, and denying its Urgent Omnibus Motion thereof, respectively, are hereby AFFIRMED.

SO ORDERED.14

BPI Family filed a motion for reconsideration. In its 19 December 2006 Resolution, the Court of Appeals denied the motion.

The Ruling of the Court of Appeals

The Court of Appeals ruled that the trial court did not commit grave abuse of discretion in suspending the implementation of the alias
writ of possession because respondents were in actual possession of the properties and are claiming rights adverse to CEDEC, the
judgment obligor. According to the Court of Appeals, the principle that the implementation of the writ of possession is a mere
ministerial function of the trial court is not without exception. The Court of Appeals held that the obligation of the court to issue an  ex
parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there
is a third party in possession of the property who is claiming a right adverse to that of the debtor or mortgagor.

The Issues

BPI Family raises the following issues:

A.

The Honorable Court of Appeals seriously erred in upholding the finding of the Honorable Regional Trial Court that despite the fact
that private respondents merely stepped into the shoes of mortgagor CEDEC, being the vendee of the properties in question, they are
categorized as third persons in possession thereof who are claiming a right adverse to that of the debtor/mortgagor CEDEC.

B.

The Honorable Court of Appeals gravely erred in sustaining the aforementioned twin orders suspending the implementation of the writ
of possession on the ground that the annulment case filed by private respondents is still pending despite the established ruling that
pendency of a case questioning the legality of a mortgage or auction sale cannot be a ground for the non-issuance and/or non-
implementation of a writ of possession.15

The Ruling of the Court

The petition is meritorious.

BPI Family argues that respondents cannot be considered "a third party who is claiming a right adverse to that of the debtor or
mortgagor" because respondents, as vendee, merely stepped into the shoes of CEDEC, the vendor and judgment obligor. According to
BPI Family, respondents are mere extensions or successors-in-interest of CEDEC. BPI Family also argues that the pendency of an
action questioning the validity of a mortgage or auction sale cannot be a ground to oppose the implementation of a writ of possession.

On the other hand, respondents insist that they are third persons who claim rights over the properties adverse to CEDEC. Respondents
argue that the obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure
sale ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to
that of the judgment obligor.

In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of possession is governed by Section 7 of Act No. 3135, as
amended, which provides:
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance (Regional
Trial Court) of the province or place where the property or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this
Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the
property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one
hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the
office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and
ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order
that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order
immediately.

This procedure may also be availed of by the purchaser seeking possession of the foreclosed property bought at the public auction sale
after the redemption period has expired without redemption having been made.16

In China Banking Corporation v. Lozada,17 we ruled:

It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during
the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it
at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The
buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance
with Section 7 of Act No. 3135, as amended. No such bond is required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner. Upon proper
application and proof of title, the issuance of the writ of possession becomes a ministerial duty of the court .18 (Emphasis
supplied)

Thus, the general rule is that a purchaser in a public auction sale of a foreclosed property is entitled to a writ of possession and, upon
an ex parte petition of the purchaser, it is ministerial upon the trial court to issue the writ of possession in favor of the purchaser.

There is, however, an exception. Section 33, Rule 39 of the Rules of Court provides:

Section 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. - x x x

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title,
interest and claim of the judgment obligor to the property as of the time of the levy. The possession of the property shall be given to
the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the
judgment obligor. (Emphasis supplied)

Therefore, in an extrajudicial foreclosure of real property, when the foreclosed property is in the possession of a third party holding
the same adversely to the judgment obligor, the issuance by the trial court of a writ of possession in favor of the purchaser of said real
property ceases to be ministerial and may no longer be done ex parte.19 The procedure is for the trial court to order a hearing to
determine the nature of the adverse possession. 20 For the exception to apply, however, the property need not only be possessed by a
third party, but also held by the third party adversely to the judgment obligor.

In this case, BPI Family invokes the general rule that they are entitled to a writ of possession because respondents are mere
successors-in-interest of CEDEC and do not possess the properties adversely to CEDEC. Respondents, on the other hand, assert the
exception and insist that they hold the properties adversely to CEDEC and that their possession is a sufficient obstacle to the ex
parte issuance of a writ of possession in favor of BPI Family.

Respondentsʼ argument fails to persuade the Court. It is clear that respondents acquired possession over the properties pursuant to the
Deed of Sale which provides that for ₱15,000,000 CEDEC will "sell, transfer and convey" to respondents the properties "free from all
liens and encumbrances excepting the mortgage as may be subsisting in favor of the BPI FAMILY SAVINGS BANK." 21 Moreover,
the Deed of Sale provides that respondents bind themselves to assume "the payment of the unpaid balance of the mortgage
indebtedness of the VENDOR (CEDEC) amounting to ₱7,889,472.48, as of July 31, 1998, in favor of the aforementioned mortgagee
(BPI Family) by the mortgage instruments and does hereby further agree to be bound by the precise terms and conditions therein
contained."22

In Roxas v. Buan,23 we ruled:

It will be recalled that Roxasʼ possession of the property was premised on its alleged sale to him by Valentin for the amount of
₱100,000.00. Assuming this to be true, it is readily apparent that Roxas holds title to and possesses the property as Valentinʼs
transferee. Any right he has to the property is necessarily derived from that of Valentin. As transferee, he steps into the latterʼs shoes.
Thus, in the instant case, considering that the property had already been sold at public auction pursuant to an extrajudicial foreclosure,
the only interest that may be transferred by Valentin to Roxas is the right to redeem it within the period prescribed by law. Roxas is
therefore the successor-in-interest of Valentin, to whom the latter had conveyed his interest in the property for the purpose of
redemption. Consequently, Roxasʼ occupancy of the property cannot be considered adverse to Valentin. 24

In this case, respondentsʼ possession of the properties was premised on the sale to them by CEDEC for the amount of P15,000,000.
Therefore, respondents hold title to and possess the properties as CEDECʼs transferees and any right they have over the properties is
derived from CEDEC. As transferees of CEDEC, respondents merely stepped into CEDEC’s shoes and are necessarily bound to
acknowledge and respect the mortgage CEDEC had earlier executed in favor of BPI Family. 25 Respondents are the successors-in-
interest of CEDEC and thus, respondentsʼ occupancy over the properties cannot be considered adverse to CEDEC.

Moreover, in China Bank v. Lozada,26 we discussed the meaning of "a third party who is actually holding the property adversely to the
judgment obligor." We stated:

The exception provided under Section 33 of Rule 39 of the Revised Rules of Court contemplates a situation in which a third party
holds the property by adverse title or right, such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural tenant, and
usufructuary possess the property in their own right, and they are not merely the successor or transferee of the right of possession of
another co-owner or the owner of the property.27

In this case, respondents cannot claim that their right to possession over the properties is analogous to any of
these.1avvphi1 Respondents cannot assert that their right of possession is adverse to that of CEDEC when they have no independent
right of possession other than what they acquired from CEDEC. Since respondents are not holding the properties adversely to
CEDEC, being the latterʼs successors-in-interest, there was no reason for the trial court to order the suspension of the implementation
of the writ of possession.

Furthermore, it is settled that a pending action for annulment of mortgage or foreclosure sale does not stay the issuance of the writ of
possession.28 The trial court, where the application for a writ of possession is filed, does not need to look into the validity of the
mortgage or the manner of its foreclosure. 29 The purchaser is entitled to a writ of possession without prejudice to the outcome of the
pending annulment case.30

In this case, the trial court erred in issuing its 7 March 2003 Order suspending the implementation of the alias writ of possession.
Despite the pendency of Civil Case No. 99-0360, the trial court should not have ordered the sheriff to suspend the implementation of
the writ of possession. BPI Family, as purchaser in the foreclosure sale, is entitled to a writ of possession without prejudice to the
outcome of Civil Case No. 99-0360.

WHEREFORE, we GRANT the petition. We SET ASIDE the 13 March 2006 Decision and the 19 December 2006 Resolution of
the Court of Appeals in CA-G.R. SP No. 78626. We SET ASIDE the 7 March and 20 June 2003 Resolutions of the Regional Trial
Court, Branch 114, Pasay City. We ORDER the sheriff to proceed with the implementation of the writ of possession without
prejudice to the outcome of Civil Case No. 99-0360.

SO ORDERED.