CREDIT TRANSACTIONS_CASES_REAL ESTATE MORTGAGE

G.R. No. 150197 July 28, 2005

PRUDENTIAL BANK, Petitioner,
vs.
DON A. ALVIAR and GEORGIA B. ALVIAR, Respondents.

DECISION

Tinga, J.:

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 ₱250,000.00.2 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
(₱250,000.00) 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
₱2,640,000.00, 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 ₱545,000.000. 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 ₱545,000.00, the proceeds of which shall be used to liquidate the outstanding
loan of ₱545,000.00 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 ₱2,000,000.00, 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
₱450,000.00 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 ₱1,608,256.68, covering the three (3) promissory notes, to wit: PN BD#75/C-252 for
₱250,000.00, PN BD#76/C-345 for ₱382,680.83, and PN BD#76/C-340 for ₱545,000.00, 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 ₱2,000,000.00 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 ₱250,000.00 loan is secured by the
mortgage on the land covered by TCT No. 438157. On the other hand, the ₱382,680.83 loan is
secured by the foreign currency deposit account of Don A. Alviar, while the ₱545,000.00
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 ₱250,000.00.

II. The trial court erred in holding that the promissory note BD#76/C-345 for ₱2,640,000.00
(₱382,680.83 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 ₱545,000.00 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 ₱20,000.00.16
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 ₱250,000.00 covered
by PN BD#75/C-252 since the payment of ₱2,000,000.00 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 ₱250,000.00 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 (₱250,000.00) 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 ₱250,000.00 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
₱250,000.00 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 ₱250,000.00, and gave no credence to their claim that they
paid the said amount when they paid petitioner ₱2,000,000.00. Thus, the mortgaged property
could still be properly subjected to foreclosure proceedings for the unpaid ₱250,000.00 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.

SO ORDERED.
G.R. No. L-17500             May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF
MANILA, plaintiffs-appellants,
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION
and CONNELL BROS. CO. (PHIL.), defendants-appellants.

Angel S. Gamboa for defendants-appellants.

Laurel Law Offices for plaintiffs-appellants.

DIZON, J.:

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.
G.R. No. 138292            April 10, 2002

KOREA EXCHANGE BANK, petitioner,

vs.
FILKOR BUSINESS INTEGRATED, INC., KIM EUNG JOE, and LEE HAN
SANG, respondents.

QUISUMBING, J.:

This petition assails the order dated April 16, 1999 of the Regional Trial Court of Cavite City,
1 

Branch 88, in Civil Case No. N-6689. Said order denied petitioner's partial motion for
reconsideration of the trial court's order dated March 12, 1999 whereby respondents were ordered
2 

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.

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. Respondents Kim Eung Joe and Lee Han Sang also executed Continuing
6 

Suretyships binding themselves jointly and severally with respondent Filkor to pay for the
latter's obligations to petitioner.7

As Filkor failed to make good on their obligations, Korex filed Civil Case No. N-6689 in the
Regional Trial Court of Cavite City, docketed as "Korea Exchange Bank vs. Filkor Business
Integrated, Inc." In its complaint, Korex Bank 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

Korex Bank 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 Korex Bank’s
motion, reasoning as follows:

xxx
It appears that the only reason Filkor 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 Korex Bank 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 Korex Bank is entitled to a summary of judgment as a matter
of law, hereby renders judgment for the Filkor and against the Korex Bank, ordering said Filkor et
al jointly and severally to pay Korex Bank as follows…9

The trial court then rendered judgment in favor of Korex Bank, 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.

Korex Bank 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:

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 vs. Court of Appeals, 154 SCRA 446,
citing Manila Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448, where the Supreme Court
ruled that:

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.

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:

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. 5906-1 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:

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. The dates of the obligations secured by the mortgage and the
13 

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:

WHEREFORE, it is respectfully prayed that judgment be rendered:

xxx

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.

xxx 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. In addition, we find no indication whatsoever that
16 

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.

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:

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. (Italics 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. As the present appeal
17 

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:

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. (Italics 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.

SO ORDERED.

G.R. No. 128567             September 1, 2000

HUERTA ALBA RESORT INC., petitioner,

vs.
COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP INC., respondents.

PURISIMA, J.:

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.
 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."

The Facts

The facts that matter are undisputed:

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 Syndicated sought the foreclosure of four (4) parcels of land mortgaged by Huerta 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, Huerta questioned the 1. assignment by Intercon of its mortgage right
thereover to the Syndicated, 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:

"WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the following:

(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
Huerta 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.

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."

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.

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."

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:

"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." (Emphasis supplied).
2 

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:

"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." (Emphasis supplied).
3 

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.

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:

"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).

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:

(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.

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

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:

"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. HDAECI

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:

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:

(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.

(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:

(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. EASIHa

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 vs. Intermediate Appellate Court, comes to the fore. Held the Court in the said case:
7 

"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)

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:

"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." (Emphasis supplied).
9 

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'," which confer on
10 

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." (emphasis supplied)
11 

"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." (emphasis supplied)
12 

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:

". . . 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. Thus, "a party to a
14 

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.

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.

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.

G.R. No. 91779             February 7, 1991

GRAND FARMS, INC. and PHILIPPINE SHARES CORPORATION, petitioners,

vs.
COURT OF APPEALS, JUDGE ADRIAN R. OSORIO, as Presiding Judge of the Regional
Trial Court, Branch 171, Valenzuela, Metro Manila; ESPERANZA ECHIVERRI, as Clerk
of Court & Ex-Officio Sheriff of the Regional Trial Court of Valenzuela, Metro Manila;
SERGIO CABRERA, as Deputy Sheriff-in-Charge; and BANCO FILIPINO SAVINGS
AND MORTGAGE BANK, respondents.

Balgos & Perez for petitioners.

Sycip, Salazar, Hernandez & Gatmaitan for private respondent.
REGALADO, J.:

The propriety of a summary judgment is raised in issue in the instant petition, with herein
petitioners appealing the decision  of respondent court in CA-G.R. SP No. 17535, dated November
1

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.  Petitioners' motion for reconsideration was likewise denied by respondent-judge on the
8

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.  Although an issue may be raised formally by the pleadings but there
10

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.,  where we had the occasion to construe an identical provision:
13
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.  As such, it is the law between them and as it not contrary to
1â wphi1

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.  The notices respectively mentioned in paragraphs (d) and (k) are addressed to
14

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.

G.R. No. 98334 May 8, 1992

MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK
(formerly Cebu City Savings and Loan Association, Inc.) and TEOTIMO
ABELLANA, petitioners,
vs.
COURT OF APPEALS and SPS. ANDRES DOLINO and PASCUALA
DOLINO, respondents.

Gines N. Abellana for petitioners.

Dionisio U. Flores for private respondents.

REGALADO, J.:

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
9
of the question properly assigned is dependent, may be considered by an appellate court.   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.   For, as explicitly stated therein by the Court, "(t)he basic issue to be resolved in this
10

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.   Of course, while in extrajudicial foreclosure the sale
11

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.   The title to land sold under mortgage foreclosure remains in the mortgagor or his
12

grantee until the expiration of the redemption period and conveyance by the master's deed.   To 13

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.   He cannot impugn the
16

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.

G.R. No. 170215               August 28, 2007

SPS. ESMERALDO and ELIZABETH SUICO, Petitioners,

vs.
PHILIPPINE NATIONAL BANK and HON. COURT OF APPEALS, Respondents.

DECISION

CHICO-NAZARIO, J.:

Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine
National Bank (PNB) secured by a real estate mortgage 1 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 Dismiss5 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 Reconsideration17 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
Appeals22 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 Appeals 23 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.27 1avvphi1

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.
G.R. No. 176019               January 12, 2011

BPI FAMILY SAVINGS BANK, INC., Petitioner,

vs.
GOLDEN POWER DIESEL SALES CENTER, INC. and RENATO C. TAN, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review 1 of the 13 March 2006 Decision 2 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.
Tan6 (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.  Respondents cannot assert that their right of possession is adverse to
1avvphi1

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.