LUCIA TAN, plaintiff-appellee, vs. ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.

Facts: An action instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants Arador Valdehueza and Rediculo Valdehueza for (a) declaration of ownership and recovery of possession of the parcel of land described in the first cause of action of the complaint, and (b) consolidation of ownership of two portions of another parcel of (unregistered) land described in the second cause of action of the complaint, purportedly sold to the plaintiff in two separate deeds of pacto de retro. Parcel of land described in the first cause of action was the subject matter of the public auction sale in Oroquieta, Misamis Occidental, wherein the TAN was the highest bidder . Due to the failure of defendant Arador Valdehueza to redeem the said land within the period of one year as being provided by law, MR. VICENTE D. ROA who was then the Ex-Officio Provincial Sheriff executed an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA TAN. Civil case 2002 was a complaint for injunction filed by Tan on July 24, 1957 against the Valdehuezas, to enjoin them "from entering the above-described parcel of land and gathering the nuts therein ...." This complaint and the counterclaim were subsequently dismissed The Valdehuezas appealed to the lower court alleging that it erred in making a finding on the second cause of action that the transactions between the parties were simple loan, instead, it should be declared as equitable mortgage. Held: The trial court treated the registered deed of pacto de retro as an equitable mortgage but considered the unregistered deed of pacto de retro "as a mere case of simple loan, secured by the property thus sold under pacto de retro," on the ground that no suit lies to foreclose an unregistered mortgage. It would appear that the trial judge had not updated himself on law and jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil Code and decisions of this Court circa 1910 and 1912. Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of a mortgage even as between the parties, but under article 2125 of the new Civil Code (in effect since August 30,1950), this is no longer so. 4 If the instrument is not recorded, the mortgage is nonetheless binding between the parties. (Article 2125, 2nd sentence). The Valdehuezas having remained in possession of the land and the realty taxes having been paid by them, the contracts which purported to be pacto de retro transactions are presumed to be equitable mortgages, 5 whether registered or not, there being no third parties involved.

G.R. No. 115548 March 5, 1996 STATE INVESTMENT HOUSE INC., petitioner, vs. COURT OF APPEALS, ET AL., respondents. FACTS: On October 15, 1969, Contract to Sell No. 36 was executed by the Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc. (SOLID), involving a parcel of land identified as Block No. 8, Lot No. 1, Phase of the Capitol Park Homes Subdivision, Quezon City, containing 511 square meters for a consideration of P39,347.00. Upon signing of the contract, the spouses Oreta made payment amounting to P7,869.40, with the agreement that the balance shall be payable in monthly installments of P451.70, at 12% interest per annum. On November 4, 1976, SOLID executed several real estate mortgage contracts in favor of State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of land, one of which is the subject lot. For Failure of SOLID to comply with its mortgage obligations contract, STATE extrajudicially foreclosed the mortgaged properties including the subject lot on April 6, 1983, with the corresponding certificate of sale issued therefor to STATE annotated at the back of the titles covering the said properties on October 13, 1983. On June 23, 1984; SOLID thru a Memorandum of Agreement negotiated for the deferment of consolidation of ownership over the foreclosed properties by committing to redeem the properties from STATE. On August 15, 1988, the spouses filed a complaint before the Housing and Land Use Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the part of SOLID "to execute the necessary absolute deed of sale as well as to deliver title to said property . . . in violation of the contract to sell . . .," despite full payment of the purchase price as of January 7, 1981. In its Answer, SOLID, by way of alternative defense, alleged that the obligations under the Contract to Sell has become so difficult . . . the herein respondents be partially released from said obligation by substituting subject lot with another suitable residential lot from another subdivision which respondents own/operates". Upon the other hand, STATE, to which the subject lot was mortgaged, averred that unless SOLID pays the redemption price of P125,1955.00, (sic) it has "a right to hold on and not release the foreclosed properties. ISSUES: 1.) WON Sps. Oretas unregistered rights over the subject property are superior to the registered mortgage rights of petitioner State Investment House, Inc. (STATE) 2.) WON the CA erred in not applying the settled rule that persons dealing with property covered by torrens certificate of title are not required to go beyond what appears on the face of the title. HELD: 1.) YES! STATE's registered mortgage right over the property is inferior to that of respondentsspouses' unregistered right. The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner (SOLID, in this case) had parted with his ownership of the thing sold then he no longer had ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the mortgage is of no moment since it is understood to be without prejudice to the better right of third parties. 2.) NO! As a general rule, where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not

required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. This rule, however, admits of an exception as where the purchaser or mortgagee, has knowledge of a defect or lack of title in his vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. 7 In this case, petitioner was well aware that it was dealing with SOLID, a business entity engaged in the business of selling subdivision lots. In fact, the OAALA found that at the time the lot was mortgaged, respondent State Investment House Inc., [now petitioner] had been aware of the lot's location and that the said lot formed part of Capital Park/Homes Subdivision." In Sunshine Finance and Investment Corp. v. Intermediate Appellate Court, the Court noting petitioner therein to be a financing corporation, deviated from the general rule that a purchaser or mortgagee of a land is not required to look further that what appears on the face of the Torrens Title. The above-enunciated rule should apply in this case as petitioner admits of being a financing institution. We take judicial notice of the uniform practice of financing institutions to investigate, examine and assess the real property offered as security for any loan application especially where, as in this case, the subject property is a subdivision lot located at Quezon City, M.M. It is a settled rule that a purchaser or mortgagee cannot close its eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. Petitioner's constructive knowledge of the defect in the title of the subject property, or lack of such knowledge due to its negligence, takes the place of registration of the rights of respondentsspouses. Respondent Court thus correctly ruled that petitioner was not a purchaser or mortgagee in good faith; hence petitioner can not solely rely on what merely appears on the face of the Torrens Title.

Lim Tay v CA, Go Fay, Sy Guiok, Estate of Alfonso Lim Facts: Lim Tay lends money to both Sy Lim and Sy Guiok, on Jan 8, 1980 at 40k per pax with INT at 10% p.a. SL and SG secure the loan thru a contract of pledge on 600 sh of stock of Go Fay & Co Inc. (300sh per pax) in favor of Lim Tay. Under said "Contracts of Pledge," Respondent[s] Guiok and Sy Lim covenanted, inter alia, that: 3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same at public or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized and empowered at his option to transfer the said shares of stock on the books of the corporation to his own name and to hold the certificate issued in lieu thereof under the terms of this pledge, and to sell the said shares to issue to him and to apply the proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove provided; 4. In the event of the foreclosure of this pledge and the sale of the pledged certificate, any surplus remaining in the hands of the PLEDGEE after the payment of the said sum and interest, and the expenses, if any, connected with the foreclosure sale, shall be paid by the PLEDGEE to the PLEDGOR; 5. Upon payment of the said amount and interest in full, the PLEDGEE will, on demand of the PLEDGOR, redeliver to him the said shares of stock by surrendering the certificate delivered to him by the PLEDGOR or by retransferring each share to the PLEDGOR, in the event that the PLEDGEE, under the option hereby granted, shall have caused such shares to be transferred to him upon the books of the issuing company."(idem, supra) SL and SG default. Lim Tay files a petition for Mandamus against Go Fay Inc, with the SEC...to compel the latter to issue new shares of stock in favor of Lim Tay. Several issues are raised, the main one being whether the case is in fact an intra-corporate case as would render it within the jurisdiction of the SEC. Issue: For Cred Trans, the main issue in this case is whether Lim Tay had in fact acquired ownership over the shares by virtue of the pledge agreement and the subsequent default on the pledge, or alternatively, by prescription or alternatively, by novation. Held: This contractual stipulation, which was part of the Complaint, shows that plaintiff was merely authorized to foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure is not automatic, for it must be done in a public or private sale. Nowhere did the Complaint mention that petitioner had in fact foreclosed the pledge and purchased the shares after such foreclosure. His status as a mere pledgee does not, under civil law, entitle him to ownership of the subject shares. It is also noteworthy that petitioner's Complaint did not aver that said shares were acquired through extraordinary prescription, novation or laches.

Moreover, petitioner's claim, subsequent to the filing of the Complaint, that he acquired ownership of the said shares through these three modes is not indubitable and still has to be resolved. In fact, as will be shown, such allegation-has no merit. Manifestly, the Complaint by itself did not contain any prima facie showing that petitioner was the owner of the shares of stocks. Quite the contrary, it demonstrated that he was merely a pledgee, not an owner. Accordingly, it failed to lay down a sufficient basis for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations of the Complaint and its annexes negated the jurisdiction of the SEC.

MANILA SURETY and FIDELITY COMPANY, INC., Plaintiff-Appellee, vs. RODOLFO R. VELAYO, Defendant-Appellant. (G.R. No. L-21069 October 26, 1967) Facts: In 1953, Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond for P2,800.00 for the dissolution of a writ of attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the Court of First Instance of Manila. Velayo undertook to pay the surety company an annual premium of P112.00; to indemnify the Company for any damage and loss of whatsoever kind and nature that it shall or may suffer, as well as reimburse the same for all money it should pay or become liable to pay under the bond including costs and attorneys' fees. As "collateral security and by way of pledge" Velayo also delivered four pieces of jewelry to the Surety Company "for the latter's further protection", with power to sell the same in case the surety paid or become obligated to pay any amount of money in connection with said bond, applying the proceeds to the payment of any amounts it paid or will be liable to pay, and turning the balance, if any, to the persons entitled thereto, after deducting legal expenses and costs. Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and execution having been returned unsatisfied, the surety company was forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon the latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing therefrom a net product of P235.00 only. Thereafter and upon Velayo's failure to pay the balance, the surety company brought suit in the Municipal Court. Velayo countered with a claim that the sale of the pledged jewelry extinguished any further liability on his part under Article 2115 of the 1950 Civil Code. The Municipal Court disallowed Velayo's claims and rendered judgment against him. Appealed to the Court of First Instance, the defense was once more overruled, and the case decided in the terms set down at the start of this opinion. Thereupon, Velayo resorted to this Court on appeal. Issue: WON the sale of the pledged jewelry extinguished any further liability under Article 2115 of the CC. HELD: YES. Article 2115, in its last portion, clearly establishes that the extinction of the principal obligation supervenes by operation of imperative law that the parties cannot override: If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency notwithstanding any stipulation to the contrary. The provision is clear and unmistakable, and its effect can not be evaded. By electing to sell the articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must abide by the results of the sale. No deficiency is recoverable. It is well to note that the rule of Article 2115 is by no means unique. It is but an extension of the legal prescription contained in Article 1484(3) of the same Code, concerning the effect of a foreclosure of a chattel mortgage constituted to secure the price of the personal property sold in installments, and which originated in Act 4110 promulgated by the Philippine Legislature in 1933.

Mendoza v. CA (real mortgage) Petitioner Mendoza is engaged in the domestic and international trading of raw materials and chemicals. He operates under the business name Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with the (DTI). He granted by (PNB) a (P500,000.00) credit line and a (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations and for those which may thereinafter be granted, petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of land3 with improvements 2) his house and lot and 3) several pieces of machinery and equipment in his coco-chemical plant. The real estate mortgage4 provided the following escalation clause: (f) The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have been advanced by the Mortgagee in accordance with paragraph (d) of the conditions herein stipulated shall be subject during the life of this contract to such increase within the rates allowed by law, as the Board of Directors of the Mortgagee may prescribe for its debtors. mendoza executed in favor of PNB (3) promissory notes covering the P500,000.00) credit line, one dated March 8, 1979 for (P310,000.00); another dated March 30, 1979 for (P40,000.00); and the last dated September 27, 1979 for (P150,000.00). The said 1979 promissory notes uniformly stipulated: "with interest thereon at the rate of 12% per annum, until paid, which interest rate the Bank may, at any time, without notice, raise within the limits allowed by law xxx."5 Mendoza made use of his LC/TR line to purchase raw materials from foreign importers. He signed a total of (11) documents denominated as "Application and Agreement for Commercial Letter of Credit,"6 on various dates from February 8 to September 11, 1979, which uniformly contained the following clause: "Interest shall be at the rate of 9% per annum from the date(s) of the draft(s) to the date(s) of arrival of payment therefor in New York. The Bank, however, reserves the right to raise the interest charges at any time depending on whatever policy it may follow in the future."7 In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr., PNB advised Mendoza that effective December 1, 1979, the bank raised its interest rates to 14% per annum, in line with Central Bank's Monetary Board Resolution No. 2126 dated November 29, 1979. On March 9, 1981, he wrote a letter to PNB requesting for the restructuring of his past due accounts into a five-year term loan and for an additional LC/TR line of (P2,000,000.00).8 According to the letter, because of the shut-down of his end-user companies and the huge amount spent for the expansion of his business, mendoza failed to pay to the bank his LC/TR accounts as they became due and demandable. Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the bank and required mendoza to submit various documents before the bank would act on his request: 1) Audited Financial Statements for 1979 and 1980; 2) Projected cash flow (cash in - cash out) for (5) years detailed yearly; and 3) List of additional machinery and equipment and proof of ownership thereof. Cura also suggested that mendoza reduce his total loan obligations to (P3,000,000.00) "to give us more justification in recommending a plan of payment or restructuring of your accounts to higher authorities of the Bank."

On September 25, 1981, mendoza sent another letter addressed to PNB Vice-President Jose Salvador, regarding his request for restructuring of his loans. He offered respondent PNB the following proposals: 1) the disposal of some of the mortgaged properties, more particularly, his house and lot and a vacant lot in order to pay the overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term loan payable semi-annually or on annual installments; 3) a (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment of all his receivables to PNB from all domestic and export sales generated by the LC/TR line; and 5) maintenance of the existing (P500,000.00) credit line. On September 25, 1981, petitioner sent another letter addressed to PNB Vice-President Jose Salvador, regarding his request for restructuring of his loans. He offered respondent PNB the following proposals: 1) the disposal of some of the mortgaged properties, more particularly, his house and lot and a vacant lot in order to pay the overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term loan payable semi-annually or on annual installments; 3) a new (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment of all his receivables to PNB from all domestic and export sales generated by the LC/TR line; and 5) maintenance of the existing (P500,000.00) credit line. However, Fernando Maramag, PNB Executive Vice-President, disapproved the proposed release of the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos (P1,000,000.00).10 Petitioner claimed he was forced to agree to these changes and that he was required to submit a new formal proposal and to sign two (2) blank promissory notes. In a letter dated July 2, 1982, petitioner offered the following revised proposals to respondent bank: 1) the restructuring of past due accounts including interests and penalties into a 5-year term loan, payable semi-annually with one year grace period on the principal; 2) payment of (P400,000.00) upon the approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the interest component with interest rate at 16% per annum; 5) establishment of a (P1,000,000.00) LC/TR line against the mortgaged properties; 6) assignment of all his export proceeds to respondent bank to guarantee payment of his loans. According to mendoza, PNB approved his proposal. He further claimed that he and his wife were asked to sign two (2) blank promissory note forms. According to him, they were made to believe that the blank promissory notes were to be filled out by PNB to conform with the 5-year restructuring plan allegedly agreed upon. The first Promissory Note,11 No. 127/82, covered the principal while the second Promissory Note,12 No. 128/82, represented the accrued interest. mendoza testified that PNB allegedly contravened their verbal agreement by 1) affixing dates on the two (2) subject promissory notes to make them mature in (2) years instead of (5) years as supposedly agreed upon; 2) inserting in the first Promissory Note No. 127/82 an interest rate of 21% instead of 18%; 3) inserting in the second Promissory Note No. 128/82, the amount stated therein representing the accrued interest as (P1,536,498.73) when it should only be (P760,398.23) and pegging the interest rate thereon at 18% instead of 12%.

The subject Promissory Notes Nos. 127/82 and 128/82 both dated December 29, 1982 were payable on equal semi-annual amortization and contained the following escalation clause: x x x which interest rate the BANK may increase within the limits allowed by law at any time depending on whatever policy it may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in the maximum interest rate. x x x It appears from the record that the subject Promissory Notes Nos. 127/82 and 128/82 superseded and novated the three (3) 1979 promissory notes and the eleven (11) 1979 "Application and Agreement for Commercial Letter of Credit" which the petitioner executed in favor of respondent PNB. Pursuant to the escalation clauses of the subject two (2) promissory notes, the interest rate on the principal amount in Promissory Note No. 127/82 was increased from 21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while the interest rate on the accrued interest per Promissory Note No. 128/82 was increased from 18% to 29% on May 28, 1984, and to 32% on July 3, 1984. Mendoza failed to pay the (2) Promissory Notes as they fell due. PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public auction to PNB, as highest bidder, for a total of (P3,798,719.50). petitioner filed in the RTC in Pasig, Rizal a complaint for specific performance, nullification of the extra-judicial foreclosure and damages. He alleged that the Extrajudicial Foreclosure Sale of the mortgaged properties was null and void since his loans were restructured to a five-year term loan; hence, it was not yet due and demandable; that the escalation clauses in the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were null and void, that the total amount presented by PNB as basis of the foreclosure sale did not reflect the actual loan obligations of the plaintiff to PNB; that Bautista purposely delayed payments on his exports and caused delays in the shipment of materials; that PNB withheld certain personal properties not covered by the chattel mortgage; and that the foreclosure of his mortgages was premature so that he was unable to service his foreign clients, resulting in actual damages amounting to (P 2,004,461.00). the trial court rendered judgment in favor of theMendoza. PNB appealed .Court of Appeals reversed the decision and dismissed the complaint. Court of Appeals held that there is no evidence of a promise from respondent PNB, admittedly a banking corporation, that it had accepted the proposals of the petitioner to have a five-year restructuring of his overdue loan obligations. It found and held, on the basis of the evidence adduced, that "appellee's (Mendoza) communications were mere proposals while the bank's responses were not categorical that the appellee's request had been favorably accepted by the bank." Hence, this petition.

Contending that PNB had allegedly approved his proposed five-year restructuring plan, Mendoza presented (3) documents executed by respondent PNB officials: Letters signed by Ceferino D. Cura, Branch Manager of PNB Mandaluyong & PNB Assistant VicePresident Apolonio B. Francisco. Mendoza argued that he submitted the requirements according to the instructions given to him and that upon submission thereof, his proposed five-year restructuring plan was deemed automatically approved by respondent PNB. ISSUE: W/Nthere was valid foreclosure ofreal mortgage. HELD: YES Nowhere in those letters is there a categorical statement that PNB had approved theMendozas proposed five-year restructuring plan. It is stretching the imagination to construe them as evidence that his proposed five-year restructuring plan has been approved by the respondent PNB which is admittedly a banking corporation. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract. If anything, those correspondences only prove that the parties had not gone beyond the preparation stage, which is the period from the start of the negotiations until the moment just before the agreement of the parties. There is nothing in the record that even suggests that PNB assented to the alleged five-year restructure ofMendoza's overdue loan obligations to PNB. However, the trial court ruled in favor of Mendoza, holding that since petitioner has complied with the conditions of the alleged oral contract, the latter may not renege on its obligation to honor the five-year restructuring period, under the rule of promissory estoppel. Ramos v. Central Bank,18 the trial court said: The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified, since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future conduct. The doctrine of promissory estoppel is by no means new, although the name has been adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action or forbearance would reasonably have been expected by the promissor. xxx The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise reasonably expected to induce action or forebearance; (2) such promise did in fact

induce such action or forebearance, and (3) the party suffered detriment as a result. It is clear from the forgoing that the doctrine of promissory estoppel presupposes the existence of a promise on the part of one against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently specific so that the Judiciary can understand the obligation assumed and enforce the promise according to its terms.For Mendoza to claim that PNB is estopped to deny the five-year restructuring plan, he must first prove that PNB had promised to approve the plan in exchange for the submission of the proposal. As discussed earlier, no such promise was proven, therefore, the doctrine does not apply to the case at bar. A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable. It does not operate to create liability where it does not otherwise exist. Since there is no basis to rule that petitioner's overdue loan obligations were restructured to mature in a period of five (5) years, we see no other option but to respect the two-year period as contained in the two (2) subject Promissory Notes which superseded and novated all prior loan documents signed by mendoza in favor of respondent PNB. In a last-ditch effort to save his five-year loan restructuring theory, Mendoza contends that PNB's action of withholding 10% from his export proceeds is proof that his proposal had been accepted and the contract had been partially executed. He claims that he would not have consented to the additional burden if there were no corresponding benefit. This contention is not well taken. There is no credible proof that the 10% assignment of his export proceeds was not part of the conditions of the two-year restructuring deal. Considering that the resulting amount obtained from this assignment of export proceeds was not even enough to cover the interest for the corresponding month,25 we are hard-pressed to construe it as the required proof that respondent PNB allegedly approved the proposed five-year restructuring of petitioners overdue loan obligations. ISSUE 2: AS TO UNILATERAL INCREASE OF INTEREST RATE: bank increased the interest rates on the two (2) subject Promissory Notes without the prior consent of the petitioner. The petitioner did not agree to the increase in the stipulated interest rate of 21% per annum on Promissory Note and 18% per annum on Promissory Note #2. As held in several cases, the unilateral determination and imposition of increased interest rates by respondent bank is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.26As held in one case: It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind. Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that

the rate of interest is always a vital component, for it can make or break a capital venture. It has been held that no one receiving a proposal to change a contract to which he is a party is obliged to answer the proposal, and his silence per se cannot be construed as an acceptance.Estoppel will not lie against the petitioner regarding the increase in the stipulated interest on the subject Promissory Notes inasmuch as he was not even informed beforehand by bank of the change in the stipulated interest rates. However, we also note that the said two (2) subject Promissory Notes expressly provide for a penalty charge of 3% per annum to be imposed on any unpaid amount when due. ISSUE3: as to propriety of the property withheld by PNB: Mendoza prays for the release of some of his movables being withheld by PNB, alleging that they were not included among the chattels he mortgaged to bank. However, he did not present any proof as to when he acquired the subject movables and hence, we are not disposed to believe that the same were "after-acquired" chattels not covered by the chattel and real estate mortgages. In asserting its rights over the subject movables, PNB relies on a common provision in the two (2) subject Promissory Notes which states: In the event that this note is not paid at maturity or when the same becomes due under any of the provisions hereof, we hereby authorized the BANK at its option and without notice, to apply to the payment of this note, any and all moneys, securities and things of value which may be in its hands on deposit or otherwise belonging to me/us and for this purpose. We hereby, jointly and severally, irrevocably constitute and appoint the BANK to be our true Attorney-in-Fact with full power and authority for us in our name and behalf and without prior notice to negotiate, sell and transfer any moneys securities and things of value which it may hold, by public or private sale and apply the proceeds thereof to the payment of this note. It is clear, however, from the above-quoted provision of the said promissory notes that respondent bank is authorized, in case of default, to sell "things of value" belonging to the mortgagor "which may be on its hands for deposit or otherwise belonging to me/us and for this purpose." Besides the petitioner executed not only a chattel mortgage but also a real estate mortgage to secure his loan obligations to respondent bank. A stipulation in the mortgage, extending its scope and effect to after-acquired property is valid and binding where the after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods.30 As earlier pointed out, the petitioner did not present any proof as to when the subject movables were acquired. More importantly, PNB makes a valid argument for the retention of the subject movables. PNB asserts that those movables were in fact "immovables by destination" under Art. 415 (5) of the Civil Code. It is an established rule that a mortgage constituted on an immovable includes not only the land 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. Petitioner also contends that PNBs bid prices for this foreclosed properties in the total amount of (P3,798,719.50), were allegedly "unconscionable and shocking to the conscience of men". He claims that the fair market appraisal of his foreclosed plant site together with the improvements thereon located in amounted to (P5,441,650.00) while that of his house and lot is (P722,000.00) per the appraisal report dated September 20, 1990 of Cuervo Appraisers, Inc.33 That contention is not well taken considering that: 1. The total of the principal amounts alone of petitioners subject Promissory Notes Nos. 127/82 and 128/82 which are both overdue amounted to (P 4,187,917.59). 2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in September 1990, the extrajudicial foreclosure of petitioners real estate and chattel mortgages have been effected way back on October 15, 1984, October 23, 1984 and December 21, 1984.34 Common experience shows that real estate values especially in Metro Manila tend to go upward due to developments in the locality. 3. In the public auction/foreclosure sales, PNB, as mortgagee, was not obliged to bid more than its claims or more than the amount of petitioners loan obligations which are all overdue. The foreclosed real estate and chattel mortgages which petitioner earlier executed are accessory contracts covering the collaterals or security of his loans with PNB. The principal contracts are the Promissory Notes which superseded and novated the 1979 promissory notes and the 1979 (11) Applications and Agreements for Commercial Letter of Credit. Finally, the record shows that petitioner did not even attempt to tender any redemption price to PNB, as highest bidder of the said foreclosed real estate properties, during the one-year redemption period. In view of all the foregoing, it is our view and we hold that the extrajudicial foreclosure of petitioners real estate and chattel mortgages was not premature and that it was in fact legal and valid.

UNIONBANK OF THE PHILIPPINES vs. CA and sps. Fermina and Reynaldo Dario Facts: a real estate mortgage was executed on 17 December 1991 by spouses Leopoldo and Jessica Dario (hereafter mortgagors) in favor of UNIONBANK to secure a P3 million loan, including interest and other charges. The mortgage covered a Quezon City property in Leopoldo Dario's name and was annotated on the title on 18 December 1991. For non-payment of the principal obligation, UNIONBANK extrajudicially foreclosed the property mortgaged on 12 August 1993 and sold the same at public auction, with itself posting the highest bid. On 4 October 1994, one week before the one-year redemption period expired, private respondents filed a complaint with the RTC of Quezon City against the mortgagors, UNIONBANK, the Register of Deeds and the City Sheriff of Quezon City for annulment of sale and real estate mortgage, reconveyance, and prayer for restraining notice of lis pendens was annotated on the title. During the hearing, UNIONBANK's counsel orally moved for dismissal of the complaint alleging that a certification of non-forum shopping-is prescribed by SC-Circular 4-94 was not attached thereto. Judge Lipana-Reyes settled the motion in favor of UNIONBANK and dismissed the complaint. However, the respondent filed a motion for reconsideration. In the meantime, while the case is pending and without notifying private respondents, UNIONBANK consolidated its title over the foreclosed property on 24 October 1994, TCT No. 41828 was cancelled and TCT No. 120929 in UNIONBANK's name was issued in its stead. Private respondents maintain that UNIONBANK's consolidation of the title in its name was in bad faith, vitiated a standing court order, is against the law, thus void ab initio. The application for preliminary injunction was not rendered moot and academic by consolidation, which took place during the lifetime of the TRO, and did not follow the proper legal procedure due to the surreptitious manner it was accomplished. By treating the application for preliminary injunction as moot and academic and denying the motion for indirect contempt without hearing, the RTC order ran afoul with the requirements of due process. Issue: whether or not the consolidation of title in UNIONBANKs name is proper. Ruling: UNIONBANK's consolidation of title over the property on 24 October 1994 was proper, though precipitate. Contrary to private respondents' allegation UNIONBANK violated no standing court order. The only bar to consolidation was the temporary restraining order issued by Justice Lipana-Reyes on 10 October 1994 which effectively halted the tolling of the redemption period 7 days short of its expiration. When private respondents' original complaint was dismissed on 17 October 1994 for failure to append a certification of non-forum shopping, the TRO, as an ancillary order that cannot stand independent of the main proceeding, became functus officio. Thus the tolling of the 12-month redemption period, interrupted by the filing of the complaint and the TRO, recommenced and eventually expired 7 days thereafter or on 24 October 1994, the date of the disputed consolidation. The motion for reconsideration and to amend complaint filed by private respondent on 20 October 1994 was of no moment, this Court recognizing that "a dismissal, discontinuance or non-suit of an action in which a restraining order or temporary injunction has been granted operates as a dissolution of the restraining order or temporary injunction," regardless of whether the period for filing a motion for reconsideration of the order dismissing the case or

appeal therefrom has expired. The rationale therefor is that even in cases where an appeal is taken from a judgment dismissing an action on the merits, the appeal does not suspend the judgment, hence the general rule applies that a temporary injunction terminates automatically on the dismissal of the action. We disagree with the appellate court's observation that consolidation deprived private respondents of their property without due process. It is 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. Consolidation took place as a matter of right since there was no redemption of the foreclosed property and the TRO expired upon dismissal of the complaint. UNIONBANK need not have informed private respondent that it was consolidaint its title over the property, upon the expiration of the redemption period, without the judgment debtor having made use of his right of redemption, the ownership of the property sold becomes consolidated in the purchaser. Notice to the mortgagors and with more reason, to private respondents who are not even parties to the mortgage contract nor to the extra judicial sale is not necessary. In real estate mortgage, when the principal obligation is not paid when due, the mortgage has the right to foreclose the mortgage and to have the property seized and sold with a view to applying the proceeds to the payment of the principal obligation. Foreclosure may be effected either judicially or extrajudicially. In a public bidding during extra-judicial foreclosure, the creditor mortgagee, trustee, or other person authorized to act for the creditor may participate and purchase the mortgaged property as any other bidder. Thereafter the mortgagor has one year within which to redeem the property from and after registration of sale with the Register of Deeds. In case of nonredemption, the purchaser at foreclosure sale shall file with the Register of Deeds, either a final deed of sale executed by the person authorized by virtue of the power of attorney embodied in the deed or mortgage, or his sworn statement attesting to the fact of non-redemption; whereupon, the Register of Deeds Shall issue a new certificate of title in favor of the purchaser after the owner's duplicate of the certificate has been previously delivered and canceled. Thus, upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds.

G.R. No. 152071 May 8, 2009 PRODUCERS BANK OF THE PHILIPPINES, Petitioner vs. EXCELSA INDUSTRIES, INC., Respondent Facts: Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly charcoal briquettes, as an alternative fuel source. Sometime in January 1987, Excelsa applied for a packing credit line or a credit export advance with Producers Bank of the Philippines. The application was supported by Letter of Credit No. M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of credit through its correspondent bank, the Bank of the Philippine Islands, in the amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World Development Corporation was the original beneficiary of the letter of credit. On 05 December 1986, for value received, T.L. World transferred to respondent all its rights and obligations under the said letter of credit. Petitioner approved respondents application for a packing credit line in the amount of P300,000.00, of which about P96,000.00 in principal remained outstanding. Respondent executed the corresponding promissory notes evidencing the indebtedness. Prior to the application for the packing credit line, respondent had obtained a loan from petitioner in the form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the packing credit line. The loan was secured by a real estate mortgage dated 05 December 1986 over respondents properties. Significantly, the real estate mortgage contained the following clause: For and in consideration of those certain loans, overdraft and/or other credit accommodations on this date obtained from the MORTGAGEE, and to secure the payment of the same, the principal of all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine Currency, as well as those that the MORTGAGEE may hereafter extend to the MORTGAGOR, including interest and expenses or any other obligation owing to the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the parcel(s) of land which is/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 encumbrances. On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondents export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export documents. Upon learning about the Korean importers non-payment, respondent sent petitioner a letter dated 27 July 1987, informing the latter that respondent had brought the matter before the Korea Trade Court and that it was ready to liquidate its past due account with petitioner.

Respondent sent another letter dated 08 September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export documents on account of the non-acceptance by the importer. Petitioner demanded from respondent the payment of the peso equivalent of the export documents, plus interest and other charges, and also of the other due and unpaid loans. Due to respondents failure to heed the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over respondents properties. At the public auction held on 05 January 1988, the Sheriff of Antipolo, Rizal issued a Certificate of Sale in favor of petitioner as the highest bidder. The certificate of sale was registered on 24 March 1988. On 12 June 1989, petitioner executed an affidavit of consolidation over the foreclosed properties after respondent failed to redeem the same. As a result, the Register of Deeds of Marikina issued new certificates of title in the name of petitioner. On 17 November 1989, respondent instituted an action for the annulment of the extrajudicial foreclosure with prayer for preliminary injunction and damages against petitioner and the Register of Deeds of Marikina. On 18 December 1997, the RTC rendered a decision upholding the validity of the extrajudicial foreclosure and ordering the issuance of a writ of possession in favor of petitioner, as the RTC also found that by its admission, respondent had other loan obligations obtained from petitioner which were due and demandable; hence, petitioner correctly exercised its right to foreclose the real estate mortgage, which provided that the same secured the payment of not only the loans already obtained but also the export advances. The CA invalidated the extrajudicial foreclosure of the real estate mortgage on the ground that the posting and publication of the notice of extrajudicial foreclosure proceedings did not comply with the personal notice requirement under paragraph 12 of the real estate mortgage executed between petitioner and respondent. The Court of Appeals also overturned the RTCs finding that respondent was guilty of estoppel by laches in questioning the extrajudicial foreclosure sale. Issue: Was there a valid foreclosure of the real estate mortgage? Held: Respondent executed a real estate mortgage containing a "blanket mortgage clause," also known as a "dragnet clause." It has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. In Union Bank of the Philippines v. Court of Appeals, the nature of a dragnet clause was explained, thus:

Is one which is specifically phrased to subsume all debts of past and future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. xxx Petitioner, therefore, was not precluded from seeking the foreclosure of the real estate mortgage based on the unpaid drafts drawn by respondent. In any case, respondent had admitted that aside from the unpaid drafts, respondent also had due and demandable loans secured from another account as evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS030/86 A, BDS-PC-002-/87 and BDS-005/87. However, the Court of Appeals invalidated the extrajudicial foreclosure of the mortgage on the ground that petitioner had failed to furnish respondent personal notice of the sale contrary to the stipulation in the real estate mortgage. Petitioner, on the other hand, claims that under paragraph 12 of the real estate mortgage, personal notice of the foreclosure sale is not a requirement to the validity of the foreclosure sale. A perusal of the records of the case shows that a notice of sheriffs sale was sent by registered mail to respondent and received in due course. Yet, respondent claims that it did not receive the notice but only learned about it from petitioner. In any event, paragraph 12 of the real estate mortgage requires petitioner merely to furnish respondent with the notice and does not oblige petitioner to ensure that respondent actually receives the notice. On this score, the Court holds that petitioner has performed its obligation under paragraph 12 of the real estate mortgage. As regards the issue of whether respondent may still question the foreclosure sale, the RTC held that the sale was conducted according to the legal procedure, to wit: Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty of laches and cannot at this point in time question the foreclosure of the subject properties. Defendant bank made demands against the plaintiff for the payment of plaintiffs outstanding loans and advances with the defendant as early as July 1997. Plaintiff acknowledged such outstanding loans and advances to the defendant bank and committed to liquidate the same. For failure of the plaintiff to pay its obligations on maturity, defendant bank foreclosed the mortgage on subject properties on January 5, 1988 the certificate of sale was annotated on March 24, 1988 and there being no redemption made by the plaintiff, title to said properties were consolidated in the name of defendant in July 1989. Undeniably, subject foreclosure was done in accordance with the prescribed rules as may be borne out by the exhibits submitted to this Court which are

Exhibit "33," a notice of extrajudicial sale executed by the Sheriff of Antipolo, Exhibit "34" certificate posting of extrajudicial sale, Exhibit "35" return card evidencing receipt by plaintiff of the notice of extrajudicial sale and Exhibit "21" affidavit of publication. The Court adopts and approves the aforequoted findings by the RTC, the same being fully supported by the evidence on record.

Spouses Rosales vs. Spouses Suba Facts: On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a Decision2 in Civil Cases Nos. 94-72303 and 94-72379, the dispositive portion of which reads: WHEREFORE, judgment is rendered: (1) Declaring the Deed of Sale an equitable mortgage; (2) Declaring the parties Erlinda Sibug and Ricardo Rosales, within 90 days from finality of this Decision, to deposit with the Clerk of Court, for payment to the parties Felicisimo Macaspac and Elena Jiao, the sum of P65,000.00, with interest at nine (9) percent per annum from September 30, 1982 until payment is made, plus the sum of P219.76 as reimbursement for real estate taxes; (3) Directing the parties Felicisimo Macaspac and Elena Jiao, upon the deposit on their behalf of the amounts specified in the foregoing paragraph, to execute a deed of reconveyance of the property in question to Erlinda Sibug, married to Ricardo Rosales, and the Register of Deeds of Manila shall cancel Transfer Certificate of Title No. 150540 in the name of the Macaspacs (Exh. E) and issue new title in the name of Sibug; (4) For non-compliance by Sibug and Rosales of the directive in paragraph (2) of this dispositive portion, let the property be sold in accordance with the Rules of Court for the release of the mortgage debt and the issuance of title to the purchaser. Petitioner spouses failed to comply with paragraph 2 quoted above which prompted Macaspac to file with the trial court a motion for execution. Thereafter, petitioners filed a manifestation informing the court of their difficulty in paying Macaspac as there is no correct computation of the judgment debt. Thus, Macaspac filed a supplemental motion for execution stating that the amount due him is P243,864.08. Petitioners failed to pay the amount. The trial court issued a writ of execution ordering the sale of the property subject of litigation for the satisfaction of the judgment. An auction sale was held wherein petitioners participated. However, the property was sold for P285,000.00 to spouses Alfonso and Lourdes Suba, herein respondents, being the highest bidders. On August 18, 1998, respondents filed with the trial court a motion for a writ of possession, contending that the confirmation of the sale effectively cut off petitioners equity of redemption. On the other hand, petitioners filed a motion for reconsideration. The trial court granted respondents prayer for a writ of possession and denied petitioners MFR. The trial court ruled that petitioners have no right to redeem the property since the case is for judicial foreclosure of mortgage under Rule 68 of the 1997 Rules of Civil Procedure, as amended. Hence, respondents, as purchasers of the property, are entitled to its possession as a matter of right. Petitioners filed with the Court of Appeals a petition for certiorari. CA dismissed outright the petition for lack of merit, holding that there is no right of redemption in case of judicial foreclosure of mortgage. Issue: Whether or not petitioners have the right to redeem a mortgaged property which has been

judicially foreclosed. Ruling: The decision of the trial court, which is final and executory, declared the transaction between petitioners and Macaspac an equitable mortgage. Since the parties transaction is an equitable mortgage and that the trial court ordered its foreclosure, execution of judgment is governed by Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure, as amended, quoted as follows: 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 that ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. SEC. 3. Sale of mortgaged property, effect. When the defendant, after being directed to do so as provided in the next preceding section, fails to pay the amount of the judgment within the period specified therein, the court, upon motion, shall order the property to be sold in the manner and under the provisions of Rule 39 and other regulations governing sales of real estate under execution. Such sale shall not effect the rights of persons holding prior encumbrances upon the property or a part thereof, and when confirmed by an order of the court, also upon motion, it shall operate to divest the rights in the property 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. 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 a 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. This is the mortgagors 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. Clearly, as a general rule, there is no right of redemption in a judicial foreclosure of mortgage. The only exemption is when the mortgagee is the Philippine National Bank or a bank or a banking institution. Since the mortgagee in this case is not one of those mentioned, no right of

redemption exists in favor of petitioners. They merely have an equity of redemption, which, to reiterate, is simply their right, as mortgagor, to extinguish the mortgage and retain ownership of the property by paying the secured debt prior to the confirmation of the foreclosure sale. However, instead of exercising this equity of redemption, petitioners chose to delay the proceedings by filing several manifestations with the trial court. Thus, they only have themselves to blame for the consequent loss of their property.

G.R. No. L-68010 May 30, 1986 FILIPINAS MABLE CORPORATION, Petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, THE HONORABLE CANDIDO VILLANUEVA, Presiding Judge of Br. 144, RTC, Makati, DEVELOPMENT BANK OF THE PHILIPPINES (DBP), BANCOM SYSTEMS CONTROL, INC. (Bancom), DON FERRY, CASIMERO TANEDO, EUGENIO PALILEO, ALVARO TORIO, JOSE T. PARDO, ROLANDO ATIENZA, SIMON A. MENDOZA, Sheriff NORVELL R. LIM, Respondents. FACTS: Filipinas Marble Corporation applied for a loan in the amount of $5,000,000.00 with Development Bank of the Philippines (DBP) in its desire to develop the fun potentials of its mining claims and deposits; that DBP granted the loan subject, however, to sixty onerous conditions, among which are: (a) petitioner shall have to enter into a management contract with respondent Bancom Systems Control, Inc. [Bancom]; (b) DBP shall be represented by no less than six (6) regular directors; (c) the key officers shall be appointed only with DBP's prior approval and all these officers are to be made directly responsible to DBP; and (d) the $5 Million loan shall be secured by: 1) a final mortgage; 2) the joint and several signatures with Filipinas Marble of Mr. Pelagio M. Villegas, Sr., Trinidad Villegas, and Jose E. Montelibano and 3) assignment to DBP of the borrower firm's right over its mining claims; that pursuant to these above- mentioned and other "take it or leave it" conditions, the petitioner entered into a management contract with Bancom whereby the latter agreed to manage the plaintiff company for a period of three years; that under the management agreement, the affairs of the petitioner were placed under the complete control of DBP and Bancom including the disposition and disbursement of the $5,000,000 or P37,600,000 loan; that the respondents and their directors/officers mismanaged and misspent the loan, after which Bancom resigned with the approval of DBP even before the expiration date of the management contract, leaving petitioner desolate and devastated, DBP completely abandoned the petitioner's project and proceeded to foreclose the properties mortgaged to it by petitioner without previous demand or notice. In essence, the petitioner in its complaint seeks the annulment of the deeds of mortgage and deed of assignment which it executed in favor of DBP in order to secure the $5,000,000.00 loan because it is petitioner's contention that there was no loan at all to secure since what DBP "lent" to petitioner with its right hand, it also got back with its left hand; and that, there was failure of consideration with regard to the execution of said deeds as the loan was never delivered to the petitioner. The petitioner further prayed that pending the trial on the merits of the case, the trial court immediately issue a restraining order and then a writ of preliminary injunction against the sheriffs to enjoin the latter from proceeding with the foreclosure and sale of the petitioner's properties in Metro Manila and in Romblon. Respondent DBP opposed the issuance of a writ of preliminary injunction stating that under Presidential Decree No. 385, DBP's right to foreclose is mandatory as the arrearages of petitioner had already amounted to P123,801,265.82 as against its total obligation of P151,957,641.72; that under the same decree, no court can issue any restraining order or injunction against it to stop the foreclosure since Filipinas Marble's arrearages had already reached at least twenty percent of its total obligations; that the alleged non-receipt of the loan proceeds by the petitioner could, at best, be accepted only in a technical sense because the money was received by the officers of the petitioner acting in such capacity and, therefore, irrespective of whoever is responsible for placing them in their positions, their receipt of the

money was receipt by the petitioner corporation and that the complaint does not raise any substantial controversy as to the amount due under the mortgage as the issues raised therein refer to the propriety of the manner by which the proceeds of the loan were expended by the petitioner's management, the allegedly precipitate manner with which DBP proceeded with the foreclosure, and the capacity of the DBP to be an assignee of the mining lease rights. ISSUE: WHETHER OR NOT THE MORTGAGE CANNOT EXIST OR STAND BY ITSELF BEING A MERE ACCESSORY CONTRACT. YES RULING: We agree with the petitioner that a mortgage is a mere accessory contract and, thus, its validity would depend on the validity of the loan secured by it. We, however, reject the petitioner's argument that since the chattel mortgage involved was not registered, the same is null and void. Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the immediate parties. It states: Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order that a mortgage may be validly constituted that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties. The petitioner cannot invoke the above provision to nullify the chattel mortgage it executed in favor of respondent DBP. ***THERE WAS NO VALID CONTRACT FOR FAILURE OF CONSIDERATION. Precisely, what the petitioner is trying to point out is that the DBP and Bancom people who managed Filipinas Marble misspent the proceeds of the loan by taking advantage of the positions that they were occupying in the corporation which resulted in the latter's devastation instead of its rehabilitation. The petitioner does not question the authority under which the loan was delivered but stresses that it is precisely this authority which enabled the DBP and Bancom people to misspend and misappropriate the proceeds of the loan thereby defeating its very purpose, that is, to develop the projects of the corporation. Therefore, it is as if the loan was never delivered to it and thus, there was failure on the part of the respondent DBP to deliver the consideration for which the mortgage and the assignment of deed were executed.

Caltex Philippines vs CA Facts: On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz. One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his purchase of fuel products from the latter. However, Sometime in March 1982, he informed the Sucat Branch Manger that he lost all the certificates of time deposit in dispute. New CTDs were issued after the execution of affidavit of loss. Subsequently, Angel dela Cruz negotiated and obtained a loan from defendant bank and executed a notarized Deed of Assignment of Time Deposit, which stated, among others, that he surrenders to defendant bank "full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity. In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor. The bank received a letter from the plaintiff formally informing of its possession of the CTDs in question and of its decision to pre-terminate the same. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7, 1983. The loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan. However, the plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees. Issues: Whether or not the transaction between Caltex and de la cruz is valid pledge. Whether or not Caltex can recover the CTDs Held: 1. The transaction entered into is a pledge. Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a

holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for. In the case at bar, evidence suggests that the instrument was delivered to Caltex by Dela Cruz as security to the fuel purchases of the latter and not as payment for such purchases. 2. No. The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien. As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, which inceptively provide: Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed. Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee agreement between it and Angel de la Cruz. Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons adversely. On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public instrument. Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question.

SPOUSES LANDRITO VS. CA In July 1990, petitioners obtained a loan of P350,000.00 from respondent Carmencita San Diego. To secure payment thereof, petitioners executed on 02 August 1990 in favor of the same respondent a deed of real estate mortgage over their parcel of land located at Bayanan, Muntinlupa, Rizal and registered in their names under Transfer Certificate of Title No. (432281) S-21000. After making substantial payments, petitioners again obtained and were granted by Carmencita San Diego an additional loan of One Million Pesos (P1,000,000.00). To secure this additional loan, the parties executed on 13 September 1991 an Amendment of Real Estate Mortgage, whereunder they stipulated that the loan shall be paid within six (6) months from 16 September 1991, and if not paid within said period, the mortgagee shall have the right to declare the mortgage due and may immediately foreclose the same judicially or extrajudicially, in accordance with law. It appears that petitioners defaulted in paying their loan and continuously refused to comply with their obligation despite repeated demands therefor, prompting respondent Carmencita San Diego to send them on 27 April 1993, a final notice of demand requiring them to settle their financial obligation which, by then, already amounted to P1,950,000.00. Carmencita San Diego filed a petition for the extrajudicial foreclosure of the mortgage. As announced, on 11 August 1993, at 10:00 oclock in the morning, the public auction sale was held and the mortgaged property sold to respondent Carmencita San Diego as the highest bidder for P2,000,000.00, as evidenced by the Sheriffs Certificate of Sale issued in her favor on 07 October 1993. With the petitioners having failed to redeem their property within the 1-year redemption period from the date of inscription of the sheriffs certificate of sale, as provided for in Act No. 3135, as amended, the San Diegos caused the consolidation of title over the foreclosed property in their names. Then, on 09 November 1994, before the Regional Trial Court at Makati City, petitioners filed their complaint for annulment of the extrajudicial foreclosure and auction sale, with damages. ISSUE: W/N the foreclosure was proper. HELD: YES. It appears from the evidence on record that despite due notice and publication of the same in a newspaper of general circulation, [petitioners] did not bother to attend the foreclosure sale nor raise any question regarding the propriety of the sale. It was only on November 9, 1994, or more than one year from the registration of the Sheriffs Certificate of Sale, that [petitioners] filed the instant complaint. Clearly, [petitioners] had slept on their rights and are therefore guilty of laches, which is defined as the failure or neglect for an unreasonable or explained length of time to do that which, by exercising due diligence, could or should have been done earlier, failure of which gives rise to the presumption that the person possessed of the right or privilege has abandoned or has declined to assert the same. For sure, in the very petition they filed in this case, petitioners have not offered any valid excuse why, despite notice to them of the petition for extrajudicial foreclosure filed by the respondents, they failed to attend the proceedings and there voiced out what they are now claiming. Truly, laches has worked against them.

In a long line of cases[5], this Court has consistently ruled that the one-year redemption period should be counted not from the date of foreclosure sale, but from the time the certificate of sale is registered with the Register of Deeds. Here, it is not disputed that the sheriffs certificate of sale was registered on 29 October 1993. Petitioners presently insist that they requested for and were granted an extension of time within which to redeem their property, relying on a handwritten note allegedly written by Mrs. San Diegos husband on petitioners statement of account, indicating therein the date 11 November 1994 as the last day to pay their outstanding account in full. Even assuming, in gratia argumenti, that they were indeed granted such an extension, the hard reality, however, is that at no time at all did petitioners make a valid offer to redeem coupled with a tender of the redemption price. this Court has made it clear that it is only where, by voluntary agreement of the parties, consisting of extensions of the redemption period, followed by commitment by the debtor to pay the redemption price at a fixed date, will the concept of legal redemption be converted into one of conventional redemption. Here, there is no showing whatsoever that petitioners agreed to pay the redemption price on or before 11 November 1994, as allegedly set by Mrs. San Diegos husband.

MANILA SURETY and FIDELITY COMPANY, INC., Plaintiff-Appellee, vs. RODOLFO R. VELAYO, Defendant-Appellant. (G.R. No. L-21069 October 26, 1967) Facts: In 1953, Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond for P2,800.00 for the dissolution of a writ of attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the Court of First Instance of Manila. Velayo undertook to pay the surety company an annual premium of P112.00; to indemnify the Company for any damage and loss of whatsoever kind and nature that it shall or may suffer, as well as reimburse the same for all money it should pay or become liable to pay under the bond including costs and attorneys' fees. As "collateral security and by way of pledge" Velayo also delivered four pieces of jewelry to the Surety Company "for the latter's further protection", with power to sell the same in case the surety paid or become obligated to pay any amount of money in connection with said bond, applying the proceeds to the payment of any amounts it paid or will be liable to pay, and turning the balance, if any, to the persons entitled thereto, after deducting legal expenses and costs. Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and execution having been returned unsatisfied, the surety company was forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon the latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing therefrom a net product of P235.00 only. Thereafter and upon Velayo's failure to pay the balance, the surety company brought suit in the Municipal Court. Velayo countered with a claim that the sale of the pledged jewelry extinguished any further liability on his part under Article 2115 of the 1950 Civil Code. The Municipal Court disallowed Velayo's claims and rendered judgment against him. Appealed to the Court of First Instance, the defense was once more overruled, and the case decided in the terms set down at the start of this opinion. Thereupon, Velayo resorted to this Court on appeal. Issue: WON the sale of the pledged jewelry extinguished any further liability under Article 2115 of the CC. HELD: YES. Article 2115, in its last portion, clearly establishes that the extinction of the principal obligation supervenes by operation of imperative law that the parties cannot override: If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency notwithstanding any stipulation to the contrary. The provision is clear and unmistakable, and its effect can not be evaded. By electing to sell the articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must abide by the results of the sale. No deficiency is recoverable. It is well to note that the rule of Article 2115 is by no means unique. It is but an extension of the legal prescription contained in Article 1484(3) of the same Code, concerning the effect of a foreclosure of a chattel mortgage constituted to secure the price of the personal property sold in installments, and which originated in Act 4110 promulgated by the Philippine Legislature in 1933.

MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA GALIT, respondents. Facts: Ricardo Galit contracted a loan from Marcelo Soriano, in the total sum of P480,000.00, evidenced by four promissory notes in the amount of P120,000.00 each dated August 2, 1996; August 15, 1996; September 4, 1996 and September 14, 1996. This loan was secured by a real estate mortgage over a parcel of land covered by Original Certificate of Title No. 569. After he failed to pay his obligation, Soriano filed a complaint for sum of money against him with the Regional Trial Court. The RTC rendered decision in favor of Soriano. The judgment became final and executory. Accordingly, the trial court issued a writ of execution in due course, by virtue of which, Deputy Sheriff Renato E. Robles levied on the following real properties of the Galit spouses: A parcel of land covered by Original Certificate of Title No. T-569,a storehouse, and a bodega. At the sale of the above-enumerated properties at public auction held on December 23, 1998, petitioner was the highest and only bidder with a bid price of P483,000.00. Accordingly, on February 4, 1999, Deputy Sheriff Robles issued a Certificate of Sale of Execution of Real Property. On April 23, 1999, petitioner caused the registration of the Certificate of Sale on Execution of Real Property with the Registry of Deeds. The said Certificate of Sale registered with the Register of Deeds includes at the dorsal portion thereof the following entry, not found in the Certificate of Sale on file with Deputy Sheriff Renato E. Robles:[13] ORIGINAL CERTIFICATE OF TITLE NO. T-40785 A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the improvements thereon, situated in the Municipality of Orani, Bounded on the NE; byCalle P. Gomez; on the E. by Lot No. 1104; on the SE by Calle Washington; and on the W. by Lot 4102, containing an area of ONE HUNDRED THIRTY NINE (139) SQUARE METERS, more or less. All points referred to are indicated on the plan; bearing true; declination 0 deg. 40E., date of survey, February 191-March 1920. On February 23, 2001, ten months from the time the Certificate of Sale on Execution was registered with the Registry of Deeds, Soriano moved[14] for the issuance of a writ of possession. He averred that the one-year period of redemption had elapsed without the respondents having redeemed the properties sold at public auction; thus, the sale of said properties had already become final. He also argued that after the lapse of the redemption period, the titles to the properties should be considered, for all legal intents and purposes, in his name and favor.[15] On June 4, 2001, the Regional Trial Court granted the motion for issuance of writ of possession. Subsequently, on July 18, 2001, a writ of possession[17] was issued in petitioners favor which reads: WRIT OF POSSESSION Mr. Renato E. Robles Deputy Sheriff RTC, Br. 1, Balanga City Greetings : WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the Issuance of Writ of Possession; WHEREAS on June 4, 2001, this court issued an order granting the issuance of the Writ of

Possession; WHEREFORE, you are hereby commanded to place the herein plaintiff Marcelo Soriano in possession of the property involved in this case situated (sic) more particularly described as: 1. STORE HOUSE constructed on Lot No. 1103 situated at Centro 1, Orani, Bataan covered by TCT No. 40785; 2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square meters under Tax Declaration No. 86 situated at Centro 1, Orani, Bataan; 3. Original Certificate of Title No. 40785 with an area of 134 square meters known as Lot No. 1103 of the Cadastral Survey of Orani against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit, her (sic) heirs, successors, assigns and all persons claiming rights and interests adverse to the petitioner and make a return of this writ every thirty (30) days from receipt hereof together with all the proceedings thereon until the same has been fully satisfied. WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this 18th day of July 2001, at Balanga City. (Sgd) GILBERT S. ARGONZA OIC The Spouses Galit filed a petition for certiorari with the Court of Appeals assailing the inclusion of the parcel of land covered by Transfer Certificate of Title No. T-40785 among the list of real properties in the writ of possession. The Sps. Galit argued that said property was not among those sold on execution by Deputy Sheriff Renato E. Robles as reflected in the Certificate of Sale on Execution of Real Property. On May 13, 2002, the Court of Appeals rendered judgment as follows: WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of possession issued by the Regional Trial Court of Balanga City, Branch 1, on 18 July 2001 is declared NULL and VOID. Hence, this petition. Soriano argued that the land on which the buildings levied upon in execution is necessarily included. Issue: W/N a building can be mortgaged separately from the land on which it stands. Held: Yes. ART. 415. The following are immovable property: (1) Land, buildings, roads and constructions of all kinds adhered to the soil. The foregoing provision of the Civil Code enumerates land and buildings separately. This can only mean that a building is, by itself, considered immovable.[39] Thus, it has been held that . . . while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has been built. Such mortgage would be still a real estate mortgage for the building would still be considered immovable property even if dealt with separately and apart from the land.[40] (emphasis and italics supplied) In this case, considering that what was sold by virtue of the writ of execution issued by the trial court was merely the storehouse and bodega constructed on the parcel of land covered by Transfer Certificate of Title No. T-40785, which by themselves are real properties of spouses Galit the same should be regarded as separate and distinct from the conveyance of the lot on which they stand.