Pledge and Mortgage

Credit Transactions 2016-2017
PLEDGE AND MORTGAGE

Pactum Commissorium
Effects on Pledge or Mortgage
D.2 Development Bank of the Philippines vs. Court of Appeals, 284 SCRA 14 [1998] LYDIA P. CUBA
FACTS: Private respondent is a grantee of a fishpond lease agreement from the government. She later obtained
a loan from DBP under the terms stated in the three promissory notes. As a security for the said loan, respondent
executed a two Deed of Assignment of her Leasehold Rights. Failed to pay her loan, DBP appropriated the
leasehold rights of respondent over the fishpond, without foreclosure proceedings. After appropriating, DBP
executed a deed of conditional sale of the fishpond in favor of respondent. Again, respondent failed to pay the
amortizations stipulated, however, she was able to enter with DBP a temporary arrangement for the Deferment
Notarial Rescission of the deed. Thereafter, a notice of rescission was sent by the DBP to respondent, then took
possession of the fishpond right after. DBP disposed the property to one Caperal through a deed of conditional
sale, and was awarded. Private respondent filed before the RTC for the annulment of DBPs sale to Caperal and
the restoration of her rights over the said fishpond and for damages. RTC ruled in favor of respondent on the
ground that it was a clear case of pactum commissorium.
ISSUE: WON the assignment of the leasehold rights would operate as a case of pactum commissorium.
RULING: The act of DBP under condition of the Assignment of Leasehold Rights did not constitute as a case
of pactum commissorium, when appropriated for itself respondents leasehold rights over the fishpond, because
the condition only gave DBP the authority to sell the said property and use the proceeds of the sale to satisfy
respondents obligation, it did not operate as an automatic transfer of ownership of the said property to DBP.
Nonetheless, DBP exceeded its authority granted under the condition when it appropriated for itself such rights
without judicial or extrajudicial foreclosure, thereby making his acts violative under the NCC, which forbids a
creditor from appropriating, or disposing of the thing given as a security for the payment of a debt.
E.2 Bustamante vs. Rosel, 319 SCRA 413 [1999], 335

FACTS: Respondent Norma Rosel (CREDITOR) entered into a loan agreement with petitioner Natalia
Bustamante and her late husband Ismael C. Bustamante (DEBTOR). Sps. Bustamante borrowed P 100,000.00
with 18% per annum for two (2) years, counted from March 1, 1987. The debtors owned a 423-sqm land along
Congressional Ave. They used the 70 sqm. of such land, inclusive of an apartment, as a collateral. However, in
the event the borrowers (Sps. Bustamante) fail to pay, the lender has the OPTION TO BUY OR PURCHASE
the collateral for a total consideration of P 200,000.00, inclusive of the borrowed amount and interest therein;
When the loan was about to mature. Sps. Rosel proposed to buy at the pre-set price of P200,000.00, the 70
sq.m. parcel of land, given as collateral to guarantee payment of the loan.
Sps. Bustamante refused to sell and requested for extension of time to pay the loan and offered to sell to
respondents another residential lot located at Road 20, Project 8, Quezon City, with the principal loan plus
interest to be used as down payment, instead. The offer was refused by Sps. Rosel because said lot was
occupied by squatters and Sps. Bustamante are mere developers an not the owners of such lot.
On March 1, 1989, due date of the loan, Bustamante tendered payment. Sps. Rosel refused and insisted on Sps.
Bustamantes signing a prepared deed of absolute sale of the collateral. On Feb. 28, 1990, Sps. Rosel filed a
complaint for specific performance with consignation against Bustamante and her spouse. Sps. Rosel then sent a
demand letter asking petitioner to sell the collateral pursuant to the option to buy embodied in the loan
agreement. Bustamante filed in the RTC, Quezon City a petition for consignation, and deposited the amount of
Php 153,000.00 with the City Treasurer of Quezon City on 10 August 1990. Sps. Rosel consigned the amount of
P47,500.00 with the RTC. In arriving at the amount deposited, respondents considered the principal loan of
P100,000.00 and interest of 18%/annum thereon, which amounted to P52,500.00. The principal loan and the
interest taken together amounted to P152,500.00, leaving a balance of P 47,500.00.
ISSUE: Whether the stipulation on the loan agreement can be considered as a pacto commissorium or an
automatic appropriation of the collateral in case of non-payment of loan?
RULING: Yes. Bustamante did not fail to pay the loan. The loan was due for payment on March 1, 1989. On
said date, Bustamante tendered payment to settle the loan which respondents refused to accept, insisting that
petitioner sell to them the collateral of the loan.
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor (Sps. Rosel) to acquire the
property given as security for the loan. This is embraced in the concept of pactum commissorium, which is
prohibited by law. The elements of pacto commsiroium are the following: (1) property mortgaged by way of
security for the payment of the principal obligation; and (2) a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.
A significant task in contract interpretation is the ascertainment of the intention of the parties and looking into
the words used by the parties to project that intention. In this case, the intent to appropriate the property given as
collateral in favor of the creditor appears to be evident, for the debtor is obliged to dispose of the collateral at
the pre-agreed consideration amounting to practically the same amount as the loan. In effect, the creditor
acquires the collateral in the event of non payment of the loan. This is within the concept of pactum
commissorium. Such stipulation is void
F.2 Ong vs. Roban Lending Corporation, 557 SCRA 516 [2008
Facts: Petitioner Spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from
respondent Roban Lending Corporation. These loans were secured by real estate mortgage on Spouses Ongs
parcel of lands. Later Spouses Ong and Roban executed several agreements - an amendment to the amended
Real Estate Mortgage which consolidated their loans amounting to P5, 916,117.50; dacion in payment wherein
spouses Ong assigned their mortgaged properties to Roban to settle their total obligation and Memorandum of
Agreement (MOA) in which the dacion in payment agreement will be automatically enforced in case spouses
Ong fail to pay within one year from the execution of the agreement. Spouses Ong filed a complaint before
Regional Trial Court of Tarlac City to declare the mortgage contract, dacion in payment agreement, and MOA
void. Spouses Ong allege that the dacion in payment agreement is pactum commissorium, and therefore void. In
its Answer with counterclaim, Roban alleged that the dacion in payment agreement is valid because it is a
special form of payment recognized under Article 1245 of the Civil Code. RTC ruled in favor of Roban, finding
that there was no pactum commissorium. The Court of Appeals upheld the RTC decision.
Issue: Whether or not the dacion in payment agreement entered into by Spouses Ong and Roban constitutes
pactum commissorium
Ruling: Yes. The Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of the Civil Code which provides that the creditor cannot
appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary
is null and void
The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged
property without the need of any foreclosure proceedings, are: (1) there should be a property mortgaged by way
of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within
the stipulated period.
PLEDGE
G.2 Estate of G. Litton vs. Mendoza, 163 SCRA 246 [1988]
Plaintiff in a case, who has previously assigned in favor of his creditor his litigated credit in said case, by a
deed of assignment which was duly submitted to the court, entered into a compromise agreement thereafter
releasing the defendant therein from his claim without notice to his assignee.
FACTS: Tan brought an action against Mendoza for the collection of a sum of money. While the case was
pending resolution, Tan assigned in favor of Litton by way of securing or guaranteeing Tans obligation to
Litton his litigated credit against Mendoza duly submitted to the court with notice to the parties. The lower court
ruled in favor of Tan. Subsequently, pending resolution of the appeal of Mendoza to the Court of Appeals,
Mendoza entered into a compromise agreement with Tan wherein Tan acknowledged that all his claims against
Mendoza had been settled.
After the Court of Appeals rendered a decision affirming in toto the decision of the lower court, Mendoza filed a
motion for reconsideration praying that said decision be set aside, principally anchored upon the ground that a
compromise agreement was entered into between him and Tan which, in effect, released Mendoza from liability.
The validity of the guarantee or pledge in favor of Litton has not been questioned and it appears that the deed of
assignment fulfills the requisites of a valid pledge or mortgage.
ISSUE: Whether the compromise agreement was valid
RULING: No. Although Menodza may validly alienate the litigated credit under Article 1634, said provision
should not be taken to mean as a grant of an absolute right on the part of the assignor (Tan) to indiscriminately
dispose of the thing or the right given as security. It should be read in consonance with Article 2097. Although
the pledgee or assignee (Litton) did not ipso facto become the creditor of Mendoza, the pledge being valid, the
incorporeal right assigned by Tan in favor of Litton can only be alienated by Tan with due notice to and consent
of Litton or his duly authorized representative. To allow the assignor to dispose of or alienate the security
without notice to and consent of the assignee will render nugatory the very purpose of a pledge or an
assignment of credit. Moreover, under Article 1634, the debtor (Mendoza) has a corresponding obligation to
reimburse the assignee (Litton) for the price the latter paid or for the value given in consideration for the deed of
assignment. Failing in this, the alienation of the litigated credit made by Tan in favor of Mendoza by way of a
compromise agreement does not bind Litton.
Furthermore, having knowledge of the assignment, Mendoza was estopped from entering into the compromise
agreement without notice to and consent of Litton, more so, in the light of the fact that no reimbursement has
ever been made in favor of Litton as required under Article 1634. M acted in bad faith and in connivance with
Tan so as to defraud Litton in entering into the compromise agreement.
H.2 Manila Banking Corp. vs. Teodoro, Jr., 169 SCRA 95 [1989]
FACTS: Anastacio Teodoro, Sr. and defendants, jointly and severally, executed in favor of plaintiff 3
Promissory Notes for the sum of P10,420.00, P8,000.00 and P1,000.00 at 12% interest per annum. Defendants
partially paid the 2nd one but failed to pay the amounts on the others in spite of repeated demands. Prior to the
execution of the Promissory notes, the Son executed in favor of plaintiff a Deed of Assignment of Receivables
from the Emergency Employment Administration (EEA) in the sum of P44,635.00. The Deed of Assignment
provided that it was for and in consideration of certain credits, loans, overdrafts and other credit
accommodations extended to defendants as security for the payment of said sum and the interest thereon. Due to
the failure of the defendants to pay and the plaintiffs failure to collect from the EEAs successor, Philippine
Fisheries Commission, the instituted the action for the collection of money. The defendants claim that by the
deed of assignment, the loan had already been paid.
ISSUES: (1) Whether the assignment of receivables has the effect of payment of all the loans contracted by the
spouses and (2) whether MBC must exhaust all legal remedies against Philippine Fisheries Corp before it can
proceed against the spouses.
RULING: Definitely, the assignment of the receivables did not result from a sale transaction. It cannot be said
to have been constituted by virtue of a dation in payment for appellants' loans with the bank evidenced by
promissory notes. At the time the deed of assignment was executed, said loans were non-existent yet. The deed
of assignment was executed on January 24, 1964 while promissory note is dated April 25, 1966. At most, it was
a dation in payment for P10,000.00, the amount of credit from appellee bank indicated in the deed of
assignment. At the time the assignment was executed, there was no obligation to be extinguished except the
amount of P10,000.00. Moreover, in order that an obligation may be extinguished by another which substitutes
the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be
on every point incompatible with each other (Article 1292, New Civil Code). Obviously, the deed of assignment
was intended as collateral security for the bank loans of appellants, as a continuing guaranty for whatever sums
would be owing by defendants to plaintiff, as stated in stipulation of the deed. In case of doubt as to whether a
transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser
transmission of rights and interests. As to the second issue, the obligation of appellants under the promissory
notes not having been released by the assignment of receivables, appellants remain as the principal debtors of
appellee bank rather than mere guarantors. The deed of assignment merely guarantees said obligations. That the
guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor,
and has resorted to all the legal remedies against the debtor, under Article 2058 of the New Civil Code does not
therefore apply to them. It is of course of the essence of a contract of pledge or mortgage that when the principal
obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment
to the creditor (Article 2087, New Civil Code). In the instant case, appellants are both the principal debtors and
the pledgors or mortgagors. Resort to one is, therefore, resort to the other.
I.2 Yau Chu v. CA

Facts: Petitioner Victoria Yau Chu, had been purchasing cement on credit from CAMS Trading and to guarantee
payment, she executed deeds of assignment of her time deposits in the total sum P320,000 in the Family
Savings Bank in favor of CAMS Trading.
This was prepared by her lawyer ..That the assignment serves as a collateral or guarantee for the payment of
my obligation with the said CAMS TRADING ENTERPRISES, INC. on account of my cement withdrawal
from said company, per separate contract executed between us.
CAMS Trading notified the Bank that Mrs. Chu had an unpaid account with in the sum of P314,639.75 CAMS
trading requested to encash the time deposits and submitted a letter of Mrs Chu admitting her outstanding
account of 404,500 with CAMS Trading. After Mrs. Chus conformity, the bank agreed to encash and delivered
to CAMS Trading the sum of P283,737.75 only since the other certificates lacked signature. RTC dismissed the
complaint for lack of merit and the Court of Appeals affirmed the dismissal.
Issues: Whether the Court of Appeals erred in not annulling the encashment of her time deposit certificates as
pactum commissorium.
Ruling: Not a pacto commisorio. The deeds of assignment were contracts of pledge but, as the collateral was
also money or an exchange of peso for peso the provision in Article 2112 of the Civil Code for the sale of the
thing pledged at public auction to convert it into money to satisfy the pledgors obligation, did not have to be
followed. All that had to be done to convert the pledgors time deposit certificates into cash was to present them
to the bank for encashment after due notice to the debtor. The encashment of the deposit certificates was not a
pacto commissorio which is prohibited under Article 2088 of the Civil Code. A pacto commissorio is a
provision for the automatic appropriation of the pledged or mortgaged properly by the creditor in payment of
the loan upon its maturity. The prohibition against a pacto commissorio is intended to protect the obligor,
pledger, mortgagor against being overreached by his creditor who holds a pledge or mortgage over property
whose value is much more than the debt.
J.2 Citibank vs. Sabeniano, 504 SCRA 378 [2006]

FACTS: Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking corporation
duly authorized and existing under the laws of the United States of America and licensed to do commercial
banking activities and perform trust functions in the Philippines. Petitioner Investors Finance Corporation,
which did business under the name and style of FNCB Finance, was an affiliate company of petitioner Citibank.
Respondent Modesta Sabeniano was a client of both petitioners Citibank and FNCB Finance. Respondent filed
a Complaint against petitioners before the RTC of Makati City. Respondent claimed to have substantial deposits
and money market placements with the petitioners; the proceeds of which were supposedly deposited
automatically and directly to respondents accounts with petitioner Citibank. Respondent alleged that petitioners
refused to return her deposits and the proceeds of her money market placements despite her repeated demands.
Petitioners admitted that respondent had deposits and money market placements with them, including dollar
accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva). Petitioner alleged that respondent
obtained several loans from the former and is in default, Citibank exercised its right to set-off respondents
outstanding loans with her deposits and money. Thus, petitioners prayed for the dismissal of the Complaint and
for the award of actual, moral, and exemplary damages, and attorneys fees.
ISSUE: Whether the liquidation of respondents outstanding loans were valid
RULING: The liquidation of respondents outstanding loans were valid in so far as petitioner Citibank used
respondents savings account with the bank and her money market placements with petitioner FNCB Finance;
but illegal and void in so far as petitioner Citibank used respondents dollar accounts with Citibank-Geneva.
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of
respondents dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. As for the dollar
accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans,
petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions were
evidently not the principal creditor of each other. Therefore, this Court declares that the remittance of
respondents dollar accounts from Citibank-Geneva and the application thereof to her outstanding loans with
petitioner Citibank was illegal, and null and void.
CHATTEL MORTGAGE
K.2 PCI Leasing v. Trojan Metal
FACTS: Trojan Metal Industries, Inc. (TMI) came to petitioner PCI Leasing and Finance, Inc. (PCILF) to seek
a loan. Instead of extending a loan, PCILF offered to buy various equipment TMI owned. Hard-pressed for
money, TMI agreed. PCILF and TMI immediately executed deeds of sale evidencing TMIs sale to PCILF of the
various equipment.
PCILF and TMI then entered into a lease agreement. Pursuant to the lease agreement, TMI issued
postdated checks. The lease agreement required TMI to give PCILF a guaranty deposit of P1,030,350.00, which
would serve as security for the timely performance of TMIs obligations under the lease agreement, to be
automatically forfeited should TMI return the leased equipment before the expiration of the lease agreement.
Further, spouses Walfrido and Elizabeth Dizon, as TMIs President and Vice-President, respectively
executed in favor of PCILF a Continuing Guaranty of Lease Obligations. Under the continuing guaranty, the
Dizon spouses agreed to immediately pay whatever obligations would be due PCILF in case TMI failed to meet
its obligations under the lease agreement.
To obtain additional loan from another financing company, TMI used the leased equipment as temporary
collateral. PCILF considered the second mortgage a violation of the lease agreement. PCILF sent TMI a
demand letter for the payment of the latters outstanding obligation. However, PCILFs demand remained
unheeded.
PCILF filed in the Regional Trial Court a complaint against TMI for recovery of sum of money and
personal property with prayer for the issuance of a writ of replevin.
RTC issued the writ of replevin PCILF prayed for, directing the sheriff to take custody of the leased
equipment. Not long after, PCILF sold the leased equipment to a third party.
In their answer, respondents claimed that the sale with lease agreement was a mere scheme to facilitate
the financial lease between PCILF and TMI. Respondents explained that in a simulated financial lease, property
of the debtor would be sold to the creditor to be repaid through rentals; at the end of the lease period, the
property sold would revert back to the debtor. Respondents prayed that they be allowed to reform the lease
agreement to show the true agreement between the parties, which was a loan secured by a chattel mortgage.
In its decision, the RTC granted the prayer of PCILF in its complaint. The RTC ruled that the lease
agreement must be presumed valid as the law between the parties even if some of its provisions constituted
unjust enrichment on the part of PCILF.
Respondents appealed to the Court of Appeals. The Court of Appeals set aside the Decision of the RTC
and ruled that the sale with lease agreement was in fact a loan secured by chattel mortgage.
ISSUE: Whether the sale with lease agreement the parties entered into was a financial lease or a loan secured
by chattel mortgage.
RULING: in a true financial leasing, a finance company purchases on behalf of a cash-strapped lessee the
equipment the latter wants to buy but, due to financial limitations, is incapable of doing so. The finance
company then leases the equipment to the lessee in exchange for the latters periodic payment of a fixed amount
of rental.
In this case, however, TMI already owned the subject equipment before it transacted with PCILF.
Therefore, the transaction between the parties in this case cannot be deemed to be in the nature of a financial
leasing as defined by law.
In the present case, since the transaction between PCILF and TMI involved equipment already owned by
TMI, it cannot be considered as one of financial leasing, as defined by law, but simply a loan secured by the
various equipment owned by TMI.
PCILFs sale to a third party of the mortgaged equipment and collection of the proceeds of the sale can
be deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortgagee.
L.2 Acme Shoe Rubber & Plastic Corp. vs. Court of Appeals, 260 SCRA 714 [1996]
FACTS: Petitioner Chua Pac, the president and general manager of co-petitioner Acme executed a chattel
mortgage in favor of private respondent Producers Bank as a security for a loan of P3,000,000. A provision in
the chattel mortgage agreement was to this effect: "In case the MORTGAGOR executes subsequent promissory
note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any
other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases
of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the
said promissory note or notes and/or accommodations without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations
were existing on the date thereof. This mortgage shall also stand as security for said obligations and any and all
other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such
obligations have been contracted before, during or after the constitution of this mortgage." In due time, the loan
of P3,000,000.00 was paid. Subsequently it obtained additional loan totalling P2,700,000.00 which was also
duly paid. Another loan was again extended (P1,000,000.00) covered by four promissory notes for P250,000.00
each, but went unsettled prompting the bank to apply for an extrajudicial foreclosure with the Sheriff.
ISSUE: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend
its coverage to obligations yet to be contracted or incurred?
RULING: No. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage
to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering
the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the
borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on
the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of
foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage
sought to be foreclosed.
M.2 Makati leasing v. Wearever

FACTS: Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati Leasing and
Finance Corporation covering certain raw materials and machinery. Upon default, Makati Leasing filed a
petition for judicial foreclosure of the properties mortgaged. Acting on Makati Leasings application for
replevin, the lower court issued a writ of seizure. Pursuant thereto, the sheriff enforcing the seizure order and
removed the main motor of the subject machinery. In a petition for certiorari and prohibition, the Court of
Appeals ordered the return of the machinery on the ground that the same cannot be the subject of replevin
because it is a real property pursuant to Article 415 of the new Civil Code, the same being attached to the
ground by means of bolts and the only way to remove it from Wearever textiles plant would be to drill out or
destroy the concrete floor. When the motion for reconsideration of Makati Leasing was denied by the Court of
Appeals, Makati Leasing elevated the matter to the Supreme Court.
ISSUE: Whether or not the machinery in suit is real or personal property from the point of view of the parties.
RULING: The said machinery is a personal property. Like what was involved in the Tumalad case, if a house of
strong materials, may be considered as personal property for purposes of executing a chattel mortgage thereon,
as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is
estopped from the denying the existence of the chattel mortgage. The decision of the Court of Appeals was set
aside and the order of the lower court was reinstated.
N.2 Dy, Jr. vs. Court of Appeals, 198 SCRA 826 [1991]
FACTS: Wilfredo DY purchased a truck and farm tractor thru financing by Libra Finance and Investment Corp.
Both truck and tractor were mortgaged to Libra as security for the loan. Petitioner, brother of Wilfredo Dy,
requested from Libra to be allowed to purchase from Wilfredo the said tractor and assume the mortgaged debt
of the latter. Libra approved the request provided that full payment for both the tractor and the truck be made.
Their sister Carol Dy-Seno purchased the truck so full payment could be made for both. Meanwhile, a
collection case by Gelac Trading Inc. was pending in another court against Wilfredo. On the strength of an alias
write of execution, the provincial sheriff was able to seize and levy on the tractor which was in the premises of
Libra. The tractor was subsequently sold at public auction where Gelac Trading was the lone bidder and later
sold it to Antonio Gonzales.
Petitioner filed an action to recover the tractor against Gelac Trading with the RTC Cebu. The trial court
rendered judgment in favor of petitioner. However, on appeal, the decision was reversed holding that the tractor
still belonged to Wilfredo when it was seized and levied by the sheriff.
ISSUE: Whether ownership belonged to petitioner at the time the tractor was levied on by the sheriff
RULING: Yes. The mortgagor who gave the property as security under a chattel mortgage did not part
with he ownership over the same. He had the right to sell it although he was under the obligation to secure the
written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article
319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of
the sale would still not be affected.
Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject tractor. There is no
dispute that the consent of Libra Finance was obtained in the instant case. In a letter dated August 27, 1979,
Libra allowed the petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale
between the brothers was therefore valid and binding as between them and to the mortgagee, as well.
Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee. We agree with the
petitioner that Articles 1498 and 1499 are applicable in the case at bar.
O.2 Servicewide Specialists v. CA
DOCTRINE: The rule is settled that the chattel mortgagor continues to be the owner of the property, and
therefore, has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the
written consent of the mortgagee. Thus, the instruments of mortgage are binding, while they subsist, not only
upon the parties executing them but also upon those who later, by purchase or otherwise, acquire the properties
referred to therein
FACTS: Galicano Siton purchased from Car Traders Philippines, Inc. a vehicle and paid a downpayment of the
price. The remaining balance includes not only the remaining principal obligation but also advance interests and
premiums for motor vehicle insurance policies. Siton executed a promissory note in favor of Car Traders
Philippines, Inc. expressly stipulating that the face value of the note shall be payable, without need of notice of
demand, in instalments. There are additional stipulations in the Promissory Note consisting of, among others,
that if default is made in the payment of any of the installments or interest thereon, the total principal sum then
remaining unpaid, together with accrued interest thereon shall at once become due and demandable. As further
security, Siton executed a Chattel Mortgage over the subject motor vehicle in favor of Car Traders Philippines,
Inc. The credit covered by the promissory note and chattel mortgage executed by respondent Galicano Siton
was first assigned by Car Traders Philippines, Inc. in favor of Filinvest Credit Corporation.
Subsequently, Filinvest Credit Corporation likewise reassigned said credit in favor of petitioner Servicewide
Specialists, Inc. Siton was advised of this second assignment. When Siton failed to pay, Servicewide Specialists
filed this action against Galicano Siton and John Doe. After the service of summons, Justiniano de Dumo,
identifying himself as the John Doe in the Complaint, inasmuch as he is in possession of the subject vehicle,
filed his Answer with Counterclaim and with Opposition to the prayer for a Writ of Replevin.
Siton alleged the fact that he has bought the motor vehicle from Galicano Siton; that de Dumo and Siton
testified that, before the projected sale, they went to a certain. Atty. Villa of Filinvest Credit Corporation
advising the latter of the intended sale and transfer. Siton and de Dumo were accordingly advised that the verbal
information given to the corporation would suffice, and that it would be tedious and impractical to effect a
change of transfer of ownership as that would require a new credit investigation as to the capacity and
worthiness of Atty. De Dumo, being the new debtor. The further suggestion given by Atty. Villa is that the
account should be maintained in the name of Galicano Siton.; that as such successor, he stepped into the rights
and obligations of the seller; that he has religiously paid the installments as stipulated upon in the promissory
note. He also manifested that the Answer he has filed in his behalf should likewise serve as a responsive
pleading for his co-defendant Galicano Siton.
ISSUE: Whether or not the mortgagee is bound by the deed of sale by the mortgagor in favour of a third person,
as neither the mortgagee nor its predecessors has given written or verbal consent thereto pursuant to the deed of
Chattel Mortgage.
RULING: The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of
a third person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under
the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel
Mortgage. The rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore,
has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the written
consent of the mortgagee. Thus, the instruments of mortgage are binding, while they subsist, not only upon the
parties executing them but also upon those who later, by purchase or otherwise, acquire the properties referred
to therein
There is no dispute that the Deed of Chattel Mortgage executed between Siton and the petitioner requires the
written consent of the latter as mortgagee in the sale or transfer of the mortgaged vehicle. We cannot ignore the
findings, however, that before the sale, prompt inquiries were made by private respondents with Filinvest Credit
Corporation regarding any possible future sale of the mortgaged property; and that it was upon the advice of the
companys credit lawyer that such a verbal notice is sufficient and that it would be convenient if the account
would remain in the name of the mortgagor Siton.
Even the personal checks of de Dumo were accepted by petitioner as payment of some of the installments under
the promissory note. If it is true that petitioner has not acquiesced in the sale, then, it should have inquired as to
why de Dumos checks were being used to pay Sitons obligations.
P.2 RCBC v. Royal Cargo Corp

Terrymanila Inc. has 2 creditors: 1. RCBC, 3 million; and Royal Cargo Corporation, P 296,662.16.
The 3-million debt was secured by a chattel mortgage dated February 1989 [which was duly recorded in the
notarial registry of Atty Amado Castano, for the province of Bataan].
The P296k debt for collection was filed by Royal Cargo against Terrymanila on March 1991 praying for the said
judgment award, excluding interests and attorneys fees; and the RTC Manila Decision was made in favor of
Royal Cargo.
Terrymanila filed for voluntary insolvency with RTC Bataan on February 1991 and was declared insolvent in
April 1991.
In the insolvency proceedings, RCBC intervened and asked from the court the permission to extrajudicially
foreclose the chattel mortgage which was granted in February 1992. Royal Cargo moved to reconsider the order
but the motion was denied.
The provincial sheriff of Bataan scheduled on June 16, 1992 the public auction sale of the mortgaged personal
properties at the Municipal Building of Mariveles, Bataan. At the auction sale, RCBC, the sole bidder of the
properties, purchased them for P1.5 Million; eventually sold the properties to Domingo Bondoc and Victoriano
See.
Royal Cargo later filed a petition before the RTC Manila, against the Provincial Sheriff of the RTC Bataan and
RCBC, for annulment of the auction sale. Royal Cargo questioned: 1. The inclusion of some properties it had
attached in the auction sale and; 2. the failure to duly notify it of the sale at least 10 days before the sale, citing
Section 14 of Act No. 1508 or the Chattel Mortgage Law. Royal Cargo alleged that he received the notice of
auction sale on the day of the sale.
RCBC filed a motion to dismiss, contending that Royal Cargo has no cause of action to annul the sale; however
this was denied.
The RTC Manila rendered decision that RCBC should pay Royal Cargo the P296k + 8k as reasonable attorneys
fees.
Both RCBC and Royal Cargo appealed the case to the CA.
RCBCs appeal was denied.
Royal Cargos appeal was partly granted on the ground that the right to be timely informed of the foreclosure
sale was violated:
1 Attorneys fees was increased from 8k to 50k;

2 100k exemplary damages;
3 12% per annum interest to applied to the principal P296k.
Hence, the petition to the SC by RCBC.
ISSUE:
WHETHER OR NOT RESPONDENT SHOULD HAVE BEEN GIVEN A TEN(10)-DAY PRIOR NOTICE OF
THE JUNE 16, 1992 FORECLOSURE SALE
RULING: The SC finds it to be immaterial to the case that RCBC has the duty to inform Royal Cargo of the
public auction sale.
Section 13 of the Chattel Mortgage Law allows the would-be redemptioner thereunder to redeem the mortgaged
property only before its sale. the redemption cited in Section 13 partakes of an equity of redemption, which is
the right of the mortgagor to redeem the mortgaged property after his default in the performance of the
conditions of the mortgage but before the sale of the property to clear it from the encumbrance of the mortgage.
It is not the same as right of redemption which is the right of the mortgagor to redeem the mortgaged property
after registration of the foreclosure sale, and even after confirmation of the sale.
While respondent had attached some of Terrymanilas assets to secure the satisfaction of a P296,662.16
judgment rendered in another case, what it effectively attached was Terrymanilas equity of redemption. That
respondents claim is much lower than the P1.5 million actual bid of petitioner at the auction sale does not defeat
respondents equity of redemption.
Also noted, the chattel mortgage in favor of RCBC was registered more than 2 years before the issuance of a
writ of attachment over some of Terrymanilas chattels in favor of Royal Cargo. This is significant in
determining who between parties should be given preference over the subject properties. Since the registration
of a chattel mortgage is an effective and binding notice to other creditors of its existence and creates a real right
or lien that follows the property wherever it may be, the right of Royal Cargo, as an attaching creditor or as
purchaser, had it purchased the mortgaged chattel at the auction sale, is subordinate to the lien of the mortgagee
who has in his favor a valid chattel mortgage.
Lastly, Royal Cargo was not really prejudiced by the auction sale, because there are still other unencumbered
assets which are sufficient to cover other obligations.
Petition was granted. CA decision was reversed and set aside.
A.3 Servicewide Specialists, Inc. vs. Court of Appeals, 318 SCRA 493 [1999]
FACTS: 1. Leticia Laus purchased on credit a Colt Galant xxx from Fortune Motors (Phils.) Corporation and
executed a promissory note for the amount of P56,028.00, inclusive of 12% annual interest, payable within a
period of 48 months. In case of default in the payment of any installment, the total principal sum, together with
the interest, shall become immediately due and payable.
2. As a security for the promissory note, a chattel mortgage was constituted over the said motor vehicle, with a
deed of assignment incorporated therein such that the credit and mortgage rights were assigned by Fortune
Motors Corp. in favor of Filinvest Credit Corporation with the consent of the mortgagor-debtor Laus.
3. Filinvest in turn assigned the credit in favor of Servicewide Specialists, Inc.
4. Laus failed to pay the monthly installment for April 1977 and the succeeding 17 months. Servicewide
demanded payment of the entire outstanding balance with interests but Laus failed to pay despite formal
demands.
5. As a result of Laus failure to settle her obligation, or at least to surrender possession of the motor vehicle for
foreclosure, Servicewide instituted a complaint for replevin, impleading Hilda Tee and John Dee in whose
custody the vehicle was believed to be at the time of the filing of the suit. Plaintiff alleged, among others, that it
had superior lien over the mortgaged vehicle. The court approved the replevin bond.
6. Alberto Villafranca filed a third party claim contending that he is the absolute owner of the subject motor
vehicle after purchasing it from a certain Remedios Yang free from all lien and emcumbrances; and that on July
1984, the said automobile was taken from his residence by Deputy Sheriff Bernardo Bernabe pursuant to the
seizure order issued by the court a quo.
7. Upon motion of the plaintiff below, Villafranca was substituted as defendant and summons was served upon
him. Villafranca moved for the dismissal of the complaint on the ground that there is another action pending
between the same parties before the Makati RTC. The court granted the the motion but subsequently set aside
the order of dismissal. For failure to file his Answer as required by the court a quo, Villafranca was declared in
default and plaintiffs evidence was received ex parte.
8. The lower court later on dismissed the complaint for insufficiency of evidence. Its motion for reconsideration
having been denied, petitioner appealed to CA on the ground that a suit for replevin aimed at the foreclosure of
a chattel is an action quasi in rem, and does not require the inclusion of the principal obligor in the Complaint.
9. CA affirmed the RTC decision. It also denied petitioners MR, hence, the present petition for review on
certiorari under Rule 45.
ISSUE: W/N a case for replevin may be pursued against the defendant, Alberto Villafranca, without impleading
the absconding debtor-mortgagor
RULING: No. An applicant for replevin must show that he is the owner of the property claimed, particularly
describing it, or is entitled to the possession thereof. Where the right of the plaintiff to the possession of the
specified property is so conceded or evident, the action need only be maintained against him who so possesses
the property.
However, in case the right of possession on the part of the plaintiff, or his authority to claim such possession or
that of his principal, is put to great doubt (a contending party may contest the legal bases for plaintiffs cause of
action or an adverse and independent claim of ownership or right of possession may be raised by that party), it
could become essential to have other persons involved and impleaded for a complete determination and
resolution of the controversy.
In a suit for replevin, a clear right of possession must be established. The conditions essential for foreclosure of
chattel mortgage would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of the
mortgagor. Since the mortgagees right of possession is conditioned upon the actual fact of default which itself
may be controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be required in
order to allow a full and conclusive determination of the case. Laus, being an indispensable party, should have
been impleaded in the complaint for replevin and damages. An indispensable party is one whose interest will be
affected by the courts action in the litigation, and without whom no final determination of the case can be had.
Petition DENIED.
B.3 PAMECA Wood Treatment Plant, Inc. vs. Court of Appeals, 310 SCRA 281 [1999]
FACTS: PAMECA loaned P2M from DBP and executed a promissory note, secured by its inventory of
furniture and equipment. PAMECA defaulted thus DBP extrajudicially foreclosed on the chattels. DBP was the
only bidder so it was able to buy said property for P322K. Subsequently for the deficiency, it filed a complaint
against PAMECA and its solidary debtors, according to the promissory note it signed.
ISSUE: Whether an action can be instituted for deficiency of a debt after a foreclosure of the chattel mortgage.
RULING: Yes. Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-mortgagee
from retaining the excess of the sale proceeds, there is a corollary obligation on the part of the debtor-mortgagee
to pay the deficiency in case of a reduction in the price at public auction.
REAL ESTATE MORTGAGE

C.3 Prudential Bank vs. Alviar, 464 SCRA 353 [2005]
Doctrine: 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 first offer.
FACTS: Spouses Alviar are the registered owners of a parcel of land in San Juan, Metro Manila. They executed
a deed of real estate mortgage of the said property in favor of petitioner Prudential Bank to secure the payment
of a loan worth P250,000.00. (PN BD#75/C-252) was then issued 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 with ablanket mortgage clause or thedragnet
clause. The spouses thereafter issued other promissory notes (PN): PN BD#76/C-345 for P2,640,000.00,
secured by D/A SFDX #129, signifying that the loan was secured by a hold-out on the mortgagors foreign
currency savings account with the bank under Account No. 129. In the name of Donalco Trading, Inc., PN
BD#76/C-430 covering P545,000.000 to be secured by Clean-Phase out TOD CA 3923. Bank also mentioned
in their approval letter that additional securities for the loan were the deed of assignment on two PNs executed
by Bancom Realty and the chattel mortgage on various heavy and transportation equipment.
Spoused Alviar paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2)
lots in San Juan, Metro Manila. The payment was acknowledged by petitioner who accordingly released the
mortgage over the two properties.
Prudential Bank moved for the extrajudicial foreclosure of the mortgage on the property since respondents had
the total obligation of P1,608,256.68, covering the three (3) promissory notes. Respondents then filed a
complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC of Pasig,
claiming that they have paid their principal loan secured by the mortgaged property, and thus the mortgage
should not be foreclosed. RTC, on its final decision, favored respondents saying that the extrajudicial
foreclosure was improper for the mortgage only covers the first loan of P250,000 CA affirmed the decision of
the RTC
Issue: WON real estate mortgage secures only the first loan of P250,000.
RULING: Yes. While the existence and validity of the dragnet clause cannot be denied, there is a need to
respect the existence of the other securities given for the two other promissory notes. The foreclosure of the
mortgaged property should only then be for theP250,000.00 loan covered by PN BD#75/C-252, and for any
amount not covered by the security for the second promissory note.
Petitioner and respondents intended the real estate mortgage to secure not only the P250,000.00 loan from the
petitioner, but also future credit facilities and advancements that may be obtained by the respondents. However,
the subsequent loans obtained by respondents were secured by other securities. 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. 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. This ambiguity shall be interpreted strictly against petitioner for having drafted the same.
Petitioner, however, is not without recourse. Both the lower courts found that respondents have not yet paid the
P250,000.00. Thus, the mortgaged property could still be properly subjected to foreclosure proceedings for the
unpaid P250,000.00 loan.
D.3 Peoples Bank & Trust Co. vs. Dahican Lumber Co., 26 SCRA 84 [1967]
FACTS: Dahican Lumber Co. (DALCO) obtained a loan from People's Bank and Trust Co. (Bank) secured by
a deed of mortgage covering 5 parcels of land together with all the buildings and other improvements existing
thereon and all the personal properties of DALCO located in its place of business. After the day of the execution
of the mortgage, DALCO purchased various machinery, equipment, spare parts and supplies. Pursuant to the
provision of the mortgage deeds regarding "after acquired properties", the Bank requested DALCO to submit
complete list of the said properties but DALCO refused to do so.
ISSUE: WON the "after acquired properties" were subject to the deeds of mortgage mentioned
RULING: It is clear that all property of every nature and description taken in exchange or replacement. As well
as all buildings, machineries, fixtures, tools, equipment, 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. Such stipulation is neither unlawful or
immoral. It's obvious purpose being to maintain, to the extent allowed by circumstances, the original value of
the properties given as security. Art. 415 of the NCC does not define real property but enumerates what are
considered as such, among them being machinery, receptacles, instruments or replacements intended by the
owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and
shall tend directly to meet the needs of the said industry or works.
E.3 Star Two v. Paper City Corp

FACTS: Respondent Paper City is a domestic corporation engaged in the manufacture of paper products. Paper
City applied for and was granted loans and credit accommodations in peso and dollar denominations by RCBC
secured by 4 Deeds of Continuing Chattel Mortgages on its machineries and equipment found inside its paper
plants.
Paper city had an original loan with RCBC amounting to P 110M which was partly secured by various parcels
of land located in Valenzuela City. A Mortgage Trust Indenture (MTI) was entered into by RCBC, Metrobank,
and Union Bank with Paper City to acquire and additional loan of P170M, which will also be secured with the
same real estate mortgages of the old loan and additional real and personal properties of Paper City. Second and
Third amendments to the MTI were entered into by creditor banks and paper city, increasing the loan to
P555M, which still included as part of the mortgaged properties by way of a first mortgage the various
machineries and equipment located in and bolted to and/or forming part of buildings.
Paper City was able to comply with its loan obligations but economic crisis ensued which made it difficult for
Paper City to meet the terms of its obligations leading to payment defaults. Consequently, RCBC filed a Petition
for the extra-judicial foreclosure of eight parcels of land including all improvements thereon which were sold in
favor of the creditor banks RCBC, Union Bank and Metrobank as the highest bidders.
Paper City filed a complaint against the creditor banks alleging that the extra-judicial sale of the properties and
plants was null and void due to lack of prior notice and attendance of gross and evident bad faith on the part of
the creditor banks. The trial court issued an Order denying the prayer and ruled that the machineries and
equipment were included in the annexes and form part of the MTI.
Paper City filed its Motion for Reconsideration which was favorably granted by the trial court with justification
that the disputed machineries and equipment are chattels by agreement of the parties through their inclusion in
the four Deeds of Chattel Mortgage and the deed of cancellation executed by RCBC was not valid because it
was done unilaterally and without the consent of Paper City.
ISSUE: Whether the subject machineries and equipment were included in the mortgage, extrajudicial
foreclosure and in the consequent sale.
RULING: Yes. By contracts, all uncontested in this case, machineries and equipments are included in the
mortgage in favor of RCBC, in the foreclosure of the mortgage and in the consequent sale on foreclosure also in
favor of petitioner.
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various parcels of
land including the buildings and existing improvements thereon as well as the machineries and equipment,
which as stated in the granting clause of the original mortgage.
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other creditor banks
and Paper City intended from the very first execution of the indentures that the machineries and equipment
enumerated are included. Obviously, with the continued increase in the amount of the loan, totaling hundreds of
millions of pesos, Paper City had to offer all valuable properties acceptable to the creditor banks.
The MTIs did not describe the equipment and machineries as personal property. Considering that the Indenture
which is the instrument of the mortgage that was foreclosed exactly states through the Deed of Amendment that
the machineries and equipment listed form part of the improvements listed and located on the parcels of land
subject of the mortgage, such machineries and equipment are surely part of the foreclosure of the "real estate
properties, including all improvements thereon" as prayed for in the petition.
The real estate mortgage over the machineries and equipment is even in full accord with the classification of
such properties by the Civil Code of the Philippines as immovable property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of
the said industry or works;
F.3 Garcia v. Villar

Facts: Galas mortgaged the subject property to Villar, and the same property was also subsequently mortgaged
by the same mortgagor to Gacia. Both REMs provided that the mortgagees consent is necessary in case of
subsequent encumbrance or alienation of the property. Galas sold said property to Villar. Upon default of Galas,
Garcia sought to foreclose the property. Villar opposed saying that the second REM made in favour of Garcia
was without her knowledge and consent, hence void.
Issue: WON Garcia could judicially foreclose the subject property?
Ruling: Yes. we find that said mortgage subsists and is still enforceable. However, Villar, in buying the subject
property with notice that it was mortgaged, only undertook to pay such mortgage or allow the subject property
to be sold upon failure of the mortgage creditor to obtain payment from the principal debtor once the debt
matures. Villar did not obligate herself to replace the debtor in the principal obligation, and could not do so in
law without the creditors consent. Therefore, the obligation to pay the mortgage indebtedness remains with the
original debtors Galas and Pingol. In view of the foregoing, Garcia has no cause of action against Villar in the
absence of evidence to show that the second mortgage executed in favor of Garcia has been violated by his
debtors, Galas and Pingol, i.e., specifically that Garcia has made a demand on said debtors for the payment of
the obligation secured by the second mortgage and they have failed to pay.
The Reason is the mortgage is merely an encumbrance on the property, entitling the mortgagee to have the
property foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage debt, and apply the
proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory undertaking for the
convenience and security of the mortgage creditor, and exists independently of the obligation to pay the debt
secured by it. The mortgagee, if he is so minded, can waive the mortgage security and proceed to collect the
principal debt by personal action against the original mortgagor
G. 3 Korea Exchange Bank v. Filkor
FACTS: Respondent FILKOR had three transactions with the respondent KOREA EXCHANGE BANK:
1. Borrowed US$ 40,000.00, of which only US$ 40,000.00 was paid;
2. Executed nine (9) trust receipt but failed to turn over the proceeds of the goods or the goods themselves;
and
3. Negotiated the proceeds of seventeen (17) letters of credit, which were all dishonored because of
discrepancies.
To secure payment for these obligations respondent FILKOR executed a Real Estate Mortgage. It mortgaged to
the bank the improvements it constructed on the lot it was leasing in Cavite Export Processing Zone Authority.
Respondents Kim Eung Joe and Lee Han Sang on their part executed a Continuing Suretyship binding
themselves jointly and severally with FILKOR to pay the obligations to the bank. When FILKOR breached all
its obligations, petitioner KOREA EXCHANGE BANK filed a civil case with the RTC of CAVITE. The
petitioner sought to be paid for 27 causes of action and that the mortgaged property be foreclosed and sold at a
public auction in case the respondent fails to pay within ninety days from the entry of judgment. The trial court
rendered a judgment in favor of the petitioner for all 27 actions but failed to order the foreclosure and public
auction of the mortgaged property in the event that FILKOR fails to pay its obligation. Petitioner filed a motion
for partial reconsideration seeking that the relief of foreclosure be granted but such motion was denied saying
that the petitioner in opting to file a civil action for the collection of the defendants obligation, has abandoned
its mortgaged lien on the property subject of the real estate mortgage.
BASIS of THE DECISION: Danao vs. Court of Appeals, 154 SCRA 446, citing Manila Trading and Supply
Co. vs. Co Kim, et al., 71 Phil. 448. 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.
ISSUE: (Assigned by petitioner) Whether or not the petitioner had abandoned the real estate mortgage in its
favor, because it filed a simple collection case. NO (Resultant Issue) Whether or not petitioners 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.
RULING: Yes. It was an action for foreclosure of a real estate mortgage. Petitioners allegations in its
complaint, and its prayer that the mortgaged property be foreclosed and sold at public auction, indicate that
petitioners action was one for foreclosure of real estate mortgage.
In petitioners complaint before the trial court, petitioner alleges: 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. 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.
Prayer of the complaint before the trial court reads as follows: WHEREFORE, it is respectfully prayed that
judgment be rendered: x xx 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. Petitioners action being
one for foreclosure of real estate mortgage the trial should have ordered the foreclosure and public auction of
the mortgaged property 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.
H.3 Huerta Alba Resort, Inc. vs. Court of Appeals, 339 SCRA 534 [2000]
FACTS: Private respondent instituted a civil case as mortgagee-assignee of a loan amounting to P8.5 million
obtained by petitioner from Intercon Fund Resource, Inc. (Intercon). In a complaint for judicial foreclosure of
mortgage private respondent sought the foreclosure of 4 parcels of land mortgaged by petitioner to Intercon
which was granted by the CA. On September 6, 1994, private respondent was declared the highest bidder during
the auction sale and the Certificate of Sale issued in its favor was registered on October 21, 1994. In opposition
to the Motion for Issuance of Writ of Possession, petitioner filed a Motion to Compel Private Respondent to
Accept Redemption on May 2, 1995 ,invoking for the very first time its alleged right to redeem subject
properties under to Section 78 of R.A. No. 337 (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.
ISSUE: Whether petitioner had the right of redemption or equity of redemption over subject properties
RULING: From the various decisions, resolutions and orders a quo , petitioner has been adjudged to have was
only the equity of redemption over subject properties. 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 sheriffs certificate of foreclosure sale. 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. Thus, the claim that petitioner is entitled to the beneficial provisions of the said law - since private
respondents predecessor-in-interest is a credit institution - is in the nature of a compulsory counterclaim which
should have been averred in petitioners answer to the compliant for judicial foreclosure. 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 CA - that the petitioner failed to
exercise its equity of redemption within the prescribed period, redemption can no longer be effected
I.3 Grand Farms Inc. v. CA

Facts: Petitioners filed Civil Case No. 2816-V-88 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. After the bank filed its answer, petitioners requested an admission
by the bank that no formal notice of intention to foreclose the real estate mortgage was sent by the bank to
petitioners. The bank responded and said 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 the basis of implied admission that
no formal notice was served personally, petitioners 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;"
The bank opposed the motion saying that based on other paragraphs (b and d) in the contract, the mortgagor
authorized extra-judicial sale upon breach of contract and that the mortgagee was appointed attorney-in-fact
with full powers upon any breach of the obligations in the contract. The RTC issued an order denying
petitioners' motion for summary judgment. MFR was also denied on the ground that genuine and substantial
issues exist which require the presentation of evidence during the trial. Petitioners filed a petition for certiorari
to CA attacking said orders of denial as having been issued with grave abuse of discretion. CA 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. CA also
denied petitioners MFR.
Issue: Whether the summary judgment was proper.
Ruling: Yes. 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 is no genuine issue of fact, and all the facts are within
the judicial knowledge of the court, summary judgment may be granted. 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. 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. In Community Savings & Loan Association, Inc., et al. vs. Court of Appeals, at al., the
SC held that the stipulation is the law between the parties and as it not contrary to law, morals, good customs
and public policy, the same should be complied with faithfully (Art. 1306 CC). Thus, while publication of the
foreclosure proceedings in the newspaper of general circulation was complied with, personal notice is still
required, 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 Art. 1306. And 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 debtor-mortgagor, the extrajudicial foreclosure proceedings on the property in question are
fatally defective and are not binding on the debtor-mortgagor.
J.3 Medida vs. Court of Appeals, 208 SCRA 887 [1992]

FACTS: Private respondents, Spouses Dolino, alarmed of losing their right of redemption over a parcel of land
from Juan Gandiocho, purchaser of the lot at a foreclosure sale of the previous mortgage in favor of Cebu City
Development Bank, went to Teotimo Abellana, President of the City Savings Bank to obtain a loan of P30, 000.
Prior thereto, their son Teofredo filed a similar loan application and the subject lot was offered as security.
Subsequently they executed a promissory note in favor of CSB. The loan became due and demandable without
the spouses Dolino paying the same, petitioner association caused the extrajudicial foreclosure of the mortgage.
The land was sold at a public auction to CSB being the highest bidder. A certificate of sale was subsequently
issued which was also registered. No redemption was being effected by Sps. Dolino, their title to the property
was cancelled and a new title was issued in favor of CSB. Sps. Dolino then filed a case to annul the sale at
public auction and for the cancellation of certificate of sale issued pursuant thereto,The trial court sustained the
validity of the loan and the real estate mortgage, but annulled the extrajudicial foreclosure on the ground that it
failed to comply with the notice requirement. Unsatisfied, Sps. Dolino interposed a partial appeal to the CA,
assailing the validity of the mortgage executed between them and City Savings Bank, among others. The CA
ruled in favor of private respondents declaring the said mortgage as void. 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. Petitioners then filed a motion for
reconsideration which was denied by respondent court. Hence, this appeal.
ISSUE: Whether a Mortgagor whose property had been extra-judicially 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
RULING: Yes. A mortgage does not involve a transfer, cession or conveyance of the subject property but only
constitutes a lien thereon. There is no obstacle to the legal creation of such a lien even after the auction sale but
during the redemption period since no distinction is made between a mortgage constituted over the property
before or after the auction sale thereof. Such being the case, there would be compliance with the requisites of
Article 2085 of the Civil Code for constitution of another mortgage over the property. A contrary holding would
be inequitable for the mortgagors. Parenthetically, what actually is effected where redemption is seasonably
exercised by the judgment/mortgage debtor is not the recovery of ownership of his land, which was never lost,
but the elimination from his title thereto of the lien created.
K.3 Sps Yap v. Sps Dy

FACTS: The Tirambulos are the registered owners of several parcels of land. The Tirambulos executed a Real
Estate Mortgage in favor of the Rural Bank of Dumaguete, Inc. to secure a loan. Subsequently, the Tirambulos
sold all mortgaged lots to the Dys and the Maxinos without the consent and knowledge of DRBI. This sale was
followed by a default on the part of the Tirambulos to pay their loans to DRBI. Thus, DRBI extrajudicially
foreclosed the mortgage and had the lots sold at public auction.
At the auction sale, DRBI was proclaimed the highest bidder and bought said lots subject to the rights of
redemption of the mortgagor (s) within a period of one (1) year from registration. The certificate of sale,
however, was not registered until almost a year later.
Twelve days after the sale was registered, DRBI sold 3 lots to the Yaps under a Deed of Sale with
Agreement to Mortgage. It is important to note, however, that Lot 3 was not among the five properties
foreclosed and bought by DRBI at public auction.
Well within the redemption period, the Yaps filed a Motion for Writ of Possession alleging that they
have acquired all the rights and interests of DRBI over the foreclosed properties and are entitled to immediate
possession of the same because the one-year redemption period has lapsed without any redemption being made.
Said motion was granted.
Roughly a month before the one-year redemption period was set to expire, the Dys and the Maxinos
attempted to redeem the 3 lots. They tendered an amount to DRBI and the Yaps, but both refused, contending
that the redemption should be for the full amount of the winning bid plus interest for all the foreclosed
properties.
Thus, the Dys and the Maxinos went to the Office of the Sheriff and paid the balance to effect the
redemption. Noticing that Lot 3 was not included in the foreclosure proceedings, the Clerk of Court and
Provincial Sheriff, issued a Certificate of Redemption in favor of the Dys and the Maxinos only for the 2 lots,
and stated in said certificate that Lot 3 is not included in the foreclosure proceedings.
The Yaps refused to take delivery of the redemption price arguing that one of the characteristics of a
mortgage is its indivisibility and that one cannot redeem only some of the lots foreclosed because all the parcels
were sold for a single price at the auction sale.
The Provincial Sheriff inform the Dys and the Maxinos that the tender of the redemption money was
being considered as a consignation.
The Dys and the Maxinos filed Civil Case No. 8426 with the Regional Trial Court for accounting,
injunction, declaration of nullity (with regard to Lot 3) of the Deed of Sale with Agreement to Mortgage, and
damages against the Yaps and DRBI.
Later, the Yaps filed Civil Case for consolidation of ownership, annulment of certificate of redemption,
and damages against the Dys, the Maxinos, the Provincial Sheriff of Negros Oriental and DRBI.
The Civil Cases were tried jointly. The trial court upheld the Deed of Sale with Agreement to Mortgage
between the Yaps and DRBI, thus, ownership of Lots 1, 3 and 6 was transferred to the Yaps.
The trial court further held that the Dys and the Maxinos failed to exercise their rights of redemption
properly and timely. They merely deposited the amount of P50,625.29 with the Sheriff, whereas the amount due
on the mortgage deed is P216,040.93.
Aggrieved by the above ruling, the Dys and the Maxinos elevated the case to the CA. CA rendered a
decision reversing the decision of the trial court. But later on amended that the redemption made by Spouses Dy
and Spouses Maxino with regards to Lot No. 6 is valid.
ISSUE: Whether the requisites of a valid redemption are present.

RULING: The requisites for a valid redemption are: (1) the redemption must be made within twelve (12)
months from the time of the registration of the sale in the Office of the Register of Deeds; (2) payment of the
purchase price of the property involved, plus 1% interest per month thereon in addition, up to the time of
redemption, together with the amount of any assessments or taxes which the purchaser may have paid thereon
after the purchase, also with 1% interest on such last named amount; and (3) written notice of the redemption
must be served on the officer who made the sale and a duplicate filed with the Register of Deeds of the
province.
There is no issue as to the first and third requisites. It is undisputed that the Dys and the Maxinos made
the redemption within the 12-month period from the registration of the sale. The second requisite, the proper
redemption price, is the main subject of contention of the opposing parties. The Yaps argue that P40,000.00
cannot be a valid tender of redemption since the amount of the auction sale was P216,040.93. They further
contend that the mortgage is indivisible so in order for the tender to be valid and effectual, it must be for the
entire auction price plus legal interest. We cannot subscribe to the Yaps argument on the indivisibility of the
mortgage. The Dys and Maxinos can effect the redemption of even only two of the five properties foreclosed.
And since they can effect a partial redemption, they are not required to pay the P216,040.93 considering that it
is the purchase price for all the five properties foreclosed.
L.3 Spouses Suico vs. Philippine National Bank, 531 SCRA 514 [2007]
FACTS: Spouses Suico obtained a loan from PNB secured by a real estate mortgage on real properties in the
name of the former.Sps. Suico failed to pay the obligation prompting PNB to extrajudicially foreclose the
mortgage over the subject properties. Petitioners, thereafter filed a complaint alleging that the extrajudicial
foreclosure conducted and the Certificate of Sale and the Certificate of Finality sale are null and void; During
the foreclosure sale, PNB was the lone bidder. he amount of bid is P8,511,000.00. etitioners alleged that the
outstanding obligation is only P1,991,770.38.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. PNB moved to dismiss citing the pendency of another action between the same properties where
PNB was seeking payment of the balance of petitioners obligation not covered by the proceeds of the auction
sale. RTC denied the Motion to Dismiss. PNB asserted, in its answer, that petitioners had other loans which had
likewise become due. PNB maintained that the outstanding obligation of the petitioners under their regular and
export- related loans was already more than the bid price of P8,511,000.00, 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 P5,503,293.21.RTC declared the extrajudicial foreclosure null and void. 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. 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.CA reversed. Petitioners
offered to redeem the properties several times from 6.5M to 7.5M. 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. 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. Such
failure of PNB does not constitute jurisdictional defect.
ISSUE: Whether or not the extrajudicial foreclosure is valid.
RULING: YES Petitioners argue that since the Notice of Sheriffs Sale stated that their obligation was
only P1,991,770.38 and PNB biddedP8,511,000.00, 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. 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 mortgagors obligation is an act of payment, not payment by dacion; hence, it is the
mortgagees duty to return any surplus in the selling price to the mortgagor. Perforce, a mortgagee who
exercises the power of sale contained in a mortgage is considered a custodian of the fund and, being bound to
apply it properly, is liable to the persons entitled thereto if he fails to do so. And even though the mortgagee is
not strictly considered a trustee in a purely equitable sense, but as far as concerns the unconsumed balance, the
mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption. 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.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 P6,409,814.92, and considering
that the amount of PNBsbid is P8,511,000.00, 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. 6% interest from the time of filing the complaint 12% interest once the
judgment becomes final and executory. 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.
M.3 Cua Lai Chu v. Lacqui & PBC

FACTS: On November 1994 Philippine Bank of Communication (respondent) loaned P3.2M to the petitioners.
To secure the loan, petitioners executed in favor of private respondent a Deed of Real Estate Mortgage. Then in
August 1997: the mortgage was amended, and the loan was increased by P1.8M, making the amount P5M. For
failure of petitioners to pay the full amount of the outstanding loan upon demand, private respondent applied for
the extrajudicial foreclosure of the real estate mortgage. The Trial Court ruled to grant respondents motion for a
declaration of general default and allowed them to present evidence ex parte. Petitioners appealed to the CA.
However, it was dismissed since the counsel for petitioners failed to indicate the updated PTR Number in the
said petition, which is a ground for outright dismissal under B.M 1132. The court held that a proceeding for the
issuance of a writ of possession is ex-parte in nature.
ISSUE: Whether the writ of possession was properly issued despite the pendency of a case questioning the
validity of the extrajudicial foreclosure sale even when petitioners were declared in default.
RULING: The Supreme Court held that since the private respondent had purchased the property at the
foreclosure sale, their right over the said property became absolute, vesting in it the corollary right of
possession. Petitioners cannot oppose or appeal the courts order granting the writ of possession in an ex-parte
proceeding. The remedy of petitioners is to have the sale set aside and the writ of possession cancelled in
accordance with Section 8 of Act No. 3135, as amended:
SEC. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty
days after the purchaser was given possession, petition that the sale be set aside and the writ of
possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or
the sale was not made in accordance with the provisions hereof.
N.3 Sps Tolosa v. UCPB

FACTS: Spouses Tolosa entered into a credit agreement with respondent UCPB. Deeds of real estate mortgage
were executed over four of their properties to secure their credit availments. For their failure to pay their
principal obligation, UCPB foreclosed the mortgage and filed a petition for the extra-judicial sale thereof.
The mortgaged properties were sold at a public auction where UCPB tendered the highest bid. The proceeds of
the sale were credited towards the partial satisfaction of their mortgage obligation. Issued the corresponding
sale, UCPB caused the same to be registered with the Office of the Register of Deeds. Spouses Tolosa failed to
exercise their right to redemption within the prescribed period so UCPB consolidated its ownership over the
subject realties.
UCPB filed an ex-parte petition for issuance of a writ of possession in the cadastral case. Upon the receipt of
notice, SPouses Tolosa filed their opposition calling the RTCs attention to the pendency of the complaint
alleging that the Spouses Tolosa were misled into signing the credit agreement, promissory notes and real estate
mortgage sued upon. Claiming that there was prima facie showing of its invalidity, the Spouses Tolosa prayed
that the issuance of the writ of possession be held in abeyance.
The RTC issued an order, holding in abeyance the issuance of the writ of possession sought by UCPB. Citing
equity and substantial justice as reasons for its disposition, the RTC ruled that the pendency of the Tolosas
complaint necessitated the suspension of the grant of UCPBs petition since there was a possibility that the
latters foreclosure of the mortgage may be adjudged violative of the Spouses Tolosas rights as mortgagors. On
appeal, the CA nullified RTCs decision and granted the writ of possession sought by UCPB.
ISSUE: Whether the pendency of the complaint filed by Spouses Tolosa against the UCPB defeats its right to a
writ of possession as absolute and registered owners of the subject realties
RULING: No. Given the ministerial nature of the RTCs duty to issue the writ of possession after the purchaser
has consolidated its ownership, it has been ruled, moreover, that any question regarding the regularity and
validity of the mortgage or its foreclosure cannot be raised as justification for opposing the issuance of the writ.
More to the point, a pending action for annulment of mortgage or foreclosure does not stay the issuance of a
writ of possession.Regardless of the pendency of such suit, the purchaser remains entitled to a writ of
possession, without prejudice, of course, to the eventual outcome of the pending annulment case.
To be sure, the foregoing rule admits of a few jurisprudential exceptions. In Cometa v. Intermediate Appellate
Court, the judgment debtor filed a separate action to invalidate the auction sale of properties approximately
worth P500,000.00 for the unusually low price of P57,396.85. Citing equitable considerations, this Court upheld
the deferment of the issuance of the writ of possession sought by the judgment creditor on the ground that the
validity of the auction sale is an issue that requires pre-emptive resolution to avoid injustice. In the case of
Barican v. Intermediate Appellate Court, on the other hand, the Court ruled that the duty ceases to be ministerial
where the property mortgaged had been, in the meantime, sold to third parties who had assumed the
mortgagors indebtedness and took possession of the property. In Sulit v. Court of Appeals, the mortgagees
failure to deliver the surplus from the proceeds of the foreclosure sale equivalent to at least 40% of the
mortgage debt was likewise found sufficient justification for the non-issuance of the writ of possession sought.
O.3 BPI Family Savings Bank, Inc. v. Golden Power Diesel Sales Center, Inc.
DOCTRINE: Foreclosed property held by the third party adversely to the judgment obligor:
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.
Procedure is for the trial court to order a hearing to determine the nature of the adverse possession. 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.
FACTS: 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.
ISSUE: WON respondents are third party adversely to the judgment obligor so that the issuance of a writ of
execution may be stayed and a hearing shall be conducted to determine their ownership.
RULING: Respondents 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 P15,000,000 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. 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 P7,889,472.48, 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.

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PLEDGE AND MORTGAGE

E.2 Bustamante vs. Rosel, 319 SCRA 413 [1999], 335

ISSUE: Whether the compromise agreement was valid

I.2 Yau Chu v. CA

J.2 Citibank vs. Sabeniano, 504 SCRA 378 [2006]

ISSUE: Whether the liquidation of respondents outstanding loans were valid

M.2 Makati leasing v. Wearever

O.2 Servicewide Specialists v. CA

P.2 RCBC v. Royal Cargo Corp

RCBCs appeal was denied.

1 Attorneys fees was increased from 8k to 50k;

Hence, the petition to the SC by RCBC.

Petition was granted. CA decision was reversed and set aside.

3. Filinvest in turn assigned the credit in favor of Servicewide Specialists, Inc.

REAL ESTATE MORTGAGE

E.3 Star Two v. Paper City Corp

Article 415. The following are immovable property:

F.3 Garcia v. Villar

Issue: WON Garcia could judicially foreclose the subject property?

G. 3 Korea Exchange Bank v. Filkor

I.3 Grand Farms Inc. v. CA

Issue: Whether the summary judgment was proper.

J.3 Medida vs. Court of Appeals, 208 SCRA 887 [1992]

K.3 Sps Yap v. Sps Dy

ISSUE: Whether the requisites of a valid redemption are present.

ISSUE: Whether or not the extrajudicial foreclosure is valid.

M.3 Cua Lai Chu v. Lacqui & PBC

N.3 Sps Tolosa v. UCPB

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