MORTGAGE [G.R. No. 25235. December 9, 1926.] LIM JULIAN, plaintiff-appellant, vs.

TIBURCIO LUTERO, ASUNCION MAGALONA, and RAFAEL LUTERO, defendants-appellees. "EL HOSPITAL DE SAN PABLO DE ILOILO," intervenor-appellee.

Block, Johnston & Greenbaum for appellant. Lutero, Lutero & Maza for appellees. Arroyo & Evangelista for the intervenor.
SYLLABUS 1.MORTGAGE OF REAL ESTATE; CONTRACTS FOR FUTURE ADVANCEMENTS TO ASSIST AGRICULTURISTS. Contracts for future advancements to assist agriculturist are very common in the Philippine Islands and elsewhere in agricultural countries. Under such contracts of "advancements" the agriculturist is permitted to take the money as it is needed and thus avoid the necessity of having interest until the necessity for is its use actually arises. 2.ADVANCEMENTS, CONTRACTS OF; AMOUNT OF ADVANCEMENTS. It is not uncommon that contracts of advancements for agricultural purposes are executed for larger amount than in necessary and sometimes they are executed for less than amount than is found to be necessary for the economic and efficient cultivation of the land upon which they are made. 3.REAL ESTATE MORTGAGE, FORECLOSURE OF. The rule is well settled that in action to foreclosure a mortgage must be limited to the amount mentioned in the mortgage. The exact amount, however, for which the mortgage is given need not always be specifically named in contracts of advancements. The amount for which the mortgage is given may be stated in definite or general terms, as is frequently the case in mortgages to secure future advancements. The amount named in the mortgage does not limit the amount for which it may stand as security, if, from the four corners of the document, the intent to secure future indebtedness is apparent. 4.REAL ESTATE MORTGAGES FOR FUTURE ADVANCEMENTS. Where the plain terms of the mortgage for future advancements evidence the intention to secure the payment of a larger amount, and that it was the intention of the mortgagor to secure a larger amount, the action to foreclose mortgage may be for the larger amount. In such a case the specific amount mentioned in the mortgage is not controlling. Literal accuracy in describing the amount due on a contract for future advancements is not required, but the description of the debt must be correct and full enough to direct attention to the source of correct information in regard to it and be such as not to mislead or deceive as to the real amount of such mortgage. 5.MORTGAGE TO SECURE FUTURE ADVANCEMENTS. When a mortgage is given to secure future advancements and the money is paid to the mortgagor little by little and repayments are made from time to time, the advancements and repayments are considered together for the purpose of ascertaining the amount due upon the mortgage at maturity. Courts of equity will not permit the consideration of the repayments only for the purpose of determining the balance due upon the mortgage. 6.MORTGAGE, PARTIAL PAYMENTS ON. The mere fact that in contracts of advancements the repayments at any one time exceeded the specific amount mentioned in the mortgage, will not have the effect of discharging the mortgage when the advancements at that particular time are greatly in excess of

the repayments; especially is this true when the contract of advancements or mortgage contains a specific provision the mortgage shall cover all "such other amounts as may be them due." The sum found to be owing by the debtor at the termination of the contract of advancements between him and the mortgagee is still secured by the mortgage on the debtor's property. Under, mortgage to secure the payments of future advancements the mere fact that the payments on a particular day equal the amount of the mortgage, will not discharge the mortgage before maturity so long as advancements may be demanded and are received. 7.MORTGAGES, THE AMOUNT DUE THEREON. Contracts must be interpreted from their four corners. When a mortgage is given for a specific amount, interest, commissions and damages, and such other amounts as may be found to be due at the termination of the contract, the specific amount mentioned does not control as to the real amount due upon said contract on mortgage. It has been settled by a long line of decisions, that mortgages given to secure future advancements are valid and legal contracts; that the amounts named as consideration in said contract do not limit the amount for which the mortgage may stand as security, if, from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. The consideration named in a mortgage for future advancements does not limit the amount for which such contract may stand as security, if, from the four corners of the document, the intent to secure future indebtedness is apparent. 8.MORTGAGE; THE AMOUNT DUE. Where a mortgage is given to secure future advancements, oral proof may be adduced for the purpose of showing the real intent of the parties as to the amount to be advanced. 9.MORTGAGES TO SECURE ADVANCEMENTS. A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount of the advancements are paid. 10.MORTGAGES, RECORD OF; NECESSITY OF HAVING MORTGAGES REGISTERED. A contract purporting to be a mortgage is not a mortgage at all until the same has been duly recorded in the registry of property. In this jurisdiction it is an indispensable statutory requirement, in order that a mortgage may be validly constituted, that the instrument by which it is created, be reconstituted, that the instrument by which it is created, be recorded in the registry of deeds. Such contract, however, are valid subsisting obligations between the parties thereto, and may be used as evidence or proof of such obligations. They do not however, constitute a mortgage in this jurisdiction.

DECISION

JOHNSON, J :
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The purpose of this action was to foreclose a certain mortgage given to secure future advancements for the sum of P12,000, interest, commissions, damages, and such other amounts as may be due at the time of maturity. It was executed and delivered to Lim Julian by Tiburcio Lutero and his wife Asuncion Magalona on the 15th day of April, 1920. It was duly registered in the office of the registrar of deeds of the Province of Iloilo on the 16th day of June, 1920. It was executed to secure future "advancements" to be made by Lim Julian to the mortgagors to cover expenses "incurred by the mortgagors in the cultivation and harvesting of the agricultural crops for the year 1920-1921." To be a little more specific concerning the purposes of the said "Advancement," reference may be made to the mortgage itself. The mortgage recites "that said credit (for future advancements) is given to the mortgagors exclusively for the purpose of being employed in the cultivation and care of the sugar plantations and the milling and production of sugar from said sugar plantations and in the purchase of animals for the work in connection therewith and all expenses that may be necessary for the work concerning said sugar plantations." The mortgage covered the following property:

(a)Three parcels of land particularly described in paragraph 2 of the complaint, containing an area of 755,706 square meters more or less; (b)Twenty-four vacunos and twelve carabaos; (c)One steam engine; (d)One battery with two furnaces and eight tanks; (e)A house of strong material, with galvanized iron proof; (f)A storehouse for the stems of sugar cane, of light material; (h)A milling shed of mixed material with nipa roof; (i)All the sugar cane estimated at 3 000 piculs for the crop of 1920-1921, to be produced upon said lands, which were known as the "Hacienda San Ramon" situated in the municipality of Jaiuay. The complaint alleged that there was still due and unpaid on said mortgage (a) the sum of P22,807.09 with interest at 12 per cent per annum from the 27th day of June, 1921, until paid; and (b) the sum of P2,000 as penalty for failure on the part of the defendants to comply with their contract. The plaintiff prayed for a judgment for said amounts, and that in case of a failure on their part to pay the same, that an order be issued for the sale of the mortgaged premises. Plaintiff also prayed for a judgment for costs. The action was commenced in the Court of First Instance of the Province of Iloilo on the 8th day of March, 1922. On the 6th day of April, 1922, the defendants Tiburcio Lutero and Asuncion Magalona filed their answer,denying each and all of the allegations of the complaint. On the 25th day of September, 1922, the "Hospital de San Pablo de Iloilo" presented a petition for intervention, which was granted. The defendant Rafael Lutero was made a defendant in the action simply because he was a tenant occupying and cultivating the three parcels of land in questions. The "Hospital de San Pablo de Iloilo" was permitted to intervene, upon its allegation that it had a prior mortgage upon its allegation that it had a prior mortgage upon the property in question (Exhibit AA) for the sum of P22,400. Said alleged mortgage was executed on the 17th day of June, 1920. It was executed on the 17th day of June, 1920. It was executed before a notary but was never registered in the registry of property. Said document cannot be considered a mortgage therefore. (Art. 1875, Civil Code.) It will be remembered that the mortgage in favor of the plaintiff herein was executed upon the 15th day of April, 1920, nearly two months before Exhibit AA was executed and delivered. The mortgage held by the plaintiff was actually registered in the office of the registrar of deeds on the 16th day of June, 1920, or one day before the alleged mortgage of the intervenor was executed. More will be said concerning the contention of the intervenor when we come to discuss the rights which they claim in the present action. On the 25th day of March, 1925, or nearly four years after the present actions was commenced, the defendants Tiburcio Lutero and his wife Asuncion Magalona filed another answer to the petition, in which they alleged, in addition to a general denial, and after admitting the execution and delivery of the mortgage have been paid and that whatever indebtedness still existed against them and in favor of the plaintiff was an ordinary debt. Upon the issue thus presented by the petition, the second answer of the defendants and the petition of the intervenor, the cause was brought on for trial. After hearing the evidence the Honorable Fernando Salas, judge, reached the following conclusions: (a) That the complaint against Tiburcio Lutero and Asuncion Magalona should be dismissed with costs against the plaintiff; (b) that Rafael Lutero, the tenant, should be absolved from all liability under the complaint with costs against the plaintiff; (c) that the registrar of deeds of the Province of Iloilo should cancel the mortgage lien in favor of the plaintiff, which fact should be noted upon the certificate of title No. 6667; (d) that the mortgage executed and delivered by Tiburcio Lutero and Asuncion Magalona on the 17th day of June, 1920, in favor of the

"Hospital de San Pablo" should be registered in the registry of Property of the Province of Iloilo as the first lien upon the real property in question, and (e) that the mortgage executed in favor of the ""Hospital de San Pablo" on the 17th day of June, 1920, should take preference over the mortgage executed by said mortgagors to the plaintiff herein on the 15th day of April, 1920. From that Judgment the plaintiff appealed. In discussing the rights of the respective parties to the present action we are of the opinion that we should discuss the rights of the original parties first and then the rights of the intervenor. The plaintiff-appellant alleged in his first assignment of error that the lower court committed an error (a) in holding that his mortgage was paid, (b) in ordering its cancellation and (c) in dismissing the complaint against Rafael Lutero. In order to fully understand that assignment of error a full statement of the entire transaction between the mortgagors and the plaintiff becomes necessary. The defendants Tiburcio Lutero and Asuncion Magalona executed the mortgage in question covering the property described in the complaint, with the following pertinent provisions: (1)That the said parcels of land were subject to a first mortgage in favor of the Philippine National Bank for the sum of P9,500, payable with interest at 8 per cent per annum for the period of ten years, payable by annual installments; (2)That the said mortgagors have applied to and obtained from Lim Julian a credit of P12,000, Philippine currency, with interest at 12 per cent per annum upon the following conditions: (a) That said credit is given to the mortgagors exclusively for the purpose of being employed in the cultivation and care of the sugar plantations aforementioned, in the milling and production of sugar from said sugar plantations and in the purchase of animals for the work in connection therewith, and all expenses that may be necessary for the work concerning said sugar plantations; that said credit may be taken by the mortgagors little by little from the creditor or mortgagee at the rate of P1,500, Philippine currency, per month, until the sum is totally taken, and shall each interest only from the date or dates when the amounts are taken, as shown by the vales or receipts which shall be executed in each case by the mortgagors, who must execute that same every time that they take the monthly amounts; (b) that the sugar to be produced from the sugar-cane plantations, and as it is produced by the mortgagors, shall be shipped by the latter for their account and risk to the mortgagee, to the city of Iloilo, in order that the latter may sell the same at the current price in the market or deposit the same in the warehouses of foreign firms in the City of Manila, or in his warehouses, that is, in the warehouses of the mortgagee in this city, Iloilo, as he may deem suitable to the interest of the mortgagors, and the quedans of which, in case of deposit, shall be issued in the name of the mortgagors, and the latter shall immediately indorse the same to the mortgagee; that the mortgagee shall receive said sugar cane and take care thereof with the diligence of a good father of a family, trying his best to obtain the best price in the market or at least the price in the Iloilo market; that said mortgagee is authorized to receive or collect the value of said sugar; that the mortgagee is authorized to purchase the sugar for himself with preference in case of equal price and conditions; that the mortgagee shall, on account of his work in receiving, taking care of, and trying to obtain a good price for, said sugar, receive as compensation for that work, whether the sugar is sold or purchased by him, 2 per cent of the gross value of said sugar. The mortgagee was also authorized to retain such part of the value of said sugar as may be deemed fit in order that he may make payment to himself of the 2 per cent compensation and of said credit and the interest therein. Immediately upon the execution of said mortgage, with the foregoing conditions and even before its execution, the plaintiff began to make advancements for the purpose mentioned in said mortgage to the defendants, as appears from Exhibit B, of both money and effects or supplies. All of the parties agree that Exhibit B is a true and correct statement of all advancements of money, effects or merchandise paid and delivered by the plaintiff to the defendants between the 11th day of March, 1920 and the 19th day of May, 1921, including the interest on the various advancements during said period. They also agree that said Exhibit B, with some exceptions perhaps, shows the true and exact amount of sugar and cash delivered and paid by the defendants to the plaintiff between the 16th day of March, 1920, and the 27th day of June, 1921. By reference to Exhibit B it will be found that the plaintiff and the defendants have

agreed that the advancements, merchandise and accrued interest account during the period amount to P36,964.27 while the sugar delivered and the payments made by the defendants to the plaintiff amounted to P14,157.18, leaving a balance due in favor of the plaintiff in the sum of P22,807.09. Said amount represents the amount claimed in the present action with 12 per cent from the 27th day of June, 1921, together with the sum of P2,000 as a penalty for the failure of the defendants to comply with their contract. The mortgagors contend that the mortgage was for the sum of P12,000 with interest only; that inasmuch as they have paid more than P14,000, the mortgage debt has been paid and that they are therefore not liable for any other amount on said mortgage; that whatever other amount of indebtedness exists against them is an ordinary indebtedness and cannot be recovered in an action to foreclose the mortgage; that they are entitled to have said mortgage cancelled. In making that contention the mortgagors have evidently overlooked paragraph 10 of their mortgage, which provides "that all the obligations of the mortgagors and all the conditions stipulated in this document must and shall be fulfilled on or before the 30th day of April, 1921, the date when said sugar plantations are to be harvested or controverted into sugar and shipped to the mortgagee, and the credit and its interest aforementioned, and such other amounts as may be then due from the mortgagors." By reference to paragraph 12 of the mortgage it will be seen that if the mortgagors, the heirs, assigns and successors in interest shall fail to fulfill all the conditions and obligations of said mortgage, that the same shall remain in full force and effect and may be enforcible in accordance with

law.

If it had been the intention of the parties to said mortgage to make it a mortgage for the security of the payment of P12,000 given for "future advancements" only, and no more, with interest and damages, then what was the occasion or purpose of adding in said paragraph 10 "and such other amounts as may be then due?' If P12,000 was the limit of the obligation incurred by the obligors, and no more, then what did the parties to the contract have in mind when they said "and such other amounts as may be then due from the mortgagors to the mortgagee?" It is a reasonable presumption that the parties had in mind that, for some reason or other, the mortgagors might need more money during the year to be employed directly or indirectly in the cultivations and care of the sugar plantations covered by the mortgage, or that more money might be necessary for the proper milling and production of sugar from said sugar plantations and in the purchase of animals for work in connection with the cultivation of said plantations, or for expenses that might be necessary for the proper working and cultivation of sugar plantations? Contracts for future advancements (mortgages) like the present were known at Common Law. They are very common not only in the Philippine Islands but elsewhere in agricultural countries. Contracts for the advancement of money to assist agriculturists for the cultivation and harvesting of crops are well known in all agricultural countries. Under such contracts of "advancements" the agriculturists is permitted to take the money as it is needed and thus avoid the necessity of paying interest until the necessity for its use actually arises. It is not uncommon that said contracts are executed for a larger amount than is necessary and sometimes they are executed for a less amount than is found to be necessary for the economic and efficient cultivation of the land. In the present case the mortgagors evidently believed that P1,500 per month would be sufficient to supply all of their demands for the sufficient to supply all of their hacienda for the year 1920-1921. They were to receive the money little by little until the P12,000 was taken. If some favorable condition had arisen during the year was taken. If some favorable condition had arisen during the year so that the sum of P1,500 was unnecessary, we cannot bring ourselves to believe that the mortgage could have compelled them to have receive during the year the full P12,000. In that event could the mortgage for P12,000? Such a result would have been unconscionable. The courts would not have permitted the foreclosure of a mortgage for P12,000 when, for example, but P6,000 had been actually delivered to the mortgagors. Upon the other hand, it is well known that in contracts of "advancements" many conditions may arise during the agricultural year which would necessitates, for the efficient and economic cultivation of the crops, the use of more money than either of the parties to the contract had contemplated; such as

floods, storms disease among animals which might decimate them, all of which conditions would make it necessary to use more money that the parties had contemplated. Conditions might arise during the year which would render absolutely useless the expenditure of the amount of money mentioned in the contract of advancements unless additional amounts are expended. The best proof in the present case, that the mortgagors needed more money of the efficient and economic cultivation of their hacienda than they had contemplated at the time of making said mortgage, is found in Exhibit B. Under Exhibit A they were only entitled to receive P1,500 per month. By reference to Exhibit B, it will be seen that during the very first month after the execution of said contract, or between the 15th day of April, 1920 and 18th day of May, 1920, they received the sum of P{2,500 in cash instead of P1,500. The same condition is shown in other months. It is admitted that during the year the mortgagors received in cash and effects the sum of P34,245.29. They admit that the plaintiff had no other security for the payment of the difference between the P34,245.29 plus the interest, and the P12,000 unless said difference was covered by the mortgage. The appellant contends that the phrase in paragraph 10 "and such other amounts as may be the due" (in addition to the P12,000) was inserted in said mortgage for the very purpose of covering any amount or amounts received by the mortgagors over and above the P12,000. It is also admitted that by Exhibit B there is still due the amount of P22,807.09. Whether or not that amount should be reduced by payments represented by Exhibits 1, 2, and 3 will be discussed later. This action was not begun until nearly one year after the termination of the contract, and yet the mortgagors admit that they continued to receive advancements during that period. They admit that they never called the attention of the mortgagee to the fact that the advancements received by them, over and above the P12,000, were not covered by the mortgage. They admit that they did not ask for a cancellation of the mortgage at the time the amounts paid equaled P12,000. They admit that they made no claim nor representation to the mortgagee that the mortgage had been paid, until nearly four years after the action had been commenced. Their only excuse for not making that representation to the mortgagee was the fear that they would not received more advancements. In other words the mortgagors were trying to deceive the mortgagee and to increase their indebtedness to him believing that he had no security for advancements amounting to more than P22,000. The rule, of course, is well settled that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage. The exact amount, however, for which the mortgage is given need not always be specifically named. The amount for which the mortgage is given may be stated in definite or general terms, as is frequently the case in mortgages to secure future advancements. The amount named in the mortgage does not limit .the amount for which it may stand as security, if, from the four corners of the document, the intent to secure future indebtedness or future advancements is apparent. Where the plain terms, of the mortgage, evidence such an intent, they will control as against a contention of the mortgagor that it was the understanding of the parties that the mortgage was security only for the specific amount named. (Citizens Savings Bank vs. Kock, 117 Mich., 226.) In that case the amount mentioned in the mortgage was $7,000. The mortgage, however, contained a provision that "the mortgagors agree to pay said mortgagee what sum of money which they may now or hereafter owe said mortgagee." At the time the action of foreclosure was brought the mortgagors owed the mortgagee the sum of $21,522. The defendants contended that the amount to be recovered in an action for foreclosure should be limited to the mount named as consideration for the mortgage did not limit the amount for which the mortgage stood as security, if, from the whole instrument the intent to secure future indebtedness could be gathered. The court held that a mortgage to cover future advances is valid. (Michigan Insurance Co., vs. Brown, 11 Mich., 265; Jones on Mortgages, 1 sec. 373; Keyes vs. Bump's Administrator, 59 Vt., 391; Fisher vs. Otis, 3 Pins., 78; Brown vs. Kiefer, 71 N. Y., 610; Douglas vs. Reynolds, 7 Peters [U. S.], 113; Shores vs. Doherty, 65 Wis., 153.) Literal accuracy in describing the amount due, secured by a mortgage, is not required, but the description of the debt must be correct and full enough to direct attention to the sources of correct information in regard to it, and be such as not to mislead or deceive as to the amount of it, by the

language used. Reading the mortgage before us from its four corners, we find that the description of the debt is full enough to give information concerning the amount due. The mortgage recites that it is given to secure the sum of P12,000, interest, commissions, damages, and all other amounts which may be found to be due at maturity. The terms of the contract are sufficiently clear to put all parties who may have occasion to deal with the property mortgaged upon inquiry. The parties themselves from the very terms of the mortgage could not be in ignorance at any time of the amount of their obligation and the security held to guarantee the payment. When a mortgage is given for future advancements and the money is paid to the mortgagor "little by little" and repayments are made from time to time, the advancements and the repayments must be considered together for the purpose of ascertaining the amount due upon the mortgage at maturity. courts of equity will not permit the consideration of the repayments only for the purpose of determining the balance due upon the mortgage. (Luengo & Martinez vs. Moreno, 26 Phil., 111.) The mere fact that in contract of advancements the repayments at any one time exceeds the specific amount mentioned in the mortgage, will not have the effect of discharging the mortgage when the advancements at that particular time are greatly in excess of the repayments; especially is this true when the contract of advancement or mortgage contains a specific provision that the mortgage shall cover all "such other amounts as may be then due." Such a provision is added to the contract of advancements or mortgage for the express purpose of covering advancements in excess of the amount mentioned in the mortgage. (Luengo & Martinezvs. Moreno, supra.) The sum found to be owing by the debtor at the termination of the contract of advancements between him and the mortgagee, during continuing credit, is still secured by the mortgage on the debtor's property, and the mortgagee is entitled to bring the proper action for the collection of the amounts still due and to request the sale of the property covered by the mortgage. (Luengo & Martinez vs. Moreno, supra; Russell vs. Davey, 7 Grant Ch., 13; Patterson First National Bank vs. Byard, 26 N. J. Equity, 225) Under a mortgage to secure the payment of future advancements, the mere fact that the repayments on a particular day equal the amount of the mortgage will not discharge the mortgage before maturity so long as advancements may be demanded and are being received. (Luengo & Martinez vs. Moreno, supra.) We now come to the questions (a) What was the real amount of the mortgage given to secure the "advancements" and (b) What amount or amounts have been paid and the balance due, if any? The appellant contends that the advancements including the interest secured by the mortgage amounts of P36,964.27. The mortgagors admit that the advancements including the interest was equal to that amount. They also admit that the payments amounts of P14,157.18. They admit that there is a balance due from them to the appellant in the sum of P22,807.09. The contend, however, that the mortgage only secures the repayment of the sum of P12,000 and interest and damages. They also contend that the payments already made have been more than sufficient to pay the full amount of the mortgage. Contracts must be interpreted from their four corners. It will be observed from what has been said above, that the contract of advancements was given to secure the payment of (a) P12,000, interest , commissions and damages, etc., and (b) "such other amounts as may be then due" (at the termination of the contract), from the mortgagors to the mortgagee. In our judgment the contract of advancements (Exhibit A) therefore not only covers the P12,000, etc., but also all "such other amounts as may be then due" at the termination of the contract. It has been settled by a long line of decisions that mortgages given to secure future advancements are valid and legal contract; that the amounts named as consideration in said contracts of mortgage do not limit the amount for which the mortgage may stand as security, if, from the whole instrument, the intent to secure future and other indebtedness can be gathered. (Michigan Insurance Co. vs. Brown, 11 Mich., 265; Keyes vs. Bump's Administrator, 59 Vt., 391; Citizens' Savings Bank vs. Kock, 117 Mich., 225; Jones on Mortgages, secs. 364-378; 27 Cyc., pp. 1069-

1073 and cases cited; Fisher vs. Otis, 3 Pin., 78; Brown vs. Kiefer, 71 N. Y., 610; Hellyer vs. Briggs, 55 Iowa, 185.) It has been decided in many cases that the consideration named in a mortgage for future advancements do not limit the amount for which such contract may stand as security, if, from the four corners of the document, the intent to secure future indebtedness is apparent. Where, by the plain terms of the contract, such an intent is evident, it will control as against the contention of the mortgagor that it was the intention of the parties that the mortgage was secured only for the consideration expressly named (Citizens' Savings Bank vs. Kock, supra.) And it has been held also that oral proof may be adduced or the purpose of showing the real intent of the parties in contracts of advancements. In the case of the Citizens' Savings Bank vs. Kock the original contract for future advancements was for the sum of $7,000. The contract, however, contained the provision "that said mortgagors agree to pay said mortgage any sum of money which they may now or hereafter owe." An action was brought there had been advanced to the mortgagors more than $21,000. The mortgagors contended that but $7,000 could be could be collected. The court held that, by the terms of the mortgage, the mortgagors were liable for the $21,000 and rendered a judgment in accordance with that conclusion. (Newkirk vs. Newkirk, 56 Mich., 525; Reed vs. Rochford, 62 N. J. Equity, 186; Bowen vs. Ratcliff, 140 Ind., 393.) A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the bond or mortgage until the full amount of the advancements are paid. (Shores vs. Doherty, 65 Wis., 153.) From a full consideration of the terms of the contract or mortgage for advancements and the law applicable to such contracts, we must conclude that the said mortgage not only covers the P12,000 with interest, commissions and damages, but also all the advancements which had been made thereunder. From that conclusion it must follow from the admission of the parties themselves that there is still due and paid upon said mortgage, due to the advancements, the sum of P22,807.09. That amount, however, may be modified when we come to a consideration of Exhibits 1, 2, and 3. That conclusion disposes of the first assignment of error. We now come to a discussion of the second assignment of error. The appellant contends that the lower court committed an error in giving priority to the mortgage executed and delivered in favor of the "Hospital de San Pablo de Iloilo." (Exhibit AA.) In the first place it may be noted that the alleged mortgage claimed by said hospital was not executed until long after the mortgage was executed in favor of the appellant and was never registered. It is not a mortgage at all and could not, by any possibility, therefore be given priority over a former mortgage legally executed and recorded. The contention of the hospital would, of coursed, therefore be given but little consideration except for the fact that it claims that it was given priority over the mortgage held by the appellant by virtue of an oral agreement or understanding. The facts are not disputed that the plaintiff's mortgage was executed on the 15th day of April, 1920, and presented to the registrar of deeds on the 20th day of April, 1920, and actually registered on the 16th day of June, 1920, while the mortgage in favor of the Hospital was not executed until the 17th day of June, 1920. With reference to the alleged oral agreement between a representative of the appellant and the attorneys for the hospital, it may be said that the lower court committed an error in allowing oral evidence upon that question. But even though the evidence admitted may be considered, yet in our opinion it is too indefinite and uncertain to justify the conclusion that the appellant did consent to waive the priority of the lien which he held. We are of the opinion that, aside from the question of the admissibility of such proof, it is not sufficient to justify the conclusion that the appellant waived the priority of his lien. The proof is not sufficient to show that the alleged representative of the appellant was authorized to act for him in the month of June, 1920. What we have said in relation to the second assignment of error constitutes an answer to the third and fourth assignments of error. Our conclusions upon this branch of the case are:

First.That the alleged oral agreement did not give the alleged second mortgage of the "Hospital de San Pablo de Iloilo" a priority over the mortgage of the plaintiff. Second.That whatever may be the rule in other jurisdictions, in this jurisdiction it is an indispensable statutory requirement, in order that the instrument by which it is created be recorded in the registry of deeds. (Art. 1875 of the Civil Code; Tobias vs. Enrico, 22 Phil., 394, 396; Lozano vs. Tan Suico, 23 Phil., 16; Borcelis vs. Golingco, 27 Phil., 560.) In this case (Borcelis vs. Golingco) the late Chief Justice Arellano said: "This Supreme Court has repeatedly declared that to make a mortgage valid it is necessary that the document constituting it be inscribed in the property registry." Such documents, however, are valid subsisting obligations between the parties thereto and may be used as evidence of proof of such obligations. They do not, however, constitute a mortgage in this jurisdiction. We now come to a discussion of the mortgage in favor of the Philippine National Bank for the sum of P9,500 for the purpose of determining whether or not said mortgage takes priority over the mortgage of the plaintiff. It will be remembered that the mortgage of the plaintiff was taken with the express understanding that it was subject to a first mortgage in favor of the Philippine National Bank for the sum of P9,500 with interest at 8 per cent per annum for the period of ten years, payable by annual installments. The plaintiff thus recognized the existence of said mortgage as a prior lien. The record shows that the said mortgage of the Philippine National Bank was paid by the intervenor, the "Hospital de San Pablo de Iloilo," with its money. The intervenor, the "Hospital de San Pablo de Iloilo" therefore stands in the shoes of the Philippine National Bank and has a right to be paid by the plaintiff out of the proceeds to the foreclosure whatever sum or sums it paid to the Philippine National Bank, with interest thereon at 8 per cent from the date of payment until paid. We find an examination of the record three Exhibits (1, 2, and 3) representing payments amounting to P11,088.68 made by the defendant Tiburcio Lutero to the plaintiff Lim Julian. Exhibit 1 represents a payment of P6,306.64 for 709.07 picos of sugar. This payment was made on the 24th day of January, 1921, or more than a year before the commencement of p4,000 for 469.55 picos of sugar. This payment was made on the 20th day of August, 1924, during the pendency of the present action. Exhibit 3 represents a payment of P782.04 made by Lutero to the plaintiff to apply on his debt of a larger sum. No reference is made to such exhibits in Exhibit B. The appellee Tiburcio Lutero and his wife made no claim either in the court below or in his court that the payments represented by Exhibits 1, 2, and 3 should be applied to the reduction of their total indebtedness in the sum of P22,807.09. The record furnishes no explanation for their failure to insist upon the application of said payments to the reduction of the total indebtedness. The failure so to do cannot be understood, if in fact said exhibits do represent payments made in liquidation of their indebtedness in the sum of P11,088.68. If in fact said payments were made to apply on the indebtedness then they should be applied for the purpose of reducing the total amount due of principal, interest, commission and damages. The mortgagors make no point with reference to the said payments. In the interest of justice, however, and to the end that a final determination of the question between the parties hereto may be reached, we deed it necessary to take note of the payments represented by Exhibit 1, 2, and 3. After a careful examination of the entire record and the issues presented we have arrived at the following conclusions: First.That the mortgage (Exhibit A) executed by Tiburcio Lutero and Asuncion Magalona, his wife, to the plaintiff constitutes a lien upon the property mortgaged and is a prior lien over the alleged mortgage executed by the same parties to the "Hospital de San Pablo de Iloilo," provided, however, that the "Hospital de San Pablo de Iloilo" shall have a lien prior to that of the plaintiff in whatever sum or sums it paid, together with 8 per cent interest on the mortgage held by the Philippine National Bank. Second.That there is still due and unpaid on said mortgage the sum of P22,807.09, which amount perhaps may be reduced by the payments made and represented by Exhibits 1, 2, and 3. Third.That the cause is remanded to the court whence it came for the purpose of having determined by the lower court whether or not such payments should be applied to the liquidation of the said sum of P22,807.09.

Fourth.That the cause be remanded to the lower court for the purpose of determining the amount paid by the Hospital de San Pablo de Iloilo" for the mortgage held by the Philippine National Bank. Subject to the conditions herein stated, it is hereby ordered and decreed (a) that the judgment of the lower court be and is hereby revoked; (b) that a judgment be rendered in favor of the plaintiff and against the defendants Tiburcio Lutero and Asuncion Magalona for the sum of P22,807.09, with interest until paid; (c) that the record be returned to the court whence it came for the purpose of having finally determined whether or not said sum P22,807.09) should be reduced by the payments made by the defendants to the plaintiff, represented by Exhibits 1, 2 and 3. If the lower court shall find, upon such investigation, that said payments should be applied to said sum (P22,807.09) then and in that case it is hereby ordered that a judgment be rendered for whatever balance may be due; (d) that a judgment be entered in favor of the "Hospital de San Pablo de Iloilo," giving it a prior lien on the property in question over that held by the plaintiff for whatever sum or sums it paid for the mortgage held by the Philippine National Bank, with interest; (e) that the record be returned to the lower court for the purpose of determining the amount paid by the "Hospital de San Pablo de Iloilo" for said mortgage, and when that amount is determined, let a judgment be entered by the lower court for the sum as a prior lien upon the property in question to that held by the plaintiff; (f) that after the lower court has complied with the conditions herein composed, that a judgment be entered requiring the defendants Tiburcio Lutero and Asuncion Magalona to deposit with the clerk of the Court of First Instance of the Province of Iloilo whatever sum or sums may be found to be still due the plaintiff within a period of 90 days, and in default of compliance therewith, that an order be issued, that the property mortgaged be sold, subject to the prior lien in favor of the "Hospital de San Pablo de Iloilo." In case, however, the property is sold free from said lien than and in that case the "Hospital de San Pablo de Iloilo" shall receive whatever sum or sums with interest at 8 per cent which it paid or caused to be paid for the mortgage in favor of the Philippine National Bank, before any payments are made out of the proceeds to the plaintiff. There being nothing in the record to show any liability on the part of Rafael Lutero, he is hereby absolved from all liability under the complaint. Let a judgment be entered in accordance herewith, without any finding as to costs. So ordered.

Villamor, Romualdez, and Villa-Real, JJ., concur. Ostrand, J., concurs in the result.

[G.R. No. 118552. February 5, 1996.] PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COURT OF APPEALS and THE SPOUSES ALEJANDRO and AMPARO CASAFRANCA, respondents.

Rolando M. Lim and Manuel Pastrana for petitioner. Julius Z. Neri for private respondents.
SYLLABUS 1.CIVIL LAW; CONTRACTS; SPECIAL CONTRACTS; MORTGAGE; AN ACTION TO FORECLOSE A MORTGAGE MUST BE LIMITED TO THE AMOUNT MENTIONED IN THE MORTGAGE. The Court is unconvinced for the cases relied upon by the petitioner are inapplicable. The doctrine first laid down in Lim Julian vs. Lutero (49 Phil. 703 [1926]) pertains only to mortgages securing future advancements. The petitioner would not have been misled into thinking otherwise had it properly quotedMojica in its petition. The following explanation is

helpful to distinguish future advancements from the loan in the case at bench: It is not uncommon that persons enter into a contract whereby they draw sums of money from their creditors, usually banks, from time to time, and as security therefor execute a mortgage on their property. Such contracts are sometimes executed for an account smaller or larger than that actually borrowed. Thus, it may appear in the contract that the loan secured by the mortgage is only for P10,000 when by reason of advancements made by the creditor to the debtor the amount ultimately drawn and borrowed is P20,000. Under these circumstances it is inequitable to consider that the mortgage can be foreclosed only for the amount of P10,000. Indeed, no bank or creditor would be willing to make such advancements which are in excess of the amount stipulated if the payment thereof is not secured. . . . The obligation in this case was not a series of indeterminate sums incurred over a period of time, but two specific amounts procured in a single instance. Thus, the inapplicability of Lim Julian. Instead, what applies here is the general rule that "an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage." 2.ID.; ID.; ID.; "DRAGNET" CLAUSE; DEFINED. The mortgage provision relied upon by the petitioner is known in American jurisprudence as a "dragnet" clause, which is specifically phrased to subsume all debts of past or future origin. Such clauses are "carefully scrutinized and strictly construed." 3.ID.; ID.; ID.; A CONTRACT OF ADHESION SUCH AS THE MORTGAGE CONTRACT IN CASE AT BAR SHOULD BE STRICTLY CONSTRUED AGAINST THE PARTY WHO PREPARED THE AGREEMENT. The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the only participation of the other party was the affixing of his signature or "adhesion" thereto. Being a contract of adhesion, the mortgage is to be strictly construed against the petitioner, the party which prepared the agreement. 4.ID.; ID.; ID.; ANY AMBIGUITY IN A CONTRACT WHOSE TERMS ARE SUSCEPTIBLE OF DIFFERENT INTERPRETATIONS MUST BE READ AGAINST THE PARTY WHO DRAFTED IT. There is also sufficient authority to declare that any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. A mortgage and a note secured by it are deemed parts of one transaction and are construed together, thus, an ambiguity is created when the notes provide for the payment of a penalty but the mortgage contract does not. Construing the ambiguity against the petitioner, it follows that no penalty was intended to be covered by the mortgage. The mortgage contract consisted of three pages with no less than seventeen conditions in fine print; it included provisions for interest and attorney's fees similar to those in the promissory notes; and it even provided for the payment of taxes and insurance charges. Plainly, the petitioner can be as specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty in the promissory notes would be secured by the mortgage. This can then only be interpreted to mean that the petitioner had no design of including the penalty in the amount secured.
SDML

5.RULES OF STATUTORY CONSTRUCTION; EJUSDEM GENERIS; APPLICATION IN CASE AT BAR. A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields no mention of penalty charges. Construing this silence strictly against the petitioner, it can fairly be concluded that the petitioner did not intend to include the penalties on the promissory notes in the secured amount. This explains the finding by the trial court, as affirmed by the Court of Appeals, that "penalties and charges are not due for want of stipulation in the mortgage contract." Indeed, a mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. In this case, the mortgage contract provides that it secures notes and other evidences of indebtedness. Under the rule of ejusdem generis, where a description of things of a particular class or kind is "accompanied by words of a generic character, the generic words will usually be limited to things of a kindred nature with those particularly enumerated. . . ." A penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the said contract cannot be understood to secure the penalty.

DECISION

DAVIDE, JR., J :
p

This petition for review on certiorari seeks: (1) a modification of the decision of 29 April 1994 of the Court of Appeals in CA-G.R. CV No. 38332 1 affirming in toto the 20 April 1992 ruling of the Regional Trial Court (RTC) of Cebu, Branch 16, in Civil Case No. CEB-6779; 2 and (2) a review of the appellate court's resolution of 4 January 1995 3 denying the petitioner's Motion for Partial Reconsideration 4 of the aforementioned decision. The sole issue in this case is whether, in the foreclosure of a real estate mortgage, the penalties stipulated in two promissory notes secured by the mortgage may be charged against the mortgagors as part of the sums secured, although the mortgage contract does not mention the said penalties. The Court of Appeals adopted the trial court's findings of facts, to wit:
The following antecedental facts are supported by the pleadings and evidence on record: Plaintiff spouses Alejandro and Amparo Casafranca, used to be the owners of Lot 802-B-2-B-2-F-l of the subdivision plan Psd-698545, located in Cebu City and covered by TCT No. 32769 (Exh A). On 3 December 1976 they sold the lot to Carlos Po who paid part of the agreed price. The latter, after securing a title in his name (TCT No. 66446), mortgaged the lot to the Philippine Bank of Communications (PBCom for short) to secure a loan of P330,000 (Exh B). It appears that in a civil action that ensued between them, plaintiff spouses obtained a favorable judgment against Carlos Po (Exh C). Later, in an auction sale to satisfy Carlos Po's judgment obligation, plaintiff spouses acquired the aforesaid lot and a Certificate of Sale was executed in their favor (Exh D). Meanwhile, under date of 9 September 1980 PBCom applied for extrajudicial foreclosure of the mortgage executed by Carlos Po (Exh E), and in the succeeding auction sale held on 4 November 1980, it acquired the lot at its winning bid of P1,006,540.56. The corresponding Certificate of Sale was then executed in its favor (Exh F). It appears further that sometime in 1981 plaintiff Amparo Casafranca who had stepped into the shoes of mortgagor Carlos Po by virtue of the auction sale in her favor (Exh D) offered to redeem the property from PBCom by tendering to its manager, Isidore Falek, a check in the amount of P500,000 which, in her estimate, would be sufficient to settle the account of Carlos Po. PBCom did not accept the check as it insisted that any such redemption should be at the price it acquired the lot in the auction sale. In reaction, plaintiffs filed against PBCom Civil Case No. R21700 in the RTC of Cebu for nullification of the foreclosure and auction sale (Exh M). In a judgment which became final and executory on 17 September 1986 (Exh H) the Court set aside the extrajudicial foreclosure and auction sale and declared that the obligation secured by the mortgage executed by Carlos Po was only P330,000 plus stipulated interest and charges (Exh G). Subsequently, in a letter dated 4 December 1986 PBCom advised plaintiff spouses to pay the sum of P884,281.38 purportedly representing Carlos Po's principal account of P330,000, interest and charges thereon, attorney's fee[s] and realty taxes which it paid for the lot (Exh. I). Plaintiffs, however, did not agree with said Statement of Account and since the account remained unpaid, PBCom again applied for extrajudicial foreclosure of mortgage (Exh J), which culminated in an auction sale of the lot on 2 April 1987, during which it was sold to Natalie Limchio for P1,184,000 (Exh L). On 6 April 1988 plaintiffs commenced the present action to nullify the auction sale in favor of Natalie Limchio. It is alleged in the complaint that the second foreclosure was void as it was based on a bloated account. Plaintiffs further alleged that PBCom refused to turn over the correct amount of residue after paying off the mortgage and costs of the sale. Upon plaintiffs' application, the Court issued on 7 April 1988 a TRO enjoining defendant sheriffs from transferring the title of the lot in favor of defendant Natalie Limchio and the latter, from taking possession of the lot. This was followed by a preliminary injunctive writ which was issued after hearing and upon plaintiffs' filing of a bond. However, before the pre-trial conference could be held, plaintiffs signified their intention to pursue only their alternative demand for the residue or balance of the proceeds of the auction sale less the

correct outstanding account which was secured by the mortgage. For this purpose they filed an amended complaint only against PBCom (pp. 296305, rollo) which was admitted, in which they pray for recovery of the sum of P625,724.90 as residue after paying off the outstanding account [to] the tune of P558,275.80, realty taxes paid by PBCom and costs of the foreclosure proceeding. Hence, what is left for the Court to ascertain is the true or correct account of Carlos Po as of the auction sale on 2 April 1987 after which, the determination of the residue would follow. . . . 5

As to the amounts due the parties, the trial court computed them as follows:

RHLY

The mortgage contract (Exh B) explicitly provides for interest of "Twelve per cent (12%) per annum or at such higher rate or rates as may be fixed by the MORTGAGEE from time to time, and shall be payable at the end of every month or otherwise, as the MORTGAGEE may elect and, if not so paid, shall be added to, and become part of, the principal and shall earn interest at the same rate as the principal." It is then evident that the parties agreed to capitalize the interest due and unpaid, which as added principal, shall earn new interest. Herein lies the discrepancy in the computation respectively submitted by plaintiffs (pp. 190191; 204209, Rollo) and PBCom (pp. 181183, Rollo), for while the former assessed only conventional or simple interest, the latter computed compound interest conformable to the mortgage contract. In this connection, the Court finds PBCom's computation of interest to be in accordance with the contractual stipulations of the parties. It may be stressed that the increase in the rate of interest from 12% to 14% as of 1 December 1979 is authorized in the mortgage contract itself as sanctioned by CB Circular No. 705 dated 1 December 1979. PBCom is further entitled to reimbursement for realty taxes it paid for the lot. But of course, penalties and charges are not due for want of stipulation in the mortgage contract. To recapitulate, the principal loan obtained by Carlos Po (now succeeded by plaintiffs) on 15 December 1976 was P330,000. Interest thereon for the first year at 12% per annum was retained or deducted from the proceeds of the loan. For the next two (2) years or from 25 December 1977 to 30 November 1979, compound interests earned at the same rate reached P77,660. And then from 1 December 1979 to 2 April 1987 (date of auction sale) the rate of interest was raised to 14% per annum, as authorized in the mortgage contract. At such rate, compound interests for said period would be in the sum of P343,805. Adding both interest earnings to the principal obligation, the total account would then be P751,465. Additionally, the mortgage contract provides for attorney's fee[s] equivalent to 10% of the amounts due. Hence, the sum of P75,146.50 in the concept of attorney's fee[s] would raise the account to P826,611.50. Finally, the amount of P83,028.18 representing realty taxes paid by PBCom for the lot, inclusive of interest, which must be reimbursed, will bring the grand total of the account to P909,639.68. On the other hand, the publication and other expenses incurred in the foreclosure and auction sale [to] the tune of P707 should be deducted from the amount of P1,184,000 which Natalie Limchio paid for the lot, leaving net proceeds of P1,183,293. Subtracting therefrom the total account due to PBCom, the residue would be P273,653.32, which must be delivered to plaintiffs. 6

In the light of the above, the trial court thus ruled:

WHEREFORE, foregoing premises considered, judgment is hereby rendered in favor of plaintiffs Alejandro and Amparo Casafranca for the sum of P273,653.32 representing the residue or balance of the proceeds of the auction sale conducted on 2 April 1987 after deducting therefrom publication expenses and paying off the total account due to defendant Philippine Bank of Communications, and ordering the latter to pay unto plaintiffs the aforesaid amount. SO ORDERED. 7

Both parties appealed from the above judgment to the Court of Appeals. The petitioner questioned the lower court's failure to include in its computation the penalty stipulated in the aforementioned promissory notes. On

the other hand, the private respondents advanced that: (1) the interest on the sum due to the petitioner should have stopped running on 31 July 1981; (2) the lower court should have allowed twelve percent (12%) interest per annum on the amount awarded to the private respondents from 3 April 1987 until the obligation was fully paid; and (3) the lower court should have awarded the private respondents moral and exemplary damages, attorney's fees, and litigation expenses.
ELC

The Court of Appeals affirmed the decision of the trial court in toto and subsequently denied the parties' separate motions for reconsideration. The petitioner and the private respondents then instituted with this Court separate petitions for certiorari under Rule 45 of the Rules of Court. While that of the petitioner was docketed as G.R. No. 11855 (this case), that of the private respondents was docketed as G.R. No. 118809 and assigned to the Second Division. However, the two actions were not consolidated. The private respondents in this case filed their Comment 8 to the petition as required in the resolution of 8 February 1995. 9 On 13 March 1995, the Second Division issued a resolution which dismissed G.R. No. 118809, thus:
[F]or failure to persuasively demonstrate any reversible error in the challenged judgment of the Fourth Division of the Court of Appeals promulgated on April 29, 1994 affirming in toto that of the Regional Trial Court of Cebu rendered by Judge (now Court of Appeals Justice) Godardo A. Jacinto on April 20, 1992 (Civil Case No. CEB-6779) it appearing on the contrary, that both judgments correctly appreciated the evidence and applied the relevant legal provisions in ruling, essentially, that there had been no valid tender of payment by petitioners of the amount of the mortgage liability burdening the property in question, and that the computation of the amount rightly due said petitioners had been correctly made in accordance with the law applicable to the case (Act No. 3135, as amended). Moreover, the record discloses no important and special reason for the exercise by this Court of its discretionary power of review in this case. 10

On 9 May 1995, this Court received the private respondents' Manifestation resolution.

11

drawing our attention to this

On 23 August 1995, we gave due course to the petition 12 and required the parties to submit their respective memoranda, which they subsequently did. The private respondents contended that "[a]ctually there are no more issues left for this Honorable Court to decide because all the issues in controversy in this case has [sic] already been decided with finality by the Second Division of the Supreme Court in G.R. No. 118809." 13 To which, petitioner replied 14 that the G.R. No. 118809 resolution dispensed with only those issues raised therein by the private respondents and did not touch on the questions raised in this case. The petition is not impressed with merit. The two promissory notes in question, signed by Carlos Po, 15 are similarly worded and their pertinent provisions read:
For value received, I/we jointly and severally, promise to pay the Philippine Bank of Communications, at its office in the City of Cebu, Philippines the sum of THREE HUNDRED THOUSAND PESOS (P300,000.00), Philippine Currency, together with interest thereon at the rate of TWELVE % per annum until paid, which interest rate the Bank may at any time without notice, raise within the limits allowed by law, and I/we also agree to pay, jointly and solidarily 12% per annum penalty charge, by way of liquidated damages should this note be unpaid or is not renewed on due date. xxx xxx xxx

Should it become necessary to collect this note through an attorney-at-law, I/we hereby expressly agree to pay, jointly and severally, ten per cent (10%) of the total amount due on this note as attorney's fees which in no case shall be less than P100.00 exclusive of all costs and fees allowed by law stipulated in the contract of real estate mortgage if any there be.

while the mortgage contract provides in part:

16

This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity, as the case may be, of all promissory notes, letters of credit, trust receipts, bills of exchange, drafts, overdrafts and all other obligations of every kind already incurred or which hereafter may be incurred by the MORTGAGOR(S) and Po's All Electrical Supply either as principal debtor(s) or as surety(ies) or in any other capacity, including discounts of Chinese and other drafts, bills of exchange, promissory notes, even without any further endorsements by the Mortgagor(s), said property or properties to stand security for the payment of the said obligations to the fullest extent and for all that it is (or they are) worth, to the extent of THREE HUNDRED THIRTY THOUSAND PESOS (P330,000.00) Philippine Currency. xxx xxx xxx This mortgage shall be subject to the following conditions, to wit: FIRST: The interest on the obligations secured by this mortgage shall be computed at the rate of Twelve per cent (12%) per annum or at such other or higher rate or rates as may be fixed by the MORTGAGEE from time to time, and shall be payable at the end of every month or otherwise, as the MORTGAGEE may elect and if not so paid, shall be added to, and become part of, the principal and shall earn interest at the same rate as the principal. xxx xxx xxx EIGHTH: The MORTGAGOR(S) shall, during the existence of this mortgage, promptly pay when due all taxes or assessments of every kind that may be levied upon the property or properties hereby mortgaged and deliver the corresponding tax receipts to the MORTGAGEE, . . . In case of failure on the part of the MORTGAGOR(S) to comply with the provisions of this condition, the MORTGAGEE may and is hereby authorized to pay such taxes or assessments and to have the buildings insured; and any sum or sums so spent by the MORTGAGEE shall be fully secured hereby and be subject to the terms hereof . . . xxx xxx xxx ELEVENTH: The expenses incurred in the drafting, acknowledgment and the registration of this mortgage and of its cancellation, shall be for the account of, and shall be paid by, the MORTGAGOR(S).

TWELFTH: Should the MORTGAGEE find it necessary to resort to the courts in order to collect any amount which may be due, the interest thereon or the expenses incurred on account of the matters enumerated in the previous paragraphs, or should the MORTGAGEE in any manner and for any reason be involved in litigation on account of the property or properties mortgaged, or should foreclosure proceedings be instituted in accordance with the fourth condition hereof or should the MORTGAGOR(S) encumber the property or properties hereby mortgaged with a second mortgage without the written consent of the MORTGAGEE, the MORTGAGEE shall be allowed a sum equivalent to Ten Per Centum (10%) of all the amounts due, but in no case less than THIRTY THREE THOUSAND PESOS as attorney's fees, said amount to be considered part of the principal sum hereby secured, this mortgage answering for its payment accordingly.
SDML

We immediately discern that the mortgage contract does not at all mention the penalties stipulated in the promissory notes. However, the petitioner insists that the penalties are covered by the following provision of the mortgage contract:
This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity, as the case may be, of all promissory notes, letters of credit, trust receipts, bills of exchange, drafts, overdrafts and all other obligations of every kind already incurred or which hereafter may be incurred. . . .

The petitioner's insistence is based on the supposed rule:

[T]hat the determination of the mortgage debt would not be limited on the mortgage contract itself if from the face thereof, it is apparent that other obligations are also intended to be secured.

To bolster its argument, the petitioner relies on the cases represented by Mojica vs. Court of Appeals held:

17

which

It has long been settled by a long line of decisions that mortgages to secure future advancements are valid and legal contracts; that the amounts named as consideration in said contract do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. 18

The Court is unconvinced for the cases relied upon by the petitioner are inapplicable. The doctrine first laid down in Lim Julian vs. Lutero 19 pertains only to mortgages securing future advancements. The petitioner would not have been misled into thinking otherwise had it properly quoted Mojica in its petition. The following explanation is helpful to distinguish future advancements from the loan in the case at bench:
It is not uncommon that persons enter into a contract whereby they draw sums of money from their creditors, usually banks, from time to time, and as security therefor execute a mortgage on their property. Such contracts are sometimes executed for an account smaller or larger than that actually borrowed. Thus, it may appear in the contract that the loan secured by the mortgage is only for P10,000 when by reason of advancements made by the creditor to the debtor the amount ultimately drawn and borrowed is P20,000. Under these circumstances it is inequitable to consider that the mortgage can be foreclosed only for the amount of P10,000. Indeed, no bank or creditor would be willing to make such advancements which are in excess of the amount stipulated if the payment thereof is not secured . . . 20

The obligation in this case was not a series of indeterminate sums incurred over a period of time, but two specific amounts procured in a single instance. Thus, the inapplicability of Lim Julian. Instead, what applies here is the general rule that "an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage." 21 Aside from the foregoing, other factors militate against the petitioner's stance. The mortgage provision relied upon by the petitioner is known in American jurisprudence as a "dragnet" clause, which is specifically phrased to subsume all debts of past or future origin. Such clauses are "carefully scrutinized and strictly construed." 22 The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the only participation of the other party was the affixing of his signature or "adhesion" thereto. Being a contract of

adhesion the mortgage is to be strictly construed against the petitioner, the party which prepared the agreement. 23 A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields no mention of penalty charges. 24 Construing this silence strictly against the petitioner, it can fairly be concluded that the petitioner did not intend to include the penalties on the promissory notes in the secured amount. This explains the finding by the trial court, as affirmed by the Court of Appeals, that "penalties and charges are not due for want of stipulation in the mortgage contract." 25 Indeed, a mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. 26 In this case, the mortgage contract provides that it secures notes and other evidence of indebtedness. Under the rule of ejusdem generis, 27 where a description of things of a particular class or kind is "accompanied by words of a generic character, the generic words will usually be limited to things of a kindred nature with those particularly enumerated. . . ." 28 A penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the said contract cannot be understood to secure the penalty.
LLpr

There is also sufficient authority to declare that any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. 29 A mortgage and a note secured by it are deemed parts of one transaction and are construed together, 30 thus, an ambiguity is created when the notes provide for the payment of a penalty but the mortgage contract does not. Construing the ambiguity against the petitioner, it follows that no penalty was intended to be covered by the mortgage. The mortgage contract consisted of three pages with no less than seventeen conditions in fine print; it included provisions for interest and attorney's fees similar to those in the promissory notes; and it even provided for the payment of taxes and insurance charges. Plainly, the petitioner can be as specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty in the promissory notes would be secured by the mortgage. This can then only be interpreted to mean that the petitioner had no design of including the penalty in the amount secured. It should also be noted that the private respondents consistently excluded penalty charges in their computation of the amount due to the petitioner, 31 while the petitioner seemed indecisive in including the said charges. In its Manifestation follows:
32

of 14 May 1988 before the trial court, the petitioner computed the penalty charge as

Penalty charge on the principal amount of P330,000.00 from Dec. 25, 1977 to April 2, 1987 at the rate of 8% per annum(P)248,233.33

The promissory notes provided for a 12% per annum penalty, 33 not eight percent (8%). The petitioner explained this discrepancy in its Memorandum 34 submitted to the trial court, claiming:
On the contrary, the bank's computation of the actual amount of the mortgage debt should be upheld. In fact, the bank was lenient on the spouses in computing the amount of the debt. For instance, the rate of charges stipulated is 12% per annum . . . Yet the bank computed the charges at a much lesser rate . . . thereby lessening the actual amount of the mortgage debt. 35

The petitioner, however, included in its Offer of Exhibits:

14.EXHIBIT "14"Promissory Note No. 3838 dated 25 October 1977. "14-A"Stipulation on penalty/bank charges. PURPOSE:

36

. . . 3) It is stipulated that PBCom could impose penalty charges of 12% per annum; and 4) PBCom was liberal on plaintiffs as it did not impose the full extent of the stipulated charges.

Far then from being a display of leniency or liberality, the above circumstances evince the petitioner's uncertainty as to whether penalty charges were actually due it. In fact, in a statement of account 37 signed by the petitioner's Senior Vice-President, Isidore Falek, there was no mention of a penalty charge, although there was an entry stating:
Interest xxx xxx xxx
8% Bank chargesP 248,233.33

Furthermore, the promissory notes are clear that the penalty shall be at 12% per annum, neither more nor less. Thus, when the petitioner claims that under the same notes it could impose, as in fact it did, the lower penalty of 8% contrary to what was covenanted the petitioner only reveals that it is wont to stipulate what it does not mean. The private respondent then should not be faulted for the petitioner's imperfection, and the latter must bear the consequences of its failings. It is interesting to note that the petition in this case did not include a computation of the sum due as penalty which is the very matter in dispute. The petitioner merely pegged its claim at "12% per annum on the principal amount of P330,000.00 computed from 1977," 38 which was likewise a departure from the 8% interest rate which it insisted upon during trial. After interpreting the mortgage contract strictly against the petitioner, considering the intention of the parties as evidenced by their various pleadings and assertions, the inescapable conclusion is that the mortgage contract did not authorize the petitioner to include in the secured amount the penalty stipulated in the promissory notes. The mortgage contract did not contain a trace of the said penalty and, proceeding by the rule that "an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage," such penalty can not be recovered on the foreclosure of the mortgage.

WHEREFORE, finding no reversible error on the part of respondent Court of Appeals, its challenged decision of 29 April 1994 in CA-G.R. CV No. 38332 is hereby AFFIRMED in toto. Costs against the petitioner. SO ORDERED.
LexLibris

Narvasa, C.J., Melo, Francisco, and Panganiban, JJ., concur.

[G.R. No. 150197. July 28, 2005.] PRUDENTIAL BANK, petitioner, vs. DON A. ALVIAR and GEORGIA B. ALVIAR, respondents.

Gella Danguilan Nabaza & Associates for petitioner. Manuel M. Lazaro & Associates for respondents.
SYLLABUS 1.MERCANTILE LAW; PRIVATE CORPORATIONS; CORPORATION HAS A PERSONALITY SEPARATE AND DISTINCT FROM THAT OF ITS OFFICERS AND STOCKHOLDERS. Well-settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders. Officers of a corporation are not personally liable for their acts as such officers unless it is shown that they have exceeded their authority. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. PN BD#76/C-430, being an obligation of Donalco Trading, Inc., and not of the respondents, is not within the contemplation of the "blanket mortgage clause." Moreover, petitioner is unable to show that respondents are hiding behind the corporate structure to evade payment of their obligations. Save for the notation in the promissory note that the loan was for house construction and personal consumption, there is no proof showing that the loan was indeed for respondents' personal consumption. Besides, petitioner agreed to the terms of the promissory note. If respondents were indeed the real parties to the loan, petitioner, a big, wellestablished institution of long standing that it is, should have insisted that the note be made in the name of respondents themselves, and not to Donalco Trading, Inc., and that they sign the note in their personal capacity and not as officers of the corporation. 2.CIVIL LAW; OBLIGATIONS AND CONTRACTS; LOAN; "BLANKET MORTGAGE CLAUSE"; ELUCIDATED. A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. Indeed, it has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. 3.ID.; ID.; ID.; ID.; TWO SCHOOLS OF THOUGHT. Under American jurisprudence, two schools of thought have emerged on this question. One school advocates that a "dragnet clause" so worded as to be broad enough to cover all other debts in addition to the one specifically secured will be construed to cover a different debt, although such other debt is secured by another mortgage. The contrary thinking maintains that a mortgage with such a clause will not secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the security specified

therein, such deficiency being an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it from the arrangement. 4.ID.; ID.; ID.; ID.; THERE IS NO PROHIBITION AGAINST CONTRACTUALLY REQUIRING OTHER SECURITIES FOR THE SUBSEQUENT LOANS. The latter school represents the better position. The parties having conformed to the "blanket mortgage clause" or "dragnet clause," it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other securities, as the subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a corollary component of the "dragnet clause." But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the "dragnet clause," but rather, on the new security given. This is the "reliance on the security test." 5.ID.; ID.; ID.; ID.; WHERE DIFFERENT SECURITY WAS TAKEN FOR THE SECOND LOAN THERE IS NO INTENT THAT THE PARTIES RELIED ON THE SECURITY OF THE FIRST LOAN. Hence, based on the "reliance on the security test," the California court in the cited case made an inquiry whether the second loan was made in reliance on the original security containing a "dragnet clause." Accordingly, finding a different security was taken for the second loan no intent that the parties relied on the security of the first loan could be inferred, so it was held. The rationale involved, the court said, was that the "dragnet clause" in the first security instrument constituted a continuing offer by the borrower to secure further loans under the security of the first security instrument, and that when the lender accepted a different security he did not accept the offer. 6.ID.; ID.; ID.; ID.; WHILE IT SUBSISTS THE SECURITY SPECIFICALLY EXECUTED FOR SUBSEQUENT LOANS MUST FIRST BE EXHAUSTED BEFORE THE MORTGAGED PROPERTY CAN BE RESORTED TO. It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of nonpayment of all the three promissory notes. While the existence and validity of the "dragnet clause" cannot be denied, there is a need to respect the existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory note. As held in one case, where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security. This is recognition that while the "dragnet clause" subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to. 7.ID.; ID.; CONTRACT OF ADHESION; ELUCIDATED. The mortgage contract, as well as the promissory notes subject of this case, is a contract of adhesion, to which respondents' only participation was the affixing of their signatures or "adhesion" thereto. A contract of adhesion is one in which a party imposes a readymade form of contract which the other party may accept or reject, but which the latter cannot modify. 8.ID.; ID.; ID.; ANY AMBIGUITY IN A CONTRACT WHOSE TERMS ARE SUSCEPTIBLE OF DIFFERENT INTERPRETATIONS MUST BE READ AGAINST THE PARTY WHO DRAFTED IT. The real estate mortgage in issue appears in a standard form, drafted and prepared solely by petitioner, and which, according to jurisprudence must be strictly construed against the party responsible for its preparation. If the parties intended that the "blanket mortgage clause" shall cover subsequent advancement secured by separate securities, then the same should have been indicated in the mortgage contract. Consequently, any ambiguity is to be taken contra proferentum, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care. To be more emphatic, any ambiguity in a contract whose

terms are susceptible of different interpretations must be read against the party who drafted it, which is the petitioner in this case.

DECISION

TINGA, J :
p

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner Prudential Bank seeks the reversal of the Decision 1 of the Court of Appeals dated 27 September 2001 in CA-G.R. CV No. 59543 affirming the Decision of the Regional Trial Court (RTC) of Pasig City, Branch 160, in favor of respondents. Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in San Juan, Metro Manila, covered by Transfer Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal. On 10 July 1975, they executed a deed of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan worth P250,000.00. 2 This mortgage was annotated at the back of TCT No. 438157. On 4 August 1975, respondents executed the corresponding promissory note, PN BD#75/C-252, covering the said loan, which provides that the loan matured on 4 August 1976 at an interest rate of 12% per annum with a 2% service charge, and that the note is secured by a real estate mortgage as aforementioned. 3 Significantly, the real estate mortgage contained the following clause:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the payment of the same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free from all liens and incumbrances. . . . 4

On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-345 for P2,640,000.00, secured by D/A SFDX #129, signifying that the loan was secured by a "hold-out" on the mortgagor's foreign currency savings account with the bank under Account No. 129, and that the mortgagor's passbook is to be surrendered to the bank until the amount secured by the "hold-out" is settled. 5 On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., of which the husband and wife were President and Chairman of the Board and Vice President, 6 respectively, PN BD#76/C-430 covering P545,000.000. As provided in the note, the loan is secured by "Clean-Phase out TOD CA 3923," which means that the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be converted into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of overdrafts. 7 On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan of P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD. The letter likewise mentioned that the securities for the loan were the deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation equipment. 8

On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2) lots located at Vam Buren and Madison Streets, North Greenhills, San Juan, Metro Manila. The payment was acknowledged by petitioner who accordingly released the mortgage over the two properties. 9 On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT No. 438157. Per petitioner's computation, respondents had the total obligation of P1,608,256.68, covering the three (3) promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus assessed past due interests and penalty charges. The public auction sale of the mortgaged property was set on 15 January 1980. 10 Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC of Pasig, 11 claiming that they have paid their principal loan secured by the mortgaged property, and thus the mortgage should not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00 made on 6 March 1979 was not a payment made by respondents, but by G.B. Alviar Realty and Development Inc., which has a separate loan with the bank secured by a separate mortgage. 12 On 15 March 1994, the trial court dismissed the complaint and ordered the Sheriff to proceed with the extrajudicial foreclosure. 13 Respondents sought reconsideration of the decision. 14 On 24 August 1994, the trial court issued an Order setting aside its earlier decision and awarded attorney's fees to respondents. 15It found that only the P250,000.00 loan is secured by the mortgage on the land covered by TCT No. 438157. On the other hand, the P382,680.83 loan is secured by the foreign currency deposit account of Don A. Alviar, while the P545,000.00 obligation was an unsecured loan, being a mere conversion of the temporary overdraft of Donalco Trading, Inc. in compliance with a Central Bank circular. According to the trial court, the "blanket mortgage clause" relied upon by petitioner applies only to future loans obtained by the mortgagors, and not by parties other than the said mortgagors, such as Donalco Trading, Inc., for which respondents merely signed as officers thereof. On appeal to the Court of Appeals, petitioner made the following assignment of errors:
I.The trial court erred in holding that the real estate mortgage covers only the promissory note BD#75/C-252 for the sum of P250,000.00. II.The trial court erred in holding that the promissory note BD#76/C-345 for P2,640,000.00 (P382,680.83 outstanding principal balance) is not covered by the real estate mortgage by expressed agreement. III.The trial court erred in holding that Promissory Note BD#76/C-430 for P545,000.00 is not covered by the real estate mortgage. IV.The trial court erred in holding that the real estate mortgage is a contract of adhesion. V.The trial court erred in holding defendant-appellant liable to pay plaintiffs-appellees attorney's fees for P20,000.00. 16

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

The Court of Appeals, however, found that respondents have not yet paid the P250,000.00 covered by PN BD#75/C-252 since the payment of P2,000,000.00 adverted to by respondents was issued for the obligations of G.B. Alviar Realty and Development, Inc. 19 Aggrieved, petitioner filed the instant petition, reiterating the assignment of errors raised in the Court of Appeals as grounds herein. Petitioner maintains that the "blanket mortgage clause" or the "dragnet clause" in the real estate mortgage expressly covers not only the P250,000.00 under PN BD#75/C-252, but also the two other promissory notes included in the application for extrajudicial foreclosure of real estate mortgage. 20 Thus, it claims that it acted within the terms of the mortgage contract when it filed its petition for extrajudicial foreclosure of real estate mortgage. Petitioner relies on the cases of Lim Julian v. Lutero, 21 Tad-Y v. Philippine National Bank, 22 Quimson v. Philippine National Bank, 23 C & C Commercial v. Philippine National Bank, 24 Mojica v. Court of Appeals, 25and China Banking Corporation v. Court of Appeals, 26 all of which upheld the validity of mortgage contracts securing future advancements.
SIDTCa

Anent the Court of Appeals' conclusion that the parties did not intend to include PN BD#76/C-345 in the real estate mortgage because the same was specifically secured by a foreign currency deposit account, petitioner states that there is no law or rule which prohibits an obligation from being covered by more than one security. 27 Besides, respondents even continued to withdraw from the same foreign currency account even while the promissory note was still outstanding, strengthening the belief that it was the real estate mortgage that principally secured all of respondents' promissory notes. 28 As for PN BD#76/C-345, which the Court of Appeals found to be exclusively secured by the Clean-Phase out TOD 3923, petitioner posits that such security is not exclusive, as the "dragnet clause" of the real estate mortgage covers all the obligations of the respondents. 29 Moreover, petitioner insists that respondents attempt to evade foreclosure by the expediency of stating that the promissory notes were executed by them not in their personal capacity but as corporate officers. It claims that PN BD#76/C-430 was in fact for home construction and personal consumption of respondents. Thus, it states that there is a need to pierce the veil of corporate fiction. 30

Finally, petitioner alleges that the mortgage contract was executed by respondents with knowledge and understanding of the "dragnet clause," being highly educated individuals, seasoned businesspersons, and political personalities. 31 There was no oppressive use of superior bargaining power in the execution of the promissory notes and the real estate mortgage. 32 For their part, respondents claim that the "dragnet clause" cannot be applied to the subsequent loans extended to Don Alviar and Donalco Trading, Inc. since these loans are covered by separate promissory notes that expressly provide for a different form of security. 33 They reiterate the holding of the trial court that the "blanket mortgage clause" would apply only to loans obtained jointly by respondents, and not to loans obtained by other parties. 34 Respondents also place a premium on the finding of the lower courts that the real estate mortgage clause is a contract of adhesion and must be strictly construed against petitioner bank. 35 The instant case thus poses the following issues pertaining to: (i) the validity of the "blanket mortgage clause" or the "dragnet clause"; (ii) the coverage of the "blanket mortgage clause"; and consequently, (iii) the propriety of seeking foreclosure of the mortgaged property for the non-payment of the three loans.
CaHAcT

At this point, it is important to note that one of the loans sought to be included in the "blanket mortgage clause" was obtained by respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by

respondents on behalf of Donalco Trading, Inc. and not in their personal capacity. Petitioner asks the Court to pierce the veil of corporate fiction and hold respondents liable even for obligations they incurred for the corporation. The mortgage contract states that the mortgage covers "as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary." Well-settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders. Officers of a corporation are not personally liable for their acts as such officers unless it is shown that they have exceeded their authority. 36 However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. 37 PN BD#76/C-430, being an obligation of Donalco Trading, Inc., and not of the respondents, is not within the contemplation of the "blanket mortgage clause." Moreover, petitioner is unable to show that respondents are hiding behind the corporate structure to evade payment of their obligations. Save for the notation in the promissory note that the loan was for house construction and personal consumption, there is no proof showing that the loan was indeed for respondents' personal consumption. Besides, petitioner agreed to the terms of the promissory note. If respondents were indeed the real parties to the loan, petitioner, a big, well-established institution of long standing that it is, should have insisted that the note be made in the name of respondents themselves, and not to Donalco Trading Inc., and that they sign the note in their personal capacity and not as officers of the corporation. Now on the main issues. A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." 38 Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. 39A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. 40 Indeed, it has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, 41 and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. 42 The "blanket mortgage clause" in the instant case states:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the payment of the same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free from all liens and incumbrances. . . . 43 (Emphasis supplied.)

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

The cases cited by petitioner, while affirming the validity of "dragnet clauses" or "blanket mortgage clauses," are of a different factual milieu from the instant case. There, the subsequent loans were not covered by any security other than that for the mortgage deeds which uniformly contained the "dragnet clause." In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by a "hold-out" on his foreign currency savings account, while PN BD#76/C-430, executed by respondents for Donalco Trading, Inc., was secured by "Clean-Phase out TOD CA 3923" and eventually by a deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus, the critical issue is whether the "blanket mortgage" clause applies even to subsequent advancements for which other securities were intended, or particularly, to PN BD#76/C-345. Under American jurisprudence, two schools of thought have emerged on this question. One school advocates that a "dragnet clause" so worded as to be broad enough to cover all other debts in addition to the one specifically secured will be construed to cover a different debt, although such other debt is secured by another mortgage. 44 The contrary thinking maintains that a mortgage with such a clause will not secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the security specified therein, 45 such deficiency being an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it from the arrangement. 46 The latter school represents the better position. The parties having conformed to the "blanket mortgage clause" or "dragnet clause," it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other securities, as the subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a corollary component of the "dragnet clause." But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the "dragnet clause," but rather, on the new security given. This is the "reliance on the security test." Hence, based on the "reliance on the security test," the California court in the cited case made an inquiry whether the second loan was made in reliance on the original security containing a "dragnet clause." Accordingly, finding a different security was taken for the second loan no intent that the parties relied on the security of the first loan could be inferred, so it was held. The rationale involved, the court said, was that the "dragnet clause" in the first security instrument constituted a continuing offer by the borrower to secure further loans under the security of the first security instrument, and that when the lender accepted a different security he did not accept the offer. 47 In another case, it was held that a mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the "offer" was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance. 48

Indeed, in some instances, it has been held that in the absence of clear, supportive evidence of a contrary intention, a mortgage containing a "dragnet clause" will not be extended to cover future advances unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor. 49 It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the three promissory notes. While the existence and validity of the "dragnet clause" cannot be denied, there is a need to respect the existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C252, and for any amount not covered by the security for the second promissory note. As held in one case, where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security. 50 This is recognition that while the "dragnet clause" subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to.
TEDHaA

One other crucial point. The mortgage contract, as well as the promissory notes subject of this case, is a contract of adhesion, to which respondents' only participation was the affixing of their signatures or "adhesion" thereto. 51 A contract of adhesion is one in which a party imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. 52 The real estate mortgage in issue appears in a standard form, drafted and prepared solely by petitioner, and which, according to jurisprudence must be strictly construed against the party responsible for its preparation. 53 If the parties intended that the "blanket mortgage clause" shall cover subsequent advancement secured by separate securities, then the same should have been indicated in the mortgage contract. Consequently, any ambiguity is to be taken contra proferentum, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care. 54 To be more emphatic, any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it, 55 which is the petitioner in this case. Even the promissory notes in issue were made on standard forms prepared by petitioner, and as such are likewise contracts of adhesion. Being of such nature, the same should be interpreted strictly against petitioner and with even more reason since having been accomplished by respondents in the presence of petitioner's personnel and approved by its manager, they could not have been unaware of the import and extent of such contracts. Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that respondents have not yet paid the P250,000.00, and gave no credence to their claim that they paid the said amount when they paid petitioner P2,000,000.00. Thus, the mortgaged property could still be properly subjected to foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses which are available to respondents. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 59543 is AFFIRMED. Costs against petitioner. SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

[G.R. No. L-17500. May 16, 1967.] PEOPLE'S BANK AND TRUST CO. and ATLANTIC, GULF AND PACIFIC CO. OF MANILA, plaintiffs and appellants, vs. DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION, and CONNELL BROS. CO. (PHIL.), defendants and appellants.

Angel S. Gamboa for defendants-appellants. Laurel Law Offices for plaintiffs-appellants.

SYLLABUS 1.REAL ESTATE MORTGAGE; STIPULATION INCLUDING IN THE LIEN AFTER ACQUIRED PROPERTIES; VALIDITY THEREOF. A stipulation including in the mortgage lien after acquired properties is common and logical in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used thus becoming subject to the inevitable wear and tear but with the understanding that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties given as securities. 2.ID.; ID.; ID.; MACHINERIES INTENDED FOR AN INDUSTRY; NATURE THEREOF. Under Articles 334 and 1877 of the old Civil Code substantially reproduced in Articles 415 and 2127 respectively of the new Civil Code, the properties in question 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, are classified as immovable properties, therefore not covered by the Chattel Mortgage Law. 3.ID.; ID.; ID.; ID; ID.; SUPPLIERS NOT FINANCIERS CONSIDERED UNPAID SELLERS. Unpaid sellers who were the suppliers or vendors of the after acquired properties and not the financiers, like the defendants herein can claim a right superior to the lien constituted on said properties by virtue of the deeds of mortgage under foreclosure. 4.ID.; ID.; ID.; ID.; ID.; FORECLOSURE PRIOR TO MATURITY OF PROMISSORY NOTE; WHEN PROPER. Although an extension of time was given to the debtor, considering that when this complaint was filed the debtor was insolvent, it follows that the debtor thereby lost the benefit of the period unless he gives a guaranty or security for the debt (Art. 1198, New Civil Code). Whereas in this case the guaranty given was plainly inadequate, then the foreclosure was proper because the collection of the notes were not premature.

DECISION

DIZON, J :
p

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do business in the Philippines, hereinafter referred to as ATLANTIC sold and assigned all its right in the

Dahican lumber concession to Dahican Lumber Company hereinafter referred to as DALCO for the total sum of P500,000.00 of which only the amount of $50,000.00 was paid. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust Company hereinafter referred to as the Bank amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the Bank, a loan of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00 each, maturing on different dates, executed by both DALCO and the Dahican American Lumber Corporation, a foreign corporation and a stockholder of DALCO, hereinafter referred to as DAMCO, all payable to the BANK or its order. As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the BANK the latter acting for itself and as trustee for the Export, Import Bank of Washington D. C. a deed of mortgage covering live parcels of land situated in the province of Camarines Norte, together with all the buildings and other improvements existing thereon and all the personal properties of the mortgagor located in its place of business in the municipalities of Mambulao and Capalonga, Camarines Norte (Exhibit D). On the same date, DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber concession amounting to the sum of $450,000.00 (Exhibit G). Both deeds contained the following provision extending the mortgage lien to properties to be subsequently acquired referred to hereafter as "after acquired properties" by the mortgagor:
"All property of every nature and description taken in exchange or replacement, and all buildings, machinery, fixtures, tools, equipment and other property which the Mortgagor may hereafter acquire, construct, install, attach, or use in, to, upon, or in connection with the premises, shall immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if now included therein, and the Mortgagor shall from time to time during the existence of this mortgage furnish the Mortgagee with an accurate inventory of such substituted and subsequently acquired property."

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the same obligations. Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the same to the Export-Import Bank of Washington D.C. and the latter assigned to the former its credit and the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay the overdue promissory note. After July 13, 1950 the date of execution of the mortgages mentioned above DALCO purchased various machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted heretofore regarding "after acquired properties", the BANK requested DALCO to submit complete lists of said properties but the latter failed to do so. In connection with these purchases, there appeared in the books of DALCO as due to Connell Bros. Company (Philippines) a domestic corporation who was acting as the general purchasing agent of DALCO hereinafter called CONNEL the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34. On December 16, 1952, the Board of Directors of DALCO in a special meeting called for the purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to it. Thereafter, the corresponding agreements of rescission of sale were executed between DALCO and DAMCO, on the one hand, and between DALCO and CONNELL, on the other. On January 23, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12, 1953, ATLANTIC and the

BANK, commenced foreclosure proceedings in the Court of First Instance of Camarines Norte against DALCO and DAMCO. On the same date they filed an ex-parte application for the appointment of a Receiver and/or for the issuance of a writ of preliminary injunction to restrain DALCO from removing its properties. The court granted both remedies and appointed George U. Evans as Receiver. Upon defendants' motion, however, the court, in its order of February 21, 1953, discharged the Receiver. On March 2, 1953, defendants filed their answer denying the material allegations of the complaint and alleging several affirmative defenses and a counterclaim. On March 4 of the same year, CONNELL filed a motion for intervention alleging that it was the owner and possessor of some of the equipments, spare parts and supplies which DALCO had acquired subsequent to the execution of the mortgages sought to be foreclosed and which plaintiffs claimed were covered by their lien. In its order of March 18, 1953 the Court granted the motion, as well as plaintiffs' motion to set aside the order discharging the Receiver. Consequently, Evans was reinstated. On April 1, 1953, CONNELL filed its answer denying the material averments of the complaint, and asserting affirmative defenses and a counterclaim. Upon motion of the parties, the Court, on September 30, 1953, issued an order transferring the venue of the action to the Court of First Instance of Manila where it was docketed as Civil Case No. 20987. On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries, equipment and supplies of DALCO, and the same were subsequently sold for a total consideration of P175,000.00 which was deposited in court pending final determination of the action. By a similar agreement one half (P87,500.00) of this amount was considered as representing the proceeds obtained from the sale of the "undebated properties" (those not claimed by DAMCO and CONNELL), and the other half as representing those obtained from the sale of the "after acquired properties". After due trial, the Court, on July 15, 1960, rendered Judgment as follows:
"IN VIEW WHEREOF, the Court: 1.Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000.00 with 7% interest per annum from July 13, 1950, plus another sum of P100,000.00 with 5% interest per annum from July 13, 1950; plus 10% on both principal sums as attorney's fees; 2.Condemns Dahican Lumber Co. to pay into Atlantic Gulf the sum of P900,000.00 with 4% interest per annum from July 13, 1950, plus 10% of the principal as attorney's fees; 3.Condemns Dahican Lumber Co. to pay unto Connel Bros. the sum of P425,860.55, and to pay unto Dahican American Lumber Co. the sum of P2,151,678.34 both with legal interest from the date of the filing of the respective answers of those parties, plus 10% of the principals as attorney's fees; 4.Orders that of the sum realized from the sale of the properties of P175,000.00, after deducting the recognized expenses, one half thereof be adjudicated unto plaintiffs, the Court no longer specifying the share of each because of their announced intention under the stipulation of facts to 'pool their resources'; as to the other one-half, the same should be adjudicated unto both plaintiffs, and defendant Dahican American and Connell Bros. in the proportion already set forth on page 9, lines 21, 22 and 23 of the body of this decision; but with the understanding that whatever plaintiffs and Dahican American and Connell Bros. should receive from the P175,000.00 deposited in the Court shall be applied to the judgments particularly rendered in favor of each;

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

On the following day, the Court issued the following supplementary decision:
"IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add the following paragraph 6: 6.If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the Court orders the sale at public auction if the lands object of the mortgages to satisfy the said mortgages and costs of foreclosure."

From the above-quoted decision, all the parties appealed. Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject to the deeds of mortgage mentioned heretofore; that said properties were acquired from suppliers other than DAMCO and CONNELL; that even granting that DAMCO and CONNELL were the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage lien in favor of plaintiffs; that considering the foregoing, the proceeds obtained from the sale of the "after acquired properties" as well as those obtained from the sale of the "undebated properties" in the total sum of P175,000.00 should have been awarded exclusively to plaintiffs by reason of the mortgage lien they had thereon; that damages should have been awarded to plaintiffs against defendants, all of them being guilty of an attempt to defraud the former when they sought to rescind the sales already mentioned for the purpose of defeating their mortgage lien, and finally, that defendants should have been made to bear all the expenses of the Receivership, costs and attorney's fees. On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that plaintiffs had no cause of action against them because the promissory note sued upon was not yet due when the action to foreclose the mortgages was commenced; secondly, in not holding that the mortgages aforesaid were null and void as regards the "after acquired properties" of DALCO because they were not registered in accordance with the Chattel Mortgage Law, the court erring, as a consequence, in holding that said properties were subject to the mortgage lien in favor of plaintiffs; thirdly, in not holding that the provision of the fourth paragraph of each of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof being that the mortgagor was willing to constitute a lien over such properties; fourthly, in not ruling that said stipulation was void as against DAMCO and CONNELL and in not awarding the proceeds obtained from the sale of the "after acquired properties" to the latter exclusively; fifthly, in appointing a Receiver and in holding that the damages suffered by DAMCO and CONNELL by reason of the depreciation or loss in value of the "after acquired properties" placed under receivership was damnum absque injuria and, consequently, in not awarding to said parties the corresponding damages claimed in their counterclaim; lastly, in sentencing DALCO and DAMCO to pay the costs of the Receivership, instead of sentencing plaintiffs to pay attorney's fees. Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as appellants submit a total of seventeen. However, the multifarious issues thus before Us may be resolved, directly or indirectly, by deciding the following issues: Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of foreclosure?; secondly, assuming that they are subject thereto, are the mortgages valid and binding on the properties aforesaid in spite of the fact that they were not registered in accordance with the provisions of the Chattel Mortgage Law?; thirdly, assuming again that the mortgages are valid and binding upon the "after acquired properties", what is the effect thereon, if any, of the rescission of sales entered into, on the one

hand, between DALCO and DAMCO and between DALCO and CONNELL, on the other?; and lastly, was the action to foreclose the mortgages premature? A.Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install, attach, or use in, to, upon, or in connection with the premises that is, its lumber concession "shall immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included therein at the time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties, We see no useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used thus becoming subject to the inevitable wear and tear but with the understanding express or implied that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties given as security. Indeed, if such properties were of the nature already referred to, it would be poor judgment on the part of the creditor who does not see to it that a similar provision is included in the contract. B.But defendants contend that, granting without admitting, that the deeds of mortgage in question cover the "after acquired properties" of DALCO, the same are void and ineffectual because they were not registered in accordance with the Chattel Mortgage Law. In support of this and of the proposition that, even if said mortgages were valid, they should not prejudice them, the defendants argue (1) that the deeds do not describe the mortgaged chattels specifically, nor were they registered in accordance with the Chattel Mortgage Law; (2) that the stipulation contained in the fourth paragraph thereof constitutes "mere executory agreements to give a lien" over the "after acquired properties" upon their acquisition; and (3) that any mortgage stipulation concerning "after acquired properties" should not prejudice creditors and other third persons such as DAMCO and CONNELL. The stipulation under consideration strongly belies defendants' contention. As adverted to hereinafter, it states that all property of every nature, buildings, machinery, etc. taken in exchange or replacement by the mortgagor "shall immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if now included therein". No clearer language could have been chosen. Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a chattel mortgage must be registered and must describe the mortgaged chattels or personal properties sufficiently to enable the parties and any other person to identify them, We say that such law does not apply to this case. As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force, there can be no doubt that the provisions of said code must govern their interpretation and the question of their validity. It happens, however, that Articles 334 and 1877 of the old Civil Code are substantially reproduced in Article 415 and 2127, respectively, of the new Civil Code. It is, therefore, immaterial in this case whether we take the former or the latter as guide in deciding the point under consideration. Article 415 does not define real property but enumerates what are considered as such, among them being machinery, receptacles, instruments or replacements intended by 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. On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were placed in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127 of the new Civil Code."

We find the above ruling in agreement with our decisions on the subject: (1)In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old) gives the character of real property to machinery, liquid containers, instruments or replacements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry. (2)In Cu Unjieng Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a sugar central includes not only the land on which it is built but also the buildings, machinery and accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof. It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in the premises on July 13, 1950. In law, therefore, they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein which were registered as such did not have to be registered a second time as chattel mortgages in order to bind the "after acquired properties" and affect third parties.

But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after acquired properties" did not become immobilized because DALCO did not own the whole area of its lumber concession all over which said properties were scattered. The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In the former, the Davao Sawmill Company, Inc. had repeatedly treated the machinery therein involved as personal property by executing chattel mortgages thereon in favor of third parties, while in the present case the parties had treated the "after acquired properties" as real properties by expressly and unequivocally agreeing that they shall automatically become subject to the lien of the real estate mortgages executed by them. In the Davao Sawmill decision it was, in fact, stated that "the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the property the character determined by the parties" (61 Phil. 712, Emphasis supplied). In the present case, the characterization of the "after acquired properties" as real property was made not only by one but by both interested parties. There is, therefore, more reason to hold that such consensus impresses upon the properties the character determined by the parties who must now be held in estoppel to question it. Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia Inc. (225 U.S. 58) where it was held that while under the general law of Puerto Rico machinery placed on property by a tenant does not become immobilized, yet, when the tenant places it there pursuant to contract that it shall belong to the owner, it then becomes immobilized as to that tenant and even as against his assignees and creditors who had sufficient notice of such stipulation. In the case at bar it is not disputed that DALCO purchased the "after acquired properties" to be placed on, and be used in the development of its lumber concession, and agreed further that the same shall become immediately subject to the lien constituted by the questioned mortgages. There is also abundant evidence in the record that DAMCO and CONNELL had full notice of such stipulation and had never thought of disputing its validity until the present case was filed. Consequently, all of them must be deemed barred from denying that the properties in question had become immobilized. What We have said heretofore sufficiently disposes of all the arguments adduced by defendants in support of their contention that the mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against DAMCO and CONNELL.

Now to the question of whether or not DAMCO and CONNELL have rights over the "after acquired properties" superior to the mortgage lien constituted thereon in favor of plaintiffs. It is defendants' contention that in relation to said properties they are "unpaid sellers"; that as such they had not only a superior lien on the "after acquired properties" but also the right to rescind the sales thereof to DALCO. This contention it is obvious would have validity only if it were true that DAMCO and CONNELL were the suppliers or vendors of the "after acquired properties". According to the record, plaintiffs did not know their exact identity and description prior to the filing of the case at bar because DALCO, in violation of its obligation under the mortgages, had failed and refused therefore to submit a complete list thereof. In the course of the proceedings, however, when defendants moved to dissolve the order of receivership and the writ of preliminary injunction issued by the lower court, they attached to their motion the lists marked as Exhibits 1, 2 and 3 describing the properties aforesaid. Later on, the parties agreed to consider said lists as identifying and describing the "after acquired properties", and engaged the services of auditors to examine the books of DALCO so as to bring out the details thereof. The report of the auditors and its annexes (Exhibits V, V-1 V4) show that neither DAMCO nor CONNELL had supplied any of the goods of which they respectively claimed to be the unpaid seller; that all items were supplied by different parties, neither of whom appeared to be DAMCO or CONNELL; that, in fact, CONNELL collected a 5 per cent service charge on the net value of all items it claims to have sold to DALCO and which, in truth, it had purchased for DALCO as the latter's general agent; that CONNELL had to issue its own invoices in addition to those of the real suppliers in order to collect and justify such service charge. Taking into account the above circumstances together with the fact that DAMCO was a stockholder and CONNELL was not only a stockholder but the general agent of DALCO, their claim to be the suppliers of the "after acquired properties" would seem to be preposterous. The most that can be claimed on the basis of the evidence is that DAMCO and CONNELL probably financed some of the purchases. But if DALCO still owes them any amount in this connection, it is clear that, as financiers,they can not claim any right over the "after acquired properties" superior to the lien constituted thereon by virtue of the deeds of mortgage under foreclosure. Indeed, the execution of the rescission of sales mentioned heretofore appears to be but a desperate attempt to better or improve DAMCO and CONNELL's position by enabling them to assume the role of "unpaid suppliers" and thus claim a vendor's lien over the "after acquired properties". The attempt, of course, is utterly ineffectual, not only because they are not the "unpaid sellers" they claim to be but also because there is abundant evidence in the record showing that both DAMCO and CONNELL had known and admitted from the beginning that the "after acquired properties" of DALCO were meant to be included in the first and second mortgages under foreclosure. The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or otherwise, is of no consequence and does not make the rescission valid and legally effective. It must be stated clearly, however, in justice to Belden, that, as a member of the Board of Directors of DALCO, he opposed the resolution of December 16, 1952 passed by said Board and the subsequent rescission of the sales. Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was premature because the promissory note sued upon did not fall due until April 1 of the same year, concluding from this that, when the action was commenced, the plaintiffs had no cause of action. Upon this question the lower court says the following in the appealed judgment:.
"The other is the defense of prematurity of the causes of action in that plaintiffs as a matter of grace, conceded an extension of time to pay up to 1 April, 1953 while the action was filed on 12 February 1953, but as to this, the Court taking it that there is absolutely no debate that Dahican Lumber Co., was insolvent as of the date of the filing of the complaint, it should follow that the debtor thereby lost the benefit to the period. '. . . unless he gives a guaranty or security for the debt . . .' (Art. 1198, New Civil Code);

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

Very little need be added to the above. Defendants, however, contend that the lower court had no basis for finding that, when the action was commenced, DALCO was insolvent for purposes related to Article 1198, paragraph 1 of the Civil Code. We find, however, that the finding of the trial court is sufficiently supported by the evidence particularly the resolution marked as Exhibit K which shows that on December 16, 1952 in the words of the Chairman of the Board DALCO was "without funds, neither does it expect to have any funds in the foreseeable future" (p. 64, record on appeal). The remaining issues, namely, whether or not the proceeds obtained from the sale of the "after acquired properties" should have been awarded exclusively to the plaintiffs or to DAMCO and CONNELL, and if in law they should be distributed among said parties, whether or not the distribution should be pro-rata or otherwise; whether or not plaintiffs are entitled to damages; and lastly, whether or not the expenses incidental to the Receivership should be borne by all the parties on a pro-rata basis or exclusively by one or some of them are of a secondary nature as they are already impliedly resolved by what has been said heretofore. As regard the proceeds obtained from the sale of the "after acquired properties" and the "undebated properties", it is clear, in view of our opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should be awarded exclusively to the plaintiffs in payment of the money obligations secured by the mortgages under foreclosure. On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of the New Civil Code) provides that creditors are protected in cases of contracts intended to defraud them, and that any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Similar liability is demandable under Arts. 20 and 21 which may be given retroactive effect (Arts. 2252-53) or under Arts. 1902 and 2176 of the Old Civil Code.

The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth promissory note upon its maturity, conspired jointly with CONNELL to violate the provisions of the fourth paragraph of the mortgages under foreclosure by attempting to defeat plaintiffs' mortgage lien on the "after acquired properties". As a result, the plaintiffs had to go to court to protect their rights thus jeopardized. Defendants' liability for damages is therefore clear. However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely, the difference between the alleged total obligation secured by the mortgages amounting to around P1,200,000.00, plus the stipulated interest and attorney's fees, on the one hand, and the proceeds obtained from the sale of the "after acquired properties", and of those that were not claimed neither by DAMCO nor CONNELL, on the other. Considering that the sale of the real properties subject to the mortgages under foreclosure has not been effected, and considering further the lack of evidence showing that the true value of all the properties already sold was not realized because their sale was under stress, We feel that We do not have before Us the true elements or factors that should determine the amount of damages that plaintiffs are entitled to recover from defendants. It is, however, our considered opinion that, upon the facts established, all the expenses of the Receivership, which was deemed necessary to safeguard the rights of the plaintiffs,

should be borne by all the defendants, jointly and severally, in the same manner that all of them should pay to the plaintiffs, jointly and severally, the attorney's fees awarded in the appealed judgment. In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled to recover from the defendants, the record of this case shall be remanded below for the corresponding proceedings. Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.

Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

JUDICIAL AND EXTRAJUDICIAL FORECLOSURE [G.R. No. 138292. April 10, 2002.] KOREA EXCHANGE BANK, petitioner, vs. FILKOR BUSINESS INTEGRATED, INC., KIM EUNG JOE, and LEE HAN SANG, respondents.

Romulo Mabanta Buenaventura Sayoc & Delos Angeles for petitioner. Donardo R. Paglinawan for private respondents.
SYNOPSIS Respondent Filkor Business Integrated, Inc. (Filkor) incurred several obligations in the form of cash and letters of credit from herein petitioner Korean Exchange Bank. In order to secure payment of all its obligations, Filkor executed a real estate mortgage of the improvements constructed on a lot which it was leasing from the Cavite Export Processing Zone Authority. Respondents Kim Eung Joe and Lee Han Sang also executed continuing suretyship binding them jointly and severally with Filkor to pay the latter's obligations to petitioner. As the respondents failed to make good on their obligations, petitioner filed a civil case with the Regional Trial Court of Cavite and moved for summary judgment. The trial court granted the motion, then rendered judgment in favor of the petitioner. The trial court, however, failed to order that the property of Filkor be foreclosed and sold at public auction in the event that Filkor fails to pay its obligations. Petitioner filed a motion for partial reconsideration of the trial court's order, praying that the relief of foreclosure and sale at public auction be granted. The trial court denied the motion and ruled that the petitioner deemed to have abandoned its lien on the property mortgaged when it opted to file an action for collection of a sum of money. Hence, this appeal before the Supreme Court. The Supreme Court granted the petition. According to the Court, the allegations in the petitioner's complaint and its prayer that the mortgaged property be foreclosed and sold at public auction indicated that petitioner's action was one for foreclosure of real estate mortgage. Thus, the trial court erred in concluding that petitioner has abandoned its mortgage lien on Filkor property, and that what it had filed was an action for collection of a sum of money. The Court modified the decision to include that the mortgaged property of Filkor be ordered foreclosed and sold at public auction in the event of respondent's failure to pay its obligations within a certain period. SYLLABUS

1.REMEDIAL LAW; ACTIONS; PLEADINGS; ALLEGATIONS IN THE COMPLAINT AND THE CHARACTER OF THE RELIEF SOUGHT DETERMINE THE NATURE OF AN ACTION; APPLICATION IN CASE AT BAR. Petitioner's allegations in its complaint, and its prayer that the mortgaged property be foreclosed and sold at public auction, indicate that petitioner's action was one for foreclosure of real estate mortgage. We have consistently ruled that what determines the nature of an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint and the character of the relief sought. In addition, we find no indication whatsoever that petitioner had waived its rights under the real estate mortgage executed in its favor. Thus, the trial court erred in concluding that petitioner had abandoned its mortgage lien on Filkor's property, and that what it had filed was an action for collection of a sum of money. Petitioner's action being one for foreclosure of real estate mortgage, it was incumbent upon the trial court to order that the mortgaged property be foreclosed and sold at public auction in the event that respondent Filkor fails to pay its outstanding obligations. This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure.
ETaHCD

2.ID.; APPEAL; APPEAL TO THE SUPREME COURT; PURE QUESTION OF LAW AS A GROUND, PRESENT IN CASE AT BAR. On the propriety of the present appeal, we note that what petitioner impugns is the determination by the trial court of the nature of action filed by petitioner, based on the allegations in the complaint. Such a determination as to the correctness of the conclusions drawn from the pleadings undoubtedly involves a question of law. As the present appeal involves a question of law, petitioner appropriately filed it with this Court, pursuant to Section 1 of Rule 45 of the 1997 Rules of Civil Procedure, which provides: SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth. There is no dispute with respect to the fact that when an appeal raises only pure questions of law, this Court has jurisdiction to entertain the same.

DECISION

QUISUMBING, J :
p

This petition assails the order 1 dated April 16, 1999 of the Regional Trial Court of Cavite City, Branch 88, in Civil Case No. N-6689. Said order denied petitioner's partial motion for reconsideration of the trial court's order 2 dated March 12, 1999 whereby respondents were ordered to pay petitioner various sums of U.S. dollars as payment of the former's various loans with interest but omitted to state that the property mortgaged as security for said loans be foreclosed and sold at public auction in case respondents fail to pay their obligations to petitioner ninety days from entry of judgment. The facts are summarized from the findings of the trial court. On January 9, 1997, respondent Filkor Business Integrated, Inc. (Filkor), borrowed US$140,000 from petitioner Korea Exchange Bank, payable on July 9, 1997. Of this amount, only US$40,000 was paid by Filkor. 3 In addition, Filkor executed nine trust receipts in favor of petitioner, from June 26, 1997 to September 11, 1997. However, Filkor failed to turn over to petitioner the proceeds from the sale of the goods, or the goods themselves as required by the trust receipts in case Filkor could not sell them. 4 In the period from June 9, 1997 to October 1, 1997, Filkor also negotiated to petitioner the proceeds of seventeen letters of credit issued by the Republic Bank of New York and the Banque Leumi France, S.A. to pay for goods which Filkor sold to Segerman International, Inc. and Davyco, S.A. When petitioner tried to

collect the proceeds of the letters of credit by presenting the bills of exchange drawn to collect the proceeds, they were dishonored because of discrepancies. 5 Prior to all the foregoing, in order to secure payment of all its obligations, Filkor executed a Real Estate Mortgage on February 9, 1996. It mortgaged to petitioner the improvements belonging to it constructed on the lot it was leasing at the Cavite Export Processing Zone Authority. 6 Respondents Kim Eung Joe and Lee Han Sang also executed Continuing Suretyships binding themselves jointly and severally with respondent Filkor to pay for the latter's obligations to petitioner. 7 As respondents failed to make good on their obligations, petitioner filed Civil Case No. N-6689 in the Regional Trial Court of Cavite City, docketed as "Korea Exchange Bank vs. Filkor Business Integrated, Inc." In its complaint, petitioner prayed that (a) it be paid by respondents under its twenty-seven causes of action; (b) the property mortgaged be foreclosed and sold at public auction in case respondents failed to pay petitioner within ninety days from entry of judgment; and (c) other reliefs just and equitable be granted. 8 Petitioner moved for summary judgment pursuant to Section 1, Rule 35 of the 1997 Rules of Civil Procedure. On March 12, 1999, the trial court rendered its order granting petitioner's motion, reasoning as follows: xxx xxx xxx
It appears that the only reason defendants deny all the material allegations in the complaint is because the documents attached thereto are mere photocopies and not the originals thereof. Section 7, Rule 8 of the Rules of Court allows copies of documents to be attached to the pleading as an exhibit. Defendants are, therefore, deemed to have admitted the genuineness and due execution of all actionable documents attached to the complaint inasmuch as they were not specifically denied, pursuant to Section 8 of the Rule 8 of the Rules of Court. In the case at bar, there is clearly no substantial triable issue, hence, the motion for summary judgment filed by plaintiff is proper. A summary of judgment is one granted by the court upon motion by a party for an expeditious settlement of the case, there appearing from the pleadings, depositions, admissions and affidavits that there are no important questions or issues of fact involved (except as to the amount of damages) and that, therefore, the moving party is entitled to a judgment as a matter of law (Sections 1, 2, 3, Rule 35, 1997 Rules of Civil Procedure). The court having taken into account the pleadings of the parties as well as the affidavits attached to the motion for summary judgment and having found that there is indeed no genuine issue as to any material fact and that plaintiff is entitled to a summary of judgment as a matter of law, hereby renders judgment for the plaintiff and against the defendants, ordering said defendants jointly and severally to pay plaintiff, as follows . . . 9

The trial court then rendered judgment in favor of petitioner, granting its prayers under all its twenty-seven causes of action. It, however, failed to order that the property mortgaged by respondent Filkor be foreclosed and sold at public auction in the event that Filkor fails to pay its obligations to petitioner. Petitioner filed a motion for partial reconsideration of the trial court's order, praying that the aforesaid relief of foreclosure and sale at public auction be granted. In an order dated April 16, 1999, the trial court denied petitioner's motion, ruling as follows:
Plaintiff, in opting to file a civil action for the collection of defendants obligations, has abandoned its mortgage lien on the property subject of the real estate mortgage.

The issue has already been resolved in Danao vs. Court of Appeals, 154 SCRA 446, citing Manila Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448, where the Supreme Court ruled that: The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary action to recover the indebtedness with the right to execute a judgment thereon on all the properties of the debtor including the subject matter of the mortgage, subject to the qualification that if he fails in the remedy by him elected, he cannot pursue further the remedy he has waived.
SHaATC

WHEREFORE, the Partial Motion for Reconsideration filed by the plaintiff of the Court's Order dated March 12, 1999 is hereby denied for lack of merit. SO ORDERED.
10

Hence, the present petition, where petitioner ascribes the following error to the trial court.
THE REGIONAL TRIAL COURT OF CAVITE CITY ERRED IN RULING THAT PETITIONER HAD ABANDONED THE REAL ESTATE MORTGAGE IN ITS FAVOR, BECAUSE IT FILED A SIMPLE COLLECTION CASE. 11

The resultant issue is whether or not petitioner's complaint before the trial court was an action for foreclosure of a real estate mortgage, or an action for collection of a sum of money. In addition, we must also determine if the present appeal was correctly lodged before us rather than with the Court of Appeals. In petitioner's complaint before the trial court, Paragraph 183 thereof alleges:
183.To secure payment of the obligations of defendant Corporation under the First to the TwentySeventh Cause of Action, on February 9, 1996, defendant Corporation executed a Real Estate Mortgage by virtue of which it mortgaged to plaintiff the improvements standing on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, belonging to defendant Corporation covered by Tax Declaration No. 5906-1 and consisting of a one-story building called warehouse and spooling area, the guardhouse, the cutting/sewing area building and the packing area building. (A copy of the Real Estate Mortgage is attached hereto as Annex "SS" and made an integral part hereof.) 12

This allegation satisfies in part the requirements of Section 1, Rule 68 of the 1997 Rules of Civil Procedure on foreclosure of real estate mortgage, which provides:
SECTION 1. Complaint in action for foreclosure. In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be made defendants in the action.

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

2.Ordering that the property mortgaged be foreclosed and sold at public auction in case defendants fail to pay plaintiff within ninety (90) days from entry of judgment. xxx xxx xxx
15

Petitioner's allegations in its complaint, and its prayer that the mortgaged property be foreclosed and sold at public auction, indicate that petitioner's action was one for foreclosure of real estate mortgage. We have consistently ruled that what determines the nature of an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint and the character of the relief sought. 16 In addition, we find no indication whatsoever that petitioner had waived its rights under the real estate mortgage executed in its favor. Thus, the trial court erred in concluding that petitioner had abandoned its mortgage lien on Filkor's property, and that what it had filed was an action for collection of a sum of money. Petitioner's action being one for foreclosure of real estate mortgage, it was incumbent upon the trial court to order that the mortgaged property be foreclosed and sold at public auction in the event that respondent Filkor fails to pay its outstanding obligations. This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure, which provides:
SEC. 2. Judgment on foreclosure for payment or sale. - If upon the trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by the court, and costs, andshall render judgment for the sum so found due and order that the same be paid to the

court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. (Italics supplied.)

Accordingly, the dispositive portion of the decision of the trial court dated March 12, 1999, must be modified to comply with the provisions of Section 2 of Rule 68 of the 1997 Rules of Civil Procedure. This modification is subject to any appeal filed by respondents of said decision. On the propriety of the present appeal, we note that what petitioner impugns is the determination by the trial court of the nature of action filed by petitioner, based on the allegations in the complaint. Such a determination as to the correctness of the conclusions drawn from the pleadings undoubtedly involves a question of law. 17As the present appeal involves a question of law, petitioner appropriately filed it with this Court, pursuant to Section 1 of Rule 45 of the 1997 Rules of Civil Procedure, which provides:
SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth. (Italics supplied).

There is no dispute with respect to the fact that when an appeal raises only pure questions of law, this Court has jurisdiction to entertain the same. 18 WHEREFORE, the petition is GRANTED. The Order dated March 12, 1999, of the Regional Trial Court of Cavite City, Branch 88, in Civil Case No. N-6689 is hereby MODIFIED, to state that the mortgaged property of respondent Filkor be ordered foreclosed and sold at public auction in the event said respondent fails to pay its obligations to petitioner within ninety (90) days from entry of judgment. No pronouncement as to costs. SO ORDERED.
DASCIc

Bellosillo, Mendoza and De Leon, Jr., JJ., concur.

[G.R. No. 128567. September 1, 2000.] HUERTA ALBA RESORT INC., petitioner, vs. COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP INC., respondents.

Benjamin C. Santos & Ofelia Calcetas-Santos and Santos Parungao Aquino & Santos for petitioner. Oben, Ventura Defensor. Abola Associates for petitioner. Atienza Tabora Del Rosario & Castillo Law Office for respondents.
SYNOPSIS Private respondent Syndicated Management Group, Inc. (SMGI), as mortgagee-assignee of Intercom Fund Resource, Inc., filed a complaint for judicial foreclosure of four parcels of land mortgaged by petitioner Huerta Alba Resort, Inc. before the Regional Trial Court of Makati City. The trial court ruled in favor of private respondent and ordered the petitioner to pay all its obligations within a period of not less than 150 days from receipt of the decision. The appeals to the Court of Appeals as well as the Petition for Certiorari to the Supreme Court filed by petitioner were all dismissed. The dismissal became final and executory and it was entered in the Book of Entries of Judgment on March 14, 1994. Accordingly, a writ of execution was issued and the auction sale of the subject properties was set on September 6, 1994. The petitioner then questioned the issuance of the said Writ of Execution by claiming that the 150-day period for petitioner to pay the judgment obligation had not yet lapsed. This issue was again raised by petitioner to the Court of Appeals. The Court of Appeals ruled that the 150-day period should be computed from the date the petitioner was notified of the Entry of Judgment and it expired on September 11, 1994. Subsequently, the trial court confirmed the sale of subject properties to the private respondent. When the private respondent filed a motion for a Writ of Possession, again it was opposed by petitioner by filing a motion to compel private respondent to accept redemption. This is the first time petitioner asserted its right to redeem the subject properties under Section 78 of R.A. No. 337 (General Banking Act). The trial court allowed the petitioner to redeem the subject properties. However, in a Petition for Certiorari, Prohibition and Mandamus filed by private respondents, the Court of Appeals set aside the said Order of the trial court. Hence, this petition.
THCSAE

The Court ruled that the claim that petitioner is entitled to the beneficial provisions of Section 78 of R.A. No. 337 since private respondent's predecessor-in-interest is a credit institution is in the nature of a compulsory counterclaim which should have been averred in petitioner's answer to the complaint for judicial foreclosure. The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late stage of the case. Estoppel may be successfully invoked if the party fails to raise the question in the early stages of the proceedings. Hence, in conformity with the ruling in Limpin vs. IAC (166 SCRA 87), the sale of the subject properties, operated to divest the rights of all the parties to the action and to vest their rights in private respondent. There then existed only what is known as the equity of redemption, which is simply the right of the petitioner to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after judgment became final. There being an explicit finding by the Court of Appeals in its decision that the herein petitioner failed to exercise its equity of redemption within the prescribed period, redemption can no longer be effected. The

confirmation of the sale and the issuance of the transfer certificates of title covering the subject properties to private respondent was in order. The trial court, therefore, has the ministerial duty to place private respondent in the possession of subject properties. SYLLABUS 1.REMEDIAL LAW; SPECIAL CIVIL ACTIONS; FORECLOSURE OF REAL ESTATE MORTGAGE; EQUITY OF REDEMPTION AND RIGHT OF REDEMPTION; DISTINGUISHED. On the distinction between the equity of redemption and right of redemption, the case of Gregorio Y. Limpin vs. Intermediate Appellate Court, comes to the fore. Held the Court in the said case: "The equity of redemption is, to be sure, different from and should not be confused with the right of redemption. The right of redemption in relation to a mortgage understood in the sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosed of the mortgage. No such right is recognized in a judicial foreclosed except only where the mortgagee is the Philippine National Bank or a bank or banking institution. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the registration of the sheriff's certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale, when

confirmed by an order of the court, . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. Such rights exceptionally 'allowed by law' (i.e., even after confirmation by an order of the court) are those granted by the
charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the foreclosure sale which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property. But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, 'when confirmed by an order of the court. . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser.' There then exists only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to

extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but
prior to its confirmation.

2.ID.; ID.; ID.; BENEFICIAL PROVISIONS OF SECTION 78 OF GENERAL BANKING ACT MUST BE RAISED AS COMPULSORY COUNTERCLAIM. [A]t the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have alleged that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its answer regarding any right thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual question of whether or not private respondent's predecessor in interest was a credit institution. As was held in Limpin, a judicial foreclosure sale, "when confirmed by an order of the court, . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law," which confer on the mortgagor, his successors in interest of any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the judicial foreclosure sale. Thus, the claim that petitioner is entitled to the beneficial provisions of Section 78 of R.A. No. 337 since private respondent's predecessor-in-interest is a credit institution is in the nature of a compulsory counterclaim which should have been averred in petitioner's answer to the complaint for judicial foreclosure. 3.ID.; ID.; ID.; ID.; NOT ALLEGED BY PETITIONER IN EARLY STAGES OF PROCEEDINGS. [I]t was too late in the day for petitioner to invoke a right to redeem under Section 78 of R.A. No. 337. Petitioner failed to assert a right to redeem in several crucial stages of the proceedings. For instance, on September 7, 1994,

when it filed with the trial court an Ex-parte Motion for Clarification, petitioner failed to allege and prove that private respondent's predecessor in interest was a credit institution . . . So also, when it presented before the trial court an Exception to the Order and Motion to Set Aside said Order dated October 13, 1994, petitioner again was silent on its alleged right under Section 78 of R.A. No. 337 . . . Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest of private respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the sale of subject properties in favor private respondent and declaring that all pending incidents with respect to the Order dated September 26, 1994 had become moot and academic. Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of the date of commencement of the one (1) year redemption period for the subject properties . . . If petitioner were really acting in good faith, it would have ventilated, before the Court of Appeals in CAG.R. No. 35086 its alleged right under Section 78 of R.A. No. 337; but petitioner never did do so.
cDAITS

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

5.ID.; CIVIL PROCEDURE; COUNTERCLAIM; ELUCIDATED. ". . . A counterclaim is, most broadly, a cause of action existing in favor of the defendant against the plaintiff. More narrowly, it is a claim which, if established, will defeat or in some way qualify a judgment or relief to which plaintiff is otherwise entitled. It is sometimes defined as any cause of action arising in contract available against any action also arising in contract and existing at the time of the commencement of such an action. It is frequently defined by the codes as a cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's claim, or connected with the subject of the action." "The counterclaim is in itself a distinct and independent cause of action, so that when properly stated as such, the defendant becomes, in respect to the matters stated by him, an actor, and there are two simultaneous actions pending between the same parties, wherein each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as well as a defensive plea and is not necessarily confined to the justice of the plaintiffs claim. It represents the right of the

defendant to have the claims of the parties counterbalanced in whole or in part, and judgment to be entered in excess, if any. A counterclaim stands on the same footing, and is to be tested by the same rules, as if it were an independent action."

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

7.ID.; ID.; EXECUTION OF JUDGMENT; ERRONEOUS FOR THE TRIAL COURT TO ALLOW A PARTY AT THIS STAGE TO INTRODUCE EVIDENCE AND OVERRULE THE LAW OF THE CASE. [T]he trial court erred in still allowing petitioner to introduce evidence that private respondent's predecessor-in-interest was a credit institution, and to thereafter rule that the petitioner was entitled to avail of the provisions of Section 78 of R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter failed to do before the Court of Appeals, that is, to invoke its alleged right under Section 78 of R.A. 337 although the Court of Appeals in CA-G.R. No. 35086 already found that 'the question of whether the Syndicated Management Council Group, Inc. is a bank or credit institution was never brought before (the Court of Appeals) squarely." The said pronouncement by the Court of Appeals unerringly signified that petitioner did

not make a timely assertion of any right under Section 78 of R.A. No. 337 in all the stages of the proceedings below. 8.ID.; ID.; ID.; LAW OF THE CASE; REMAINS AS IT IS, WHETHER OR NOT IT IS ERRONEOUS IS IMMATERIAL. There is, . . . merit in private respondent's contention that to allow petitioner to belatedly invoke its right under Section 78 of R.A. No. 337 will disturb the "law of the case." However, private respondent's statement of what constitutes the "law of the case" is not entirely accurate. The "law of the case" is not simply that the defendant possesses an equity of redemption. As the Court has stated, the "law of the case" holds that petitioner has the equity of the redemption without any qualification whatsoever, that is, without the right of redemption afforded by Section 78 of R.A. No. 337. Whether or not the "law of the case" is erroneous is immaterial, it still remains the "law of the case." A contrary rule will contradict both the letter and spirit of the rulings of the Court of Appeals in CA-G.R. SP No. 35086, CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the repeated attempts of petitioner to forestall so simple a matter as making the security given for a just debt to answer for its payment.
HATICc

9.ID.; SPECIAL CIVIL ACTIONS; FORECLOSURE OF REAL ESTATE MORTGAGE; EQUITY OF REDEMPTION CAN NO LONGER BE EFFECTED FOR FAILURE TO EXERCISE WITHIN THE PRESCRIBED PERIOD. [T]he sale of the subject properties, as confirmed by the Order dated February 10, 1995 of the trial court in Civil Case No. 89-5424 operated to divest the rights of all the parties to the action and to vest their rights in private respondent. There then existed only what is known as the equity of redemption, which is simply the right of the petitioner to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment became final. There being an explicit finding on the part of the Court of Appeals in its Decision of September 30, 1994 in CA-G.R. No. 35086 that the herein petitioner failed to exercise its equity of redemption within the prescribed period, redemption can no longer be effected. The confirmation of the sale and the issuance of the transfer certificates of title covering the subject properties to private respondent was then, in order. The trial court therefore, has the ministerial duty to place private respondent in the possession of subject properties.

DECISION

PURISIMA, J. :
p

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

The Case
At bar is a petition assailing the Decision, dated November 14, 1996, and Resolution, dated March 11, 1997, of the Court of Appeals in CA-G.R. No. 38747, which set aside the Order, dated July 21, 1995 and Order, dated September 4, 1997, of the Regional Trial Court of Makati City, in Civil Case No. 89-5424. The aforesaid orders of the trial court held that petitioner had the right to redeem subject pieces of property within the oneyear period prescribed by Section 78 of Republic Act No. 337 otherwise known as the General Banking Act. Section 78 of R.A. No. 337 provides that "in case of a foreclosure of a mortgage in favor of a bank, banking or credit institution, whether judicially or extrajudicially, the mortgagor shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property."

The Facts
The facts that matter are undisputed: In a complaint for judicial foreclosure of mortgage with preliminary injunction filed on October 19, 1989, docketed as Civil Case No. 89-5424 before the Regional Trial Court of Makati City, the herein private respondent sought the foreclosure of four (4) parcels of land mortgaged by petitioner to Intercon Fund Resource, Inc. ("Intercon"). Private respondent instituted Civil Case No. 89-5424 as mortgagee-assignee of a loan amounting to P8.5 million obtained by petitioner from Intercon, in whose favor petitioner mortgaged the aforesaid parcels of land as security for the said loan. In its answer below, petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on the ground that the same wasultra vires. Petitioner also questioned during the trial the correctness of the charges and interest on the mortgage debt in question. On April 30, 1992, the trial court, through the then Judge now Court of Appeals Justice Buenaventura J. Guerrero, came out with its decision "granting herein private respondent SMGI's complaint for judicial foreclosure of mortgage", disposing as follows:
aSECAD

"WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the following: (1)P8,500,000.00 representing the principal of the amount due; (2)P850,000.00 as penalty charges with interest at 6% per annum, until fully paid; (3)22% per annum interest on the above principal from September 6, 1998, until fully paid; (4)5% of the sum total of the above amounts, as reasonable attorney's fees; and, (5)Costs. All the above must be paid within a period of not less than 150 days from receipt hereof by the defendant. In default of such payment, the four parcels of land subject matter of the suit including its improvements shall be sold to realize the mortgage debt and costs, in the manner and under the regulations that govern sales of real estate under execution." 1

Petitioner appealed the decision of the trial court to the Court of Appeals, the appeal docketed as CA-G.R. CV No. 39243 before the Sixth Division of the appellate court, which dismissed the case on June 29, 1993 on the ground of late payment of docket fees. Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this Court via a petition for certiorari, docketed as G.R. No. 112044, which this court resolved to dismiss on December 13, 1993, on the finding that the Court of Appeals erred not in dismissing the appeal of petitioner. Petitioner's motion for reconsideration of the dismissal of its petition in G.R. No. 112044 was denied with finality in this Court's Resolution promulgated on February 16, 1994. On March 10, 1994, leave to present a second motion for reconsideration in G.R. No. 112044 or to submit the case for hearing by the Court en banc was filed, but to no avail. The Court resolved to deny the same on May 11, 1994.
LibLex

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

On July 4, 1994, private respondent filed with the trial court of origin a motion for execution of the Decision promulgated on April 30, 1992 in Civil Case No. 89-5424. The said motion was granted on July 15, 1994. Accordingly, on July 15, 1994 a writ of execution issued and, on July 20, 1994, a Notice of Levy and Execution was issued by the Sheriff concerned, who issued on August 1, 1994 a Notice of Sheriff's Sale for the auction of subject properties on September 6, 1994.

On August 23, 1994, petitioner filed with the same trial court an Urgent Motion to Quash and Set Aside Writ of Execution ascribing to it grave abuse of discretion in issuing the questioned Writ of Execution. To support its motion, petitioner invited attention and argued that the records of the case were still with the Court of Appeals and therefore, issuance of the writ of execution was premature since the 150-day period for petitioner to pay the judgment obligation had not yet lapsed and petitioner had not yet defaulted in the payment thereof since no demand for its payment was made by the private respondent. In petitioner's own words, the dispute between the parties was "principally on the issue as to when the 150-day period within which Huerta Alba may exercise its equity of redemption should be counted." In its Order of September 2, 1994, the lower court denied petitioner's urgent motion to quash the writ of execution in Civil Case No. 89-5424, opining that subject judgment had become final and executory and consequently, execution thereof was a matter of right and the issuance of the corresponding writ of execution became its ministerial duty. Challenging the said order granting execution, petitioner filed once more with the Court of Appeals another petition for certiorari and prohibition with preliminary injunction, docketed as C.A.-G.R. SP No. 35086, predicated on the same grounds invoked for its Motion to Quash Writ of Execution. On September 6, 1994, the scheduled auction sale of subject pieces of properties proceeded and the private respondent was declared the highest bidder. Thus, private respondent was awarded subject bidded pieces of property. The covering Certificate of Sale issued in its favor was registered with the Registry of Deeds on October 21, 1994. On September 7, 1994, petitioner presented an Ex-Parte Motion for Clarification asking the trial court to "clarify" whether or not the twelve (12) month period of redemption for ordinary execution applied in the case. On September 26, 1994, the trial court ruled that the period of redemption of subject property should be governed by the rule on the sale of judicially foreclosed property under Rule 68 of the Rules of Court. Thereafter, petitioner then filed an Exception to the Order dated September 26, 1994 and Motion to Set Aside Said Order, contending that the said Order materially altered the Decision dated April 30, 1992 "which declared that the satisfaction of the judgment shall be in the manner and under the regulation that govern sale of real estate under execution." Meanwhile, in its Decision of September 30, 1994, the Court of Appeals resolved the issues raised by the petitioner in C.A.-G.R. SP No. 35086, holding that the one hundred-fifty day period within which petitioner may redeem subject properties should be computed from the date petitioner was notified of the Entry of Judgment in G.R. No. 112044; and that the 150-day period within which petitioner may exercise its equity of redemption expired on September 11, 1994. Thus:

"Petitioner must have received the resolution of the Supreme Court dated February 16, 1994 denying with finality its motion for reconsideration in G.R. No. 112044 before March 14, 1994, otherwise the Supreme Court would not have made an entry of judgment on March 14, 1994. While, computing the 150-day period. Petitioner may have until September 11, 1994. within which to pay the amounts covered by the judgment, such period has already expired by this time , and therefore, this Court has no more reason to pass upon the parties' opposing contentions, the same having become moot and academic." 2(underscoring supplied).
IcaHTA

Petitioner moved for reconsideration of the Decision of the Court of Appeals in C.A.-G.R. SP No. 35086. In its Motion for Reconsideration dated October 18, 1994, petitioner theorized that the period of one hundred fifty (150) days should not be reckoned with from Entry of Judgment but from receipt on or before July 29, 1994 by the trial court of the records of Civil Case No. 89-5424 from the Court of Appeals. So also, petitioner maintained that it may not be considered in default, even after the expiration of 150 days from July 29, 1994, because prior demand to pay was never made on it by the private respondent. According to petitioner, it was therefore, premature for the trial court to issue a writ of execution to enforce the judgment. The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in view of the pendency of petitioner's Motion for Reconsideration in CA-G.R. SP No. 35086. On December 23, 1994, the Court of Appeals denied petitioner's motion for reconsideration in CA-G.R. SP No. 35086. Absent any further action with respect to the denial of the subject motion for reconsideration, private respondent presented a Second Motion for Confirmation of Certificate of Sale before the trial court. As regards the Decision rendered on September 30, 1994 by the Court of Appeals in CA G.R. SP No. 35086 it became final and executory on January 25, 1995. On February 10, 1995, the lower court confirmed the sale of subject properties to the private respondent. The pertinent Order declared that all pending incidents relating to the Order dated September 26, 1994 had become moot and academic. Conformably, the Transfer Certificates of Title to subject pieces of property were then issued to the private respondent. On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking "clarification" of the date of commencement of the one (1) year period for the redemption of the properties in question. In its Resolution dated March 20, 1995, the Court of Appeals merely noted such Motion for Clarification since its Decision promulgated on September 30, 1994 had already become final and executory; ratiocinating thus:
"We view the motion for clarification filed by petitioner, purportedly signed by its proprietor, but which we believe was prepared by a lawyer who wishes to hide under the cloak of anonymity, as a veiled attempt to buy time and to delay further the disposition of this case. Our decision of September 30, 1994 never dealt on the right and period of redemption of petitioner, but was merely circumscribed to the question of whether respondent judge could issue a writ of execution in its Civil Case No. 89-5424 . . . . We further ruled that the one-hundred fifty day period within which petitioner may exercise its equity of redemption should be counted, not from the receipt of respondent court of the records of Civil Case No. 89-5424 but from the date petitioner was notified of the entry of judgment made by the appellate court. But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the foreclosure in this case is judicial. and as such the mortgagor has only the equity not the right of redemption . . . . While it may be true that under Section 78 of R.A. 337 as amended,

otherwise known as the General Banking Act, a mortgagor of a bank, banking or credit institution, whether the foreclosure was done judicially or extrajudicially, has a period of one year from the auction sale within which to redeem the foreclosed property, the question of whether the Syndicated Management Group, Inc., is a bank or credit institution was never brought before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in its motion for clarification." 3 (Emphasis supplied).

Indeed, if petitioner did really act in good faith, it would have ventilated before the Court of Appeals in CAG.R. No. 35086 its pretended right under Section 78 of R.A. No. 337 but it never did so. At the earliest opportunity, when it filed its answer to the complaint for judicial foreclosure, petitioner should have averred in its pleading that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337; but again, petitioner did not make any such allegation in its answer. From the said Resolution, petitioner took no further step such that on March 31, 1995, the private respondent filed a Motion for Issuance of Writ of Possession with the trial court.
THCSEA

During the hearing called on April 21, 1995, the counsel of record of petitioner entered appearance and asked for time to interpose opposition to the Motion for Issuance of Writ of Possession. On May 2, 1995, in opposition to private respondent's Motion for Issuance of writ of Possession, petitioner filed a "Motion to Compel Private Respondent to Accept Redemption." It was the first time petitioner ever asserted the right to redeem subject properties under Section 78 of R.A. No. 337, the General Banking Act; theorizing that the original mortgagee, being a credit institution, its assignment of the mortgage credit to petitioner did not remove petitioner from the coverage of Section 78 of R.A. No. 337. Therefore, it should have the right to redeem subject properties within one year from registration of the auction sale, theorized the petitioner which concluded that in view of its "right of redemption," the issuance of the titles over subject parcels of land to the private respondent was irregular and premature. In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan, denied private respondent's motion for a writ of possession, opining that Section 78 of the General Banking Act was applicable and therefore, the petitioner had until October 21, 1995 to redeem the said parcels of land, said Order ruled as follows:
"It is undisputed that Intercon is a credit institution from which defendant obtained a loan secured with a real estate mortgage over four (4) parcels of land. Assuming that the mortgage debt had not been assigned to plaintiff, there is then no question that defendant would have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant to the above quoted Section 78 of RA 337, as amended.

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

Since the period to exercise defendant's right of redemption has not yet expired, the cancellation of defendant's transfer certificates of title and the issuance of new ones in lieu thereof in favor of plaintiff are therefore illegal for being premature, thereby necessitating reconveyance (see Sec. 63 (a) PD 1529, as amended). WHEREFORE, the Court hereby rules as follows: (1)The Motion for Issuance of Writ of Possession is hereby denied; (2)Plaintiff is directed to accept the redemption on or before October 21, 1995 in an amount computed according to the terms stated in the Writ of Execution dated July 15, 1994 plus all other related costs and expenses mentioned under Section 78, RA 337, as amended; and (3)The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to the defendant the following titles of the four (4) parcels of land, namely TCT Nos. V-38878, V-38879, V38880, and V-38881, now in the name of plaintiff, and (b) to register the certificate of sale dated October 7, 1994 and the Order confirming the sale dated February 10, 1995 by a brief memorandum thereof upon the transfer certificates of title to be issued in the name of defendant, pursuant to Sec. 63 (a) PD 1529, as amended. The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is now deemed resolved. SO ORDERED."
4

Private respondent interposed a Motion for Reconsideration seeking the reversal of the Order but to no avail. In its Order dated September 4, 1995, the trial court denied the same. To attack and challenge the aforesaid order of July 21, 1995 and subsequent Order of September 4, 1995 of the trial court, the private respondent filed with this court a Petition for Certiorari, Prohibition and Mandamus, docketed as G.R. No. 121893, but absent any special and cogent reason shown for entertaining the same, the Court referred the petition to the Court of Appeals, for proper determination. Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals gave due course to the petition and set aside the trial court's Order dated July 21, 1995 and Order dated September 4, 1995. In its Resolution of March 11, 1997, the Court of Appeals denied petitioner's Motion for Reconsideration of the Decision promulgated on November 14, 1996 in CA-G.R. No. 38747.
ESCacI

Undaunted, petitioner has come to this Court via the present petition, placing reliance on the assignment of errors, that:
I THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE COURT OF APPEALS (TWELFTH DIVISION) IN CA G.R. SP NO. 35086 HAD RESOLVED "WITH FINALITY" THAT PETITIONER HUERTA ALBA HAD NO RIGHT OF REDEMPTION BUT ONLY THE EQUITY OF REDEMPTION. II THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN IGNORING THAT PETITIONER HUERTA ALBA POSSESSES THE ONE-YEAR RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 (THE GENERAL BANKING ACT).

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

In its comment on the petition, private respondent countered that:

"A.THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT RESOLVED WITH FINALITY IN C.A.-G.R. SP NO. 35086 THAT PETITIONER ONLY HAD THE RIGHT OF REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES. B.THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO EVADE THE FINALITY OF VARIOUS DECISIONS, RESOLUTIONS AND ORDERS WHICH HELD THAT, PETITIONER ONLY POSSESSES THE EQUITY OF REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES. C.PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY RAISING THE ISSUE OF ITS ALLEGED 'RIGHT OF REDEMPTION. D.IN HOLDING THAT THE PETITIONER HAD THE 'RIGHT OF REDEMPTION' OVER THE SUBJECT PROPERTIES, THE TRIAL COURT MADE A MOCKERY OF THE 'LAW OF THE CASE."' 6

And by way of Reply, petitioner argued, that:

I. THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE POSSIBLY RESOLVED THEREIN WHETHER WITH FINALITY OR OTHERWISE THE ISSUE OF PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337. II. THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED ITS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IN TIMELY FASHION, i.e., AFTER CONFIRMATION BY THE COURT OF THE FORECLOSURE SALE, AND WITHIN ONE (1) YEAR FROM THE DATE OF REGISTRATION OF THE CERTIFICATE OF SALE. III. THE PRINCIPLE OF 'THE LAW OF THE CASE' HAS ABSOLUTELY NO BEARING HERE: (1) THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN FACT PREDICATED UPON THE FINALITY AND CORRECTNESS OF THE DECISION IN CIVIL CASE NO. 89-5424.
AaHcIT

(2) THUS, THE RTC'S ORDER RECOGNIZING PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 DOES NOT IN ANY WAY HAVE THE EFFECT OF AMENDING, MODIFYING, OR SETTING ASIDE THE DECISION IN CIVIL CASE NO. 89-5424.

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

The petition is not visited by merit. Petitioner's assertion of right of redemption under Section 78 of Republic Act No. 337 is premised on the submission that the Court of Appeals did not resolve such issue in CA-G.R. SP No. 35086; contending thus:
(1) BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 BE INTERPRETED TO MEAN THE COURT OF APPEALS HAD RESOLVED 'WITH FINALITY' THE ISSUE OF WHETHER PETITIONER HUERTA ALBA HAD THE RIGHT OF REDEMPTION WHEN ALL THAT THE RESOLUTION DID WAS TO MERELY NOTE THE MOTION FOR CLARIFICATION. (2) THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A FINAL JUDGMENT, ORDER OR DECREE. IT IS NOT EVEN A JUDGMENT OR ORDER TO BEGIN WITH. IT ORDERS NOTHING; IT ADJUDICATES NOTHING. (3) PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37 WAS NOT AN ISSUE AND WAS NOT IN ISSUE, AND COULD NOT HAVE POSSIBLY BEEN AN ISSUE NOR IN ISSUE, IN CA G.R. SP NO. 35086. (4) THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING ALREADY BECOME FINAL EVEN BEFORE THE FILING OF THE MOTION FOR CLARIFICATION, THE COURT OF APPEALS NO LONGER HAD ANY JURISDICTION TO ACT OF THE MOTION OR ANY OTHER MATTER IN CA G.R. SP NO. 35086, EXCEPT TO MERELY NOTE THE MOTION. II. IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 WAS DIRECTLY RAISED AND JOINED BY THE PARTIES, AND THE SAME DULY RESOLVED BY THE TRIAL COURT. III. THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS MANDATORY AND AUTOMATICALLY EXISTS BY LAW. THE COURTS ARE DUTY-BOUND TO RECOGNIZE SUCH RIGHT. IV. EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF PETITIONER HUERTA ALBA, NOT THE LEAST OF WHICH IS THE WELL-SETTLED POLICY OF THE LAW TO AID RATHER THAN DEFEAT THE RIGHT OF REDEMPTION. V. THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS OF THE TRIAL COURT ARE VALID AND PROPER IN ACCORDANCE WITH THE MANDATE OF THE LAW.

From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been adjudged to have was only the equity of redemption over subject properties. On the distinction between

the equity of redemption and right of redemption, the case of Gregorio Y. Limpin vs. Intermediate Appellate Court, 7comes to the fore. Held the Court in the said case:
"The equity of redemption is, to be sure, different from and should not be confused with the right of redemption. The right of redemption in relation to a mortgage understood in the sense of a prerogative to reacquire mortgaged property after registration of the foreclosure sale exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the registration of the sheriff's certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale 'when confirmed be an order of the court, . . . shall operate to

divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such rights exceptionally 'allowed by law' (i.e.,

even after confirmation by an order of the court) are those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the foreclosure sale which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the

mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, 'when confirmed by an order of the court. . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser.' There then exists only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain

ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its
confirmation. Section 2, Rule 68 provides that

'. . . If upon the trial . . . the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and costs, and shall render judgment for the sum so found due and order the same to be paid into court within a period of not less than ninety (90) days from the date of the service of such order, and that in default of such payment the property be sold to realize the mortgage debt and costs.' This is the mortgagor's equity (not right) of redemption which, as above stated, may be exercised by him even beyond the 90-day period 'from the date of service of the order,' and even after the foreclosure sale itself, provided it be before the order of confirmation of the sale. After such order of confirmation, no redemption can be effected any longer." 8 (Emphasis supplied)

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

The pivot of inquiry here therefore, is whether the petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to redeem subject properties. Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after confirmation by the court of the foreclosure sale, and within one (1) year from the date of registration of the certificate of sale. Indeed, the facts show that it was only on May 2, 1995 when, in opposition to the Motion for Issuance of Writ of Possession, did petitioner file a Motion to Compel Private Respondent to Accept Redemption, invoking for the very first time its alleged right to redeem subject properties under to Section 78 of R.A. No. 337. In light of the aforestated facts, it was too late in the day for petitioner to invoke a right to redeem under Section 78 of R.A. No. 337. Petitioner failed to assert a right to redeem in several crucial stages of the proceedings. For instance, on September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner failed to allege and prove that private respondent's predecessor in interest was a credit institution and therefore, Section 78 of R.A. No. 337 was applicable. Petitioner merely asked the trial court to clarify whether the sale of subject properties was execution sale or judicial foreclosure sale. So also, when it presented before the trial court an Exception to the Order and Motion to Set Aside Said Order dated October 13, 1994, petitioner again was silent on its alleged right under Section 78 of R.A. No. 337, even as it failed to show that private respondent's predecessor in interest is a credit institution. Petitioner just argued that the aforementioned Order materially altered the trial court's Decision of April 30, 1992. Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest of private respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the sale of subject properties in favor of private respondent and declaring that all pending incidents with respect to the Order dated September 26, 1994 had become moot and academic. Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of the date of commencement of the one (1) year redemption period for the subject properties, petitioner never intimated any alleged right under Section 78 of R.A. No. 337 nor did it invite attention to its present stance that private respondent's predecessor-in-interest was a credit institution. Consequently, in its Resolution dated March 20, 1995, the Court of Appeals ruled on the said motion thus:
"But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the foreclosure in this case is judicial, and as such. the mortgagor has only the equity, not the right of redemption, . . . While it may be true that under Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a bank, banking or credit institution, whether the foreclosure was done judicially orextrajudicially, has a period of one year from the auction sale within which to redeem the foreclosed property, the question of whether the Syndicated Management Group. Inc., is bank or credit institution was never brought before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in its motion for clarification." 9 (Emphasis supplied).
AaHcIT

If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its alleged right under Section 78 of R.A. No. 337; but petitioner never did do so. Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have alleged that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its answer regarding any right thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual question of whether or not private

respondent's predecessor in interest was a credit institution. As was held in Limpin, a judicial foreclosure sale, "when confirmed by an order of the court, . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law'," 10 which confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the judicial foreclosure sale. Thus, the claim that petitioner is entitled to the beneficial provisions of Section 78 of R.A. No. 337 since private respondent's predecessor-in-interest is a credit institution is in the nature of a compulsory counterclaim which should have been averred in petitioner's answer to the compliant for judicial foreclosure.
". . . A counterclaim is, most broadly, a cause of action existing in favor of the defendant against the plaintiff. More narrowly, it is a claim whic, if established,will defeat or in some way qualify a judgment or relief to which plaintiff is otherwise entitled. It is sometimes defined as any cause of action arising in contract available against any action also arising in contract and existing at the time of the commencement of such an action. It is frequently defined by the codes as a cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's claim, or connected with the subject of the action." 11 (emphasis supplied) "The counterclaim is in itself a distinct and independent cause of action, so that when properly stated as such, the defendant becomes, in respect to the matters stated by him, an actor, and there are two simultaneous actions pending between the same parties, wherein each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as well as a defensive plea and is not necessarily confined to the justice of the plaintiff's claim. It represents the right of the defendant to

have the claims of the parties counterbalanced in whole or in part, and judgment to be entered in excess, if any. A counterclaim stands on the same footing, and is to be tested by the same rules, as if it were an independent action." 12 (emphasis supplied)

The very purpose of a counterclaim would have been served had petitioner alleged in its answer its purported right under Section 78 of R.A. No. 337:
". . . The rules of counterclaim are designed to enable the disposition of a whole controversy of interested parties' conflicting claims, at one time and in one action, provided all parties' be brought before the court and the matter decided without prejudicing the rights of any party." 13

The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late stage case. Estoppel may be successfully invoked if the party fails to raise the question in the early stages of the proceedings. 14 Thus, "a party to a case who failed to invoke his claim in the main case, while having the opportunity to do so, will be precluded, subsequently, from invoking his claim, even if it were true, after the decision has become final, otherwise the judgment may be reduced to a mockery and the administration of justice may be placed in disrepute." 15 All things viewed in proper perspective, it is decisively clear that the trial court erred in still allowing petitioner to introduce evidence that private respondent's predecessor-in-interest was a credit institution, and to thereafter rule that the petitioner was entitled to avail of the provisions of Section 78 of R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter failed to do before the Court of Appeals, that is, to invoke its alleged right under Section 78 of R.A. No. 337 although the Court of Appeals in CA-G.R. No. 35086 already found that 'the question of whether the Syndicated Management Council Group, Inc. is a bank or credit institution was never brought before (the Court of Appeals) squarely." The said pronouncement by the Court of Appeals unerringly signified that petitioner did not make a timely assertion of any right under Section 78 of R.A. No. 337 in all the stages of the proceedings below.

Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-in-interest of the private respondent is a credit institution. Thus, when the trial court, and the Court of Appeals repeatedly

passed upon the issue of whether or not petitioner had the right of redemption or equity of redemption over subject properties in the decisions, resolutions and orders, particularly in Civil Case No. 89-5424, CA-G.R. CV No. 39243, CA-G.R. SP No. 35086, and CA-G.R. SP No. 38747, it was unmistakable that the petitioner was adjudged to just have the equity of redemption without any qualification whatsoever, that is, without any right of redemption allowed by law.
HCITcA

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

There is, therefore, merit in private respondent's contention that to allow petitioner to belatedly invoke its right under Section 78 of R.A. No. 337 will disturb the "law of the case." However, private respondent's statement of what constitutes the "law of the case" is not entirely accurate. The "law of the case" is not simply that the defendant possesses an equity of redemption. As the Court has stated, the "law of the case" holds that petitioner has the equity of the redemption without any qualification whatsoever, that is, without the right of redemption afforded by Section 78 of R.A. No. 337. Whether or not the "law of the case" is erroneous is immaterial, it still remains the "law of the case". A contrary rule will contradict both the letter and spirit of the rulings of the Court of Appeals in CA-G.R. SP No. 35086, CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the repeated attempts of petitioner to forestall so simple a matter as making the security given for a just debt to answer for its payment. Hence, in conformity with the ruling in Limpin, the sale of the subject properties, as confirmed by the Order dated February 10, 1995 of the trial court in Civil Case No. 89-5424 operated to divest the rights of all the parties to the action and to vest their rights in private respondent. There then existed only what is known as theequity of redemption, which is simply the right of the petitioner to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment became final. There being an explicit finding on the part of the Court of Appeals in its Decision of September 30, 1994 in CA-G.R. No. 35086 that the herein petitioner failed to exercise its equity of redemption within the prescribed period, redemption can no longer be effected. The confirmation of the sale and the issuance of the transfer certificates of title covering the subject properties to private respondent was then, in order. The trial court therefore, has the ministerial duty to place private respondent in the possession of subject properties.
aSTAcH

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

Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

[G.R. No. 91779. February 7, 1991.] GRAND FARMS, INC. and PHILIPPINE SHARES CORPORATION, petitioners, vs. COURT OF APPEALS, JUDGE ADRIAN R. OSORIO, as Presiding Judge of the Regional Trial Court, Branch 171, Valenzuela Metro Manila; ESPERANZA ECHIVERRI, as Clerk of Court & Ex-Officio Sheriff of the Regional Trial Court of Valenzuela, Metro Manila; SERGIO CABRERA, as Deputy Sheriff-inCharge; and BANCO FILIPINO SAVINGS AND MORTGAGE BANK, respondents.

Balgos & Perez for petitioners.

Sycip, Salazar, Hernandez & Gatmaitan for private respondent.

DECISION

REGALADO, J :
p

The propriety of a summary judgment is raised in issue in the instant petition, with herein petitioners appealing the decision 1 of respondent court in CA-G.R. SP No. 17535, dated November 29, 1989, which found no grave abuse of discretion on the part of respondent judge in denying petitioners' motion for summary judgment. 2 The antecedents of this case are clear and undisputed. Sometime on April 15, 1988, petitioners filed Civil Case No. 2816-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. 3 Soon after private respondent had filed its answer to the complaint, petitioners filed a request for admission by private respondent of the allegation, inter alia, that no formal notice of intention to foreclose the real estate mortgage was sent by private respondent to petitioners. 4 Private respondent, through its deputy liquidator, responded under oath to the request and countered that petitioners were "notified of the auction sale by the posting of notices and the publication of notice in the Metropolitan Newsweek, a newspaper of general circulation in the province where the subject properties are located and in the Philippines on February 13, 20 and 28, 1988." 5 On the basis of the alleged implied admission by private respondent that no formal notice of foreclosure was sent to petitioners, the latter filed a motion for summary judgment contending that the foreclosure was violative of the provisions of the mortgage contract, specifically paragraph (k) thereof which provides:
"k)All correspondence relative to this Mortgage, including demand letters, summons, subpoena or notifications of any judicial or extrajudical actions shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, and the fact that any communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the Mortgagee, or that no person was found at the address given, or that the address is fictitious, or cannot be located, shall not excuse or relieve the Mortgagor from the effects of such notice;" 6

The motion was opposed by private respondent which argued that petitioners' reliance on said paragraph (k) of the mortgage contract fails to consider paragraphs (b) and (d) of the same contract, which respectively provide as follows:
"b). . . For the purpose of extra-judicial foreclosure, the Mortgagor (plaintiff) hereby appoints the Mortgagee (BF) his attorney-in-fact to sell the property mortgaged, to sign all documents and perform any act requisite and necessary to accomplish said purpose and to appoint its substitutes as such attorney-in-fact, with the same powers as above-specified. The Mortgagor hereby expressly waives the term of thirty (30) days or any other term granted or which may hereafter be granted him by law as the period which must elapse before the Mortgagee shall be entitled to foreclose this mortgage, it being specifically understood and agreed that the said Mortgagee may foreclose this mortgage at any time after the breach of any conditions hereof . . ."

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

On February 27, 1989, the trial court issued an order, denying petitioners' motion for summary judgment. 8 Petitioners' motion for reconsideration was likewise denied by respondent judge on the ground that genuine and substantial issues exist which require the presentation of evidence during the trial, to wit: (a) whether or not the loan has matured; (b) whether or not private respondent notified petitioners of the foreclosure of their mortgage; (c) whether or not the notice by publication of the foreclosure constitutes sufficient notice to petitioners under the mortgage contract; (d) whether or not the applicant for foreclosure of the mortgage was a duly authorized representative of private respondent; and (e) whether or not the foreclosure was enjoined by a resolution of this Court. 9 Petitioners thereafter went on a petition for certiorari to respondent court attacking said orders of denial as having been issued with grave abuse of discretion. As earlier adverted to, respondent court dismissed the petition, holding that no personal notice was required to foreclose since private respondent was constituted by petitioners as their attorney-in-fact to sell the mortgaged property. It further held that paragraph (k) of the mortgage contract merely specified the address where correspondence should be sent and did not impose an additional condition on the part of private respondent to notify petitioners personally of the foreclosure. Respondent court also denied petitioners motion for reconsideration, hence the instant petition.
LibLex

We rule for petitioners. The Rules of Court authorize the rendition of a summary judgment if the pleadings, depositions and admissions on file, together with the affidavits, show that, except as to the amount of damages, there is no issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. 10 Although an issue may be raised formally by the pleadings but there is no genuine issue of fact, and all the facts are within the judicial knowledge of the court, summary judgment may be granted. 11 The real test, therefore, of a motion for summary judgment is whether the pleadings, affidavits and exhibits in support of the motion are sufficient to overcome the opposing papers and to justify a finding as a matter of law that there is no defense to the action or that the claim is clearly meritorious. 12 Applying said criteria to the case at bar, we find petitioners' action in the court below for annulment and/or declaration of nullity of the foreclosure proceedings and damages ripe for summary judgment. Private respondent tacitly admitted in its answer to petitioners' request for admission that it did not send any formal notice of foreclosure to petitioners. Stated otherwise, and as is evident from the records, there has been no denial by private respondent that no personal notice of the extrajudicial foreclosure was ever sent to petitioners prior thereto. This omission, by itself, rendered the foreclosure defective and irregular for being contrary to the express provisions of the mortgage contract. There is thus no further necessity to inquire into the other issues cited by the trial court, for the foreclosure may be annulled solely on the basis of such defect. While private respondent was constituted as their attorney-in-fact by petitioners, the inclusion of the aforequoted paragraph (k) in the mortgage contract nonetheless rendered personal notice to the latter

indispensable. As we stated in Community Savings & Loan Association, Inc., et al. vs. Court of Appeals, at al., 13 where we had the occasion to construe an identical provision:
"One other important point that militates against the petitioners' first ground for this petition is the fact that no notice of the foreclosure proceedings was ever sent by CSLA to the deceased mortgagor Antonio Esguerra or his heirs in spite of an express stipulation in the mortgage agreement to that effect. Said Real Estate Mortgage provides, in Sec. 10 thereof that: '(10)All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial actions shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, . . .' (Emphasis in the original text.) "The Court of Appeals, in appreciating the foregoing provision ruled that it 'is an additional stipulation between the parties. As such, it is the law between them and as it not contrary to law, morals, good customs and public policy, the same should be complied with faithfully (Article 1306, New Civil Code of the Philippines). Thus, while publication of the foreclosure proceedings in the newspaper of general circulation was complied with, personal notice is still required, as in the case at bar, when the same was mutually agreed upon by the parties as additional condition of the mortgage contract. Failure to comply with this additional stipulation would render illusory Article 1306 of the New Civil Code of the Philippines' (p. 37, Rollo).

"On the issue of whether or not CSLA notified the private respondents of the extrajudicial foreclosure sale in compliance with Sec. 10 of the mortgage agreement the Court of Appeals found as follows: 'As the record is bereft of any evidence which even impliedly indicate that the required notice of the extrajudicial foreclosure was ever sent to the deceased debtormortgagor Antonio Esguerra or to his heirs, the extrajudicial foreclosure proceedings on the property in question are fatally defective and are not binding on the deceased debtormortgagor or to his heirs' (p. 37, Rollo) "Hence, even on the premise that there was no attendant fraud in the proceedings, the failure of the petitioner bank to comply with the stipulation in the mortgage document is fatal to the petitioners' cause."

We do not agree with respondent court that paragraph (k) of the mortgage contract in question was intended merely to indicate the address to which the communications stated therein should be sent. This interpretation is rejected by the very text of said paragraph as above construed. We do not see any conceivable reason why the interpretation placed on an identically worded provision in the mortgage contract involved in Community Savings & Loan Association, Inc. should not be adopted with respect to the same provision involved in the case at bar. Nor may private respondent validly claim that we are supposedly interpreting paragraph (k) in isolation and without taking into account paragraphs (b) and (d) of the same contract. There is no irreconcilable conflict between, as in fact a reconciliation should be made of, the provisions of paragraphs (b) and (d) which appear first in the mortgage contract and those in paragraph (k) which follow thereafter and necessarily took into account the provisions of the preceding two paragraphs. 14 The notices respectively mentioned in paragraphs (d) and (k) are addressed to the particular purposes contemplated therein. Those mentioned in paragraph (k) are specific and additional requirements intended for the mortgagors so that, thus apprised, they may take the necessary legal steps for the protection of their interests such as the payment of the loan to prevent foreclosure or to subsequently arrange for redemption of the property foreclosed.

What private respondent would want is to have paragraph (k) considered as non-existent and consequently disregarded, a proposition which palpably does not merit consideration. Furthermore, it bears mention that private respondent having caused the formulation and preparation of the printed mortgage contract in question, any obscurity that it imputes thereto or which supposedly appears therein should not favor it as a contracting party. 15 Now, as earlier discussed, to still require a trial notwithstanding private respondent's admission of the lack of such requisite notice would be a superfluity and would work injustice to petitioners whose obtention of the relief to which they are plainly and patently entitled would be further delayed. That undesirable contingency is obviously one of the reasons why our procedural rules have provided for summary judgments. WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and this case is REMANDED to the court of origin for further proceedings in conformity with this decision. This judgment is immediately executory.
prLL

SO ORDERED.

Melencio-Herrera, Padilla and Sarmiento, JJ., concur. Paras, J., took no part. Son is with respondent's counsel.

[G.R. No. 158755. June 18, 2012.] SPOUSES FRANCISCO and MERCED RABAT, petitioners, vs. PHILIPPINE NATIONAL BANK, respondent.

DECISION

BERSAMIN, J :
p

The inadequacy of the bid price in an extrajudicial foreclosure sale of mortgaged properties will not per se invalidate the sale. Additionally, the foreclosing mortgagee is not precluded from recovering the deficiency should the proceeds of the sale be insufficient to cover the entire debt. Antecedents The parties are before the Court a second time to thresh out an issue relating to the foreclosure sale of the petitioners' mortgaged properties. The first time was in G.R. No. 134406 entitled Philippine National Bank v. Spouses Francisco and Merced Rabat, decided on November 15, 2000. 1 In G.R. No. 134406, the Court observed that
The RABATs did not appeal from the decision of the trial court. As a matter of fact, in their Appellee's Brief filed with the Court of Appeals they prayed that said decision be affirmed in toto. As against the RABATs the trial court's findings of fact and conclusion are already settled and final. More specifically, they are deemed to have unqualifiedly agreed with the trial court that the foreclosure proceedings were valid in all respects, except as to the bid price. 2

Accordingly, we extract the antecedent facts from the narrative of the decision in G.R. No. 134406, as follows:
HICEca

On 25 August 1979, respondent spouses Francisco and Merced Rabat (hereafter RABATs) applied for a loan with PNB. Subsequently, the RABATs were granted on 14 January 1980 a medium-term loan of P4.0 Million to mature three years from the date of implementation. On 28 January 1980, the RABATs signed a Credit Agreement and executed a Real Estate Mortgage over twelve (12) parcels of land which stipulated that the loan would be subject to interest at the rate of 17% per annum, plus the appropriate service charge and penalty charge of 3% per annum on any amount remaining unpaid or not renewed when due. On 25 September 1980, the RABATs executed another document denominated as "Amendment to the Credit Agreement" purposely to increase the interest rate from 17% to 21% per annum, inclusive of service charge and a penalty charge of 3% per annum to be imposed on any amount remaining unpaid or not renewed when due. They also executed another Real Estate Mortgage over nine (9) parcels of land as additional security for their medium-term loan of Four Million (P4.0 M). These parcels of land are agricultural, commercial and residential lots situated in Mati, Davao Oriental. The several availments of the loan accommodation on various dates by the RABATs reached the aggregate amount of THREE MILLION FIVE HUNDRED SEVENTEEN THOUSAND THREE HUNDRED EIGHTY (P3,517,380), as evidenced by the several promissory notes, all of which were due on 14 March 1983. The RABATs failed to pay their outstanding balance on due date. In its letter of 24 July 1986, in response to the letter of the RABATs of 16 June 1986 requesting for more time within which to arrive at a viable proposal for the settlement of their account, PNB informed the RABATs that their request has been denied and gave the RABATs until 30 August 1986 to settle their account. The PNB sent the letter to 197 Wilson Street, San Juan, Metro Manila. For failure of the RABATs to pay their obligation, the PNB filed a petition for the extrajudicial foreclosure of the real estate mortgage executed by the RABATs. After due notice and publication, the mortgaged parcels of land were sold at a public auction held on 20 February 1987 and 14 April 1987. The PNB was the lone and highest bidder with a bid of P3,874,800.00.
IcTEaC

As the proceeds of the public auction were not enough to satisfy the entire obligation of the RABATs, the PNB sent anew demand letters. The letter dated 15 November 1990 was sent to the RABATs at 197 Wilson Street, San Juan, Metro Manila; while another dated 30 August 1991 was sent to the RABATs at 197 Wilson Street, Greenhills, San Juan, Metro Manila, and also in Mati, Davao Oriental. Upon failure of the RABATs to comply with the demand to settle their remaining outstanding obligation which then stood at P14,745,398.25, including interest, penalties and other charges, PNB eventually filed on 5 May 1992 a complaint for a sum of money before the Regional Trial Court of Manila. The case was docketed as Civil Case No. 92-61122, which was assigned to Branch 14 thereof. The RABATs filed their answer with counterclaim on 28 July 1992 to which PNB filed its Reply and Answer to Counterclaim. On 2 January 1993, the RABATs filed an amended answer. The RABATs admitted their loan availments from PNB and their default in the payment thereof. However, they assailed the validity of the auction sales for want of notice to them before and after the foreclosure sales. They further added that as residents of Mati, Davao Oriental since 1970 up to the present, they never received any notice nor heard about the foreclosure proceeding in spite of the claim of PNB that the foreclosure proceeding had been duly published in the San Pedro Times, which is not a newspaper of general circulation.

The RABATs likewise averred that the bid price was grossly inadequate and unconscionable. Lastly, the RABATs attacked the validity of the accumulated interest and penalty charges because since their properties were sold in 1987, and yet PNB waited until 1992 before filing the case. Consequently, the RABATs contended that they should not be made to suffer for the interest and penalty charges from May 1987 up to the present. Otherwise, PNB would be allowed to profit from its questionable scheme. The PNB filed on 5 February 1993 its Reply to the Amended Answer and Answer to Counterclaim.
3
EaICAD

On June 14, 1994, the Regional Trial Court, Branch 14, in Manila (RTC) rendered its decision in Civil Case No. 92-61122, 4 disposing thus:
WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered dismissing the complaint. On the counterclaim, the two (2) auction sales of the mortgaged properties are hereby set aside and ordering the plaintiff to reconvey to the defendants the remaining properties after the sale [of] sufficient properties for the satisfaction of the obligation of the defendants. The parties will bear their respective cost. So ordered.

Only PNB appealed to the CA (CA-G.R. CV No. 49800), assigning the following two errors to the RTC, 5 to wit:
I WHETHER OR NOT THE TRIAL COURT ERRED IN NULLIFYING THE SHERIFF'S AUCTION SALE ON THE GROUND THAT THE PNB'S WINNING BID IS VERY LOW. II WHETHER OR NOT THE TRIAL COURT ERRED IN RULING THAT THE DEFENDANTS-APPELLEES ARE NOT LIABLE TO PAY INTEREST AND PENALTY CHARGES AFTER THE AUCTION SALES UP TO THE FILING OF THIS CASE.

On their part, the Spouses Rabat simply urged in their appellee's brief that the decision of the RTC be entirely affirmed. 6 On June 29, 1998, the CA upheld the RTC's decision to nullify the foreclosure sales but rested its ruling upon a different ground, 7 in that the Spouses Rabat could not have known of the foreclosure sales because they had not actually received personal notices about the foreclosure proceedings. The CA concluded:
ICHDca

An examination of the exhibits show that the defendant-appellees given address is Mati, Davao Oriental and not 197 Wilson Street, Greenhills, San Juan, Metro Manila as alleged by the plaintiffappellant (Exhibit C to J, pp. 208, 217, 220, 229, 236-239, Records). Records further show that all subsequent communications by plaintiff-appellant was sent to defendant-appellees address at Wilson Street, Greenhills, San Juan. This was the very reason why defendant-appellees were not aware of the foreclosure proceedings. As correctly found out by the trial court, there is a need for the setting aside of the two (2) auction sales hence, there is yet no deficiency judgment to speak of. WHEREFORE, the decision of the trial court dated 14 June 1994, is hereby affirmed in toto.

SO ORDERED.

ITADaE

PNB appealed in due course (G.R. No. 134406), 8 positing:

WHETHER OR NOT THE COURT OF APPEALS MAY REVIEW AND PASS UPON THE TRIAL COURT'S FINDING AND CONCLUSION ON AN ISSUE WHICH WAS NEVER RAISED ON APPEAL, AND, THEREFORE, HAD ATTAINED FINALITY. 1.THE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT DECIDED AND RESOLVED A QUESTION OR ISSUE NOT RAISED IN PETITIONER PNB'S APPEAL; 2.THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT REVERSED THE FINDING AND CONCLUSION OF THE TRIAL COURT ON AN ISSUE WHICH HAD ALREADY ATTAINED FINALITY.

PNB argued that it had not raised the issue of lack of notice about the foreclosure sales because the fact that the Spouses Rabat had not appealed the RTC's ruling as regards the lack of notice but had in fact prayed for the affirmance of the RTC's judgment had rendered final the RTC's rejection of their allegation of lack of personal notice; and that, consequently, the CA had committed grave abuse of discretion in still resolving the issue of lack of notice despite its not having been raised during the appeal. 9 On November 15, 2000, the Court promulgated its decision in G.R. No. 134406, decreeing:
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals of 29 July 1998 in CAG.R. CV No. 49800 is hereby SET ASIDE. The Court of Appeals is directed to DECIDE, with reasonable dispatch, CA-G.R. CV No. 49800 on the basis of the errors raised by petitioner Philippine National Bank in its Appellant's Brief. No pronouncement as to costs. SO ORDERED.
10

To conform to the decision in G.R. No. 134406, the CA amended its decision on January 24, 2003 by resolving the errors specifically assigned by PNB in its appellant's brief. 11 The CA nonetheless affirmed the RTC's decision, declaring that the bid price had been very low and observing that the mortgaged properties might have been sold for a higher value had PNB first conducted a reappraisal of the properties.
CaAcSE

Upon PNB's motion for reconsideration, however, the CA promulgated its questioned second amended decision on March 26, 2003, 12 holding and ruling as follows:
After a thorough and conscientious review of the records and relevant laws and jurisprudence, We find the motion for reconsideration to be meritorious. While indeed no evidence was presented by appellant as to whether a reappraisal of the mortgaged properties was conducted by it before submitting the bid price of P3,874,800.00 at the auction sale, said amount approximates the loan value under its original appraisal in 1980, which was P4 million. There is no dispute that mere inadequacy of price per se will not set aside a judicial sale of real property. Nevertheless, where the inadequacy of the price is purely shocking to the conscience such that the mind revolts at it and such that a reasonable man would neither directly nor indirectly be likely to consent to it, the sale shall be declared null and void. Said rule, however, does not strictly apply in the case of extrajudicial foreclosure sales so that when a supposed "unconscionably low price" paid by the bank-mortgagee for the mortgaged properties at the public auction sale is assailed, the

sale is not thereby readily set aside on account of such low purchase price. It is well-settled that alleged gross inadequacy of price is not material "when the law gives the owner the right to redeem as when a sale is made at a public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption." In fact, the property may be sold for less than its fair market value. Here, it may be that after the lapse of seven (7) years, the mortgaged properties may have indeed appreciated in value but under the general rule cited above which had been consistently applied to extrajudicial foreclosure sales. We are not inclined to invalidate the auction sale of appellees' mortgaged propertiessolely on the alleged gross inadequacy of purchase price of P3,874,800.00 which is actually almost the equivalent of the loan value of appellees' twenty-one (21) parcels of land under the "Real Estate Mortgage" executed in favor of appellant PNB in 1980. It has been held that no such disadvantage is suffered by the mortgagor as he stands to gain with a reduced price because he possesses the right of redemption. Thus, the re-appraisal of the mortgaged properties resulting in the appellant PNB's bid price of approximately the original loan value of their mortgaged properties is beneficial rather than harmful considering the right of redemption granted to appellees under the law. The claim of financial hardship or losses in their business is not an excuse for appellees-mortgagors to evade their clear obligation to the bank-mortgagee.
SCaITA

Further, the fact that the mortgaged property is sold at an amount less than its actual market value should not militate against the right of appellant PNB to the recovery of the deficiency in the loan obligation of appellees. Our Supreme Court had ruled in several cases that in extrajudicial foreclosure of mortgage, where the proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the debtor. A claim of deficiency arising from the extrajudicial foreclosure sale is allowed. As to appellees' claim of allegedly excessive penalty interest charges, the same is without merit. We note that the promissory notes expressly provide for a penalty charge of 3% per annum to be imposed on any unpaid amount on due date. WHEREFORE, premises considered, the present motion for reconsideration is hereby GRANTED. Consequently, Our Amended Decision of January 24, 2003 is hereby SET ASIDE and a new one is hereby entered GRANTING the appeal of plaintiff PNB. The decision appealed from in Civil Case No. 92-61122 is hereby REVERSED and SET ASIDE. Judgment is hereby rendered ordering the appellees to pay, jointly and severally, to appellant PNB: (1) the amount of P14,745,398.25 plus accrued interest, service charge and penalty charge of 3% per annum from February 29, 1992 until the same shall have been fully paid; (2) Ten Percent (10%) of the total amount due as attorney's fees; and (3) the costs of suit. No pronouncement as to costs. SO ORDERED.
13
AEaSTC

The Spouses Rabat thereafter moved for the reconsideration of the second amended decision, but the CA denied their motion. 14 Hence, this appeal by the Spouses Rabat. Issues The Spouses Rabat frame the following issues for this appeal, thuswise:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE SUBJECT AUCTION SALES AND ADJUDGING PAYMENT OF DEFICIENCY SUM, INTERESTS, PENALTY AND SERVICE CHARGES AND ATTORNEY'S FEES, IN COMPLETE AND ABSOLUTE DISREGARD OF ITS EARLIER PRONOUNCEMENTS, THE ARGUMENTS OF HEREIN PETITIONERS AND EVIDENCE BORNE IN THE RECORDS OF THE INSTANT CASE.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DEPARTING FROM ITS FINDING OF FACTS AND CONCLUSIONS OF LAW AS STATED IN THE EARLIER RENDERED FIRST AMENDED DECISION DATED 24 JANUARY 2003. 15

The Spouses Rabat insist that the CA's reversal of the amended decision was unjustified. They pray that the amended decision of the CA (which affirmed the RTC's judgment) be reinstated. They contend that PNB was not entitled to recover any deficiency due to the invalidity of the forced sales. 16 In its comment, 17 PNB counters that the petition for review does not raise a valid question of law; and that the CA's second amended decision was regularly promulgated because the CA thereby acted well within its right to correct itself considering that the amended decision did not yet attain finality under the pertinent rules and jurisprudence. Accordingly, the Court must pass upon and resolve three distinct issues. The first is whether the inadequacy of the bid price of PNB invalidated the forced sale of the properties. The second is whether PNB was entitled to recover any deficiency from the Spouses Rabat. The third is whether the CA validly rendered its second amended decision. Ruling The appeal has no merit.
aHIDAE

Anent the first issue, we rule against the Spouses Rabat. We have consistently held that the inadequacy of the bid price at a forced sale, unlike that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a forced sale, a low price is considered more beneficial to the mortgage debtor because it makes redemption of the property easier. 18 In Bank of the Philippine Islands, etc. v. Reyes, price in a forced sale, stating:
19

the Court discoursed on the effect of the inadequacy of the

Throughout a long line of jurisprudence, we have declared that unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does not nullify a sale since, in a forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of the property easier. In the early case of The National Loan and Investment Board v. Meneses, we also had the occasion to state that: As to the inadequacy of the price of the sale, this court has repeatedly held that the fact that a property is sold at public auction for a price lower than its alleged value, is not of itself sufficient to annul said sale, where there has been strict compliance with all the requisites marked out by law to obtain the highest possible price, and where there is no showing that a better price is obtainable . (Government of the Philippines vs. De Asis, G.R. No. 45483, April 12, 1939; Guerrero vs. Guerrero, 57 Phil., 442; La Urbana vs. Belando, 54 Phil., 930; Bank of the Philippine Islands v. Green, 52 Phil., 491.) (Emphases supplied.) In Hulst v. PR Builders, Inc., we further elaborated on this principle:
DcTaEH

[G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. When there is a right to redeem, inadequacy of price should not be

material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. . . . (Emphasis supplied.) It bears also to stress that the mode of forced sale utilized by petitioner was an extrajudicial foreclosure of real estate mortgage which is governed by Act No. 3135, as amended. An examination of the said law reveals nothing to the effect that there should be a minimum bid price or that the winning bid should be equal to the appraised value of the foreclosed property or to the amount owed by the mortgage debtor. What is clearly provided, however, is that a mortgage debtor is given the opportunity to redeem the foreclosed property "within the term of one year from and after the date of sale." In the case at bar, other than the mere inadequacy of the bid price at the foreclosure sale, respondent did not allege any irregularity in the foreclosure proceedings nor did she prove that a better price could be had for her property under the circumstances.

At any rate, we consider it notable enough that PNB's bid price of P3,874,800.00 might not even be said to be outrageously low as to be shocking to the conscience. As the CA cogently noted in the second amended decision, 20 that bid price was almost equal to both the P4,000,000.00 applied for by the Spouses Rabat as loan, and to the total sum of P3,517,380.00 of their actual availment from PNB. Resolving the second issue, we rule that PNB had the legal right to recover the deficiency amount. In Philippine National Bank v. Court of Appeals, 21 we held that:
. . . it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial foreclosure of mortgages, while silent as to the mortgagee's right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed. 22

Indeed, as we indicated in Prudential Bank v. Martinez, 23 the fact that the mortgaged property was sold at an amount less than its actual market value should not militate against the right to such recovery. 24 There should be no question that PNB was legally entitled to recover the penalty charge of 3% per annum and attorney's fees equivalent to 10% of the total amount due. The documents relating to the loan and the real estate mortgage showed that the Spouses Rabat had expressly conformed to such additional liabilities; hence, they could not now insist otherwise. To be sure, the law authorizes the contracting parties to make any stipulations in their covenants provided the stipulations are not contrary to law, morals, good customs, public order or public policy. 25 Equally axiomatic are that a contract is the law between the contracting parties, and that they have the autonomy to include therein such stipulations, clauses, terms and conditions as they may want to include. 26 Inasmuch as the Spouses Rabat did not challenge the legitimacy and efficacy of the additional liabilities being charged by PNB, they could not now bar PNB from recovering the deficiency representing the additional pecuniary liabilities that the proceeds of the forced sales did not cover.
SACHcD

Lastly, we uphold the CA's promulgation of the second amended decision. Verily, all courts of law have the unquestioned power to alter, modify, or set aside their decisions before they become final and unalterable. 27 A judgment that has attained finality becomes immutable and unalterable, and may thereafter no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the

land. 28 The reason for the rule of immutability is that if, on the application of one party, the court could change its judgment to the prejudice of the other, the court could thereafter, on application of the latter, again change the judgment and continue this practice indefinitely. 29 The equity of a particular case must yield to the overmastering need of certainty and unalterability of judicial pronouncements. 30 The doctrine of immutability and inalterability of a final judgment has a two-fold purpose, namely: (a) to avoid delay in the administration of justice and, thus, procedurally, to make orderly the discharge of judicial business; and (b) to put an end to judicial controversies, at the risk of occasional errors, which is precisely why courts exist. Indeed, controversies cannot drag on indefinitely; the rights and obligations of every litigant must not hang in suspense for an indefinite period of time. 31 As such, the doctrine of immutability is not a mere technicality to be easily brushed aside, but a matter of public policy as well as a time-honored principle of procedural law. It is no different herein. The amended decision that favored the Spouses Rabat would have attained finality only after the lapse of 15 days from notice thereof to the parties without a motion for reconsideration being timely filed or an appeal being seasonably taken. 32 Had that happened, the amended decision might have become final and immutable. However, considering that PNB timely filed its motion for reconsideration vis-vis the amended decision, the CA's reversal of the amended decision and its promulgation of the second amended decision were valid and proper. WHEREFORE, we AFFIRM the SECOND AMENDED DECISION promulgated on March 26, 2003 in CAG.R. CV No. 49800 entitled Philippine National Bank v. Spouses Francisco and Merced Rabat. The petitioners shall pay the costs of suit. SO ORDERED.
cTaDHS

Leonardo-de Castro, Peralta, *Del Castillo and Perlas-Bernabe, JJ., concur.

[G.R. No. 169190. February 11, 2010.] CUA LAI CHU, CLARO G. CASTRO, and JUANITA CASTRO, petitioners, vs. HON. HILARIO L. LAQUI, Presiding Judge, Regional Trial Court, Branch 218, Quezon City and PHILIPPINE BANK OF COMMUNICATION, respondents.

DECISION

CARPIO, J :
p

The Case This is a petition for review 1 of the 29 April 2005 and 4 August 2005 Resolutions 2 of the Court of Appeals in CA-G.R. SP No. 88963. In its 29 April 2005 Resolution, the Court of Appeals dismissed the petition for certiorari 3 of petitioner spouses Claro G. Castro and Juanita Castro and petitioner Cua Lai Chu (petitioners). In its 4 August 2005 Resolution, the Court of Appeals denied petitioners' motion for reconsideration. The Facts

In November 1994, petitioners obtained a loan in the amount of P3,200,000 from private respondent Philippine Bank of Communication. To secure the loan, petitioners executed in favor of private respondent a Deed of Real Estate Mortgage 4 over the property of petitioner spouses covered by Transfer Certificate of Title No. 22990. In August 1997, petitioners executed an Amendment to the Deed of Real Estate Mortgage 5 increasing the amount of the loan by P1,800,000, bringing the total loan amount to P5,000,000. For failure of petitioners to pay the full amount of the outstanding loan upon demand, 6 private respondent applied for the extrajudicial foreclosure of the real estate mortgage. 7 Upon receipt of a notice 8 of the extrajudicial foreclosure sale, petitioners filed a petition to annul the extrajudicial foreclosure sale with a prayer for temporary restraining order (TRO). The petition for annulment was filed in the Regional Trial Court of Quezon City and docketed as Q-02-46184. 9 The extrajudicial foreclosure sale did not push through as originally scheduled because the trial court granted petitioners' prayer for TRO. The trial court subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29 May 2002. At the foreclosure sale, private respondent emerged as the highest bidder. A certificate of sale 10 was executed on 4 June 2002 in favor of private respondent. On 7 June 2002, the certificate of sale was annotated as Entry No. 1855 11 on TCT No. 22990 covering the foreclosed property. After the lapse of the one-year redemption period, private respondent filed in the Registry of Deeds of Quezon City an affidavit of consolidation to consolidate its ownership and title to the foreclosed property. Forthwith, on 8 July 2003, the Register of Deeds cancelled TCT No. 22990 and issued in its stead TCT No. 251835 12 in the name of private respondent. On 18 August 2004, private respondent applied for the issuance of a writ of possession of the foreclosed property. 13 Petitioners filed an opposition. 14 The trial court granted private respondent's motion for a declaration of general default and allowed private respondent to present evidence ex parte. The trial court denied petitioners' notice of appeal. Undeterred, petitioners filed in the Court of Appeals a petition for certiorari. The appellate court dismissed the petition. It also denied petitioners' motion for reconsideration. The Orders of the Trial Court The 8 October 2004 Order 15 granted private respondent's motion for a declaration of general default and allowed private respondent to present evidence ex parte.The 6 January 2005 Order 16 denied petitioners' motion for reconsideration of the prior order. The 24 February 2005 Order 17 denied petitioners' notice of appeal. The Ruling of the Court of Appeals The Court of Appeals dismissed on both procedural and substantive grounds the petition for certiorari filed by petitioners. The appellate court noted that the counsel for petitioners failed to indicate in the petition the updated PTR Number, a ground for outright dismissal of the petition under Bar Matter No. 1132. Ruling on the merits, the appellate court held that a proceeding for the issuance of a writ of possession is ex parte in nature. As such, petitioners' right to due process was not violated even if they were not given a chance to file their opposition. The appellate court also ruled that there was no violation of the rule against forum shopping since the application for the issuance of a writ of possession is not affected by a pending case questioning the validity of the extrajudicial foreclosure sale. The Issue

Petitioners raise the question of whether the writ of possession was properly issued despite the pendency of a case questioning the validity of the extrajudicial foreclosure sale and despite the fact that petitioners were declared in default in the proceeding for the issuance of a writ of possession. The Court's Ruling The petition has no merit. Petitioners contend they were denied due process of law when they were declared in default despite the fact that they had filed their opposition to private respondent's application for the issuance of a writ of possession. Further, petitioners point out that the issuance of a writ of possession will deprive them not only of the use and possession of their property, but also of its ownership. Petitioners cite Bustos v. Court of Appeals 18 and Vda. De Legaspi v. Avendao 19 in asserting that physical possession of the property should not be disturbed pending the final determination of the more substantial issue of ownership. Petitioners also allege forum shopping on the ground that the application for the issuance of a writ of possession was filed during the pendency of a case questioning the validity of the extrajudicial foreclosure sale. Private respondent, on the other hand, maintains that the application for the issuance of a writ of possession in a foreclosure proceeding is ex parte in nature. Hence, petitioners' right to due process was not violated even if they were not given a chance to file their opposition. Private respondent argues that the issuance of a writ of possession may not be stayed by a pending case questioning the validity of the extrajudicial foreclosure sale. It contends that the former has no bearing on the latter; hence, there is no violation of the rule against forum shopping. Private respondent asserts that there is no judicial determination involved in the issuance of a writ of possession; thus, the same cannot be the subject of an appeal. At the outset, we must point out that the authorities relied upon by petitioners are not in point and have no application here. In Bustos v. Court of Appeals, 20 the Court simply ruled that the issue of possession was intertwined with the issue of ownership in the consolidated cases of unlawful detainer and accion reinvindicatoria.In Vda. De Legaspi v. Avendao, 21 the Court merely stated that in a case of unlawful detainer, physical possession should not be disturbed pending the resolution of the issue of ownership. Neither case involved the right to possession of a purchaser at an extrajudicial foreclosure of a mortgage.

Banco Filipino Savings and Mortgage Bank v. Pardo

22 squarely ruled on the right to possession of a purchaser at an extrajudicial foreclosure of a mortgage. This case involved a real estate mortgage as security for a loan obtained from a bank. Upon the mortgagor's default, the bank extrajudicially foreclosed the mortgage. At the auction sale, the bank was the highest bidder. A certificate of sale was duly issued and registered. The bank then applied for the issuance of a writ of possession, which the lower court dismissed. The Court reversed the lower court and held that the purchaser at the auction sale was entitled to a writ of possession pending the lapse of the redemption period upon a simple motion and upon the posting of a bond.

In Navarra v. Court of Appeals, 23 the purchaser at an extrajudicial foreclosure sale applied for a writ of possession after the lapse of the one-year redemption period. The Court ruled that the purchaser at an extrajudicial foreclosure sale has a right to the possession of the property even during the one-year redemption period provided the purchaser files an indemnity bond. After the lapse of the said period with no redemption having been made, that right becomes absolute and may be demanded by the purchaser even without the posting of a bond. Possession may then be obtained under a writ which may be applied for ex parte pursuant to Section 7 of Act No. 3135, 24 as amended by Act No. 4118, 25 thus:
SEC. 7.In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this

Act. Such petition shall be made under oath and filed in form of an ex parte motion . . . and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. (Emphasis supplied)

In the present case, the certificate of sale of the foreclosed property was annotated on TCT No. 22990 on 7 June 2002. The redemption period thus lapsed on 7 June 2003, one year from the registration of the sale. 26 When private respondent applied for the issuance of a writ of possession on 18 August 2004, the redemption period had long lapsed. Since the foreclosed property was not redeemed within one year from the registration of the extrajudicial foreclosure sale, private respondent had acquired an absolute right, as purchaser, to the writ of possession. It had become the ministerial duty of the lower court to issue the writ of possession upon mere motion pursuant to Section 7 of Act No. 3135, as amended. Moreover, once ownership has been consolidated, the issuance of the writ of possession becomes a ministerial duty of the court, upon proper application and proof of title. 27 In the present case, when private respondent applied for the issuance of a writ of possession, it presented a new transfer certificate of title issued in its name dated 8 July 2003. The right of private respondent to the possession of the property was thus founded on its right of ownership. As the purchaser of the property at the foreclosure sale, in whose name title over the property was already issued, the right of private respondent over the property had become absolute, vesting in it the corollary right of possession. Petitioners are wrong in insisting that they were denied due process of law when they were declared in default despite the fact that they had filed their opposition to the issuance of a writ of possession. The application for the issuance of a writ of possession is in the form of an ex parte motion. It issues as a matter of course once the requirements are fulfilled. No discretion is left to the court. 28 Petitioners cannot oppose or appeal the court's order granting the writ of possession in an ex parte proceeding. The remedy of petitioners is to have the sale set aside and the writ of possession cancelled in accordance with Section 8 of Act No. 3135, as amended, to wit:
SEC. 8.The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof. . . .

Any question regarding the validity of the extrajudicial foreclosure sale and the resulting cancellation of the writ may be determined in a subsequent proceeding as outlined in Section 8 of Act No. 3135, as amended. Such question should not be raised as a justification for opposing the issuance of a writ of possession since under Act No. 3135, as amended, the proceeding for this is ex parte. Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is not affected by a pending case questioning the validity of the foreclosure proceeding. The latter is not a bar to the former. Even pending such latter proceeding, the purchaser at a foreclosure sale is entitled to the possession of the foreclosed property. 29 Lastly, we rule that petitioners' claim of forum shopping has no basis. Under Act No. 3135, as amended, a writ of possession is issued ex parte as a matter of course upon compliance with the requirements. It is not a judgment on the merits that can amount to res judicata, one of the essential elements in forum shopping. 30 The Court of Appeals correctly dismissed the petition for certiorari filed by petitioners for lack of merit. WHEREFORE, we DENY the petition for review. We AFFIRM the 29 April 2005 and 4 August 2005 Resolutions of the Court of Appeals in CA-G.R. SP No. 88963.

SO ORDERED.

Brion, Del Castillo, Abad and Perez, JJ., concur.

REDEMPTION [G.R. No. 170215. August 28, 2007.] SPS. ESMERALDO and ELIZABETH SUICO, petitioners, vs. PHILIPPINE NATIONAL BANK and HON. COURT OF APPEALS, respondents.

DECISION

CHICO-NAZARIO, J :
p

Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine National Bank (PNB) secured by a real estate mortgage 1 on real properties in the name of the former. The petitioners were unable to pay their obligation prompting the PNB to extrajudicially foreclose the mortgage over the subject properties before the City Sheriff of Mandaue City under EJF Case No. 92-5-15. The petitioners thereafter filed a Complaint against the PNB before the Regional Trial Court (RTC) of Mandaue City, Branch 55, docketed as Civil Case No. MAN-2793 for Declaration of Nullity of Extrajudicial Foreclosure of Mortgage. 2 The Complaint alleged that on 6 May 1992, PNB filed with the Office of the Mandaue City Sheriff a petition for the extrajudicial foreclosure of mortgage constituted on the petitioners' properties (subject properties) for an outstanding loan obligation amounting to P1,991,770.38 as of 10 March 1992. The foreclosure case before the Office of the Mandaue City Sheriff, which was docketed as EJF Case No. 92-5-15, covered the following properties:
TCT NO. 13196 "A parcel of land (Lot 701, plan 11-5121 Amd-2) situated at Mandaue City, bounded on the NE., and SE., by lot no. 700; on the SW. by lots nos. 688 and 702; on the NW. by lot no. 714, containing an area of 2,078 sq. m. more or less." TAX DECL. NO. 00553 "A parcel of land situated at Tabok, Mandaue City, Cad. Lot No. 700-C-1; bounded on the North by Lot No. 701 & 700-B; on the South by Lot No. 700-C-3; on the East by lot no. 700-C-3 and on the West by Lot no. 688, containing an area of 200 square meters, more or less."
HTaIAC

TAX DECL. NO. 00721 "Two (2) parcels of land situated at Tabok, Mandaue City, Cad. lot nos. 700-C-3 and 700-C-2; bounded on the North by Lot Nos. 700-C-1 and 700-B; on the South by Lot No. 700-D; on the East by Lot Nos. 695 and 694; and on the West by Lot Nos. 688 and 700-C-1, containing an aggregate area of 1,683 sq. m. more or less."
IDaEHS

TAX DECL. NO. 0237 "A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-B. Bounded on the NE. by (Lot 699) 109, (Lot No. 69) 110, on the SE (Lot 700-C) 115, on the NW. (Lot 700-A) 112 and on the SW. (Lot 701) 113; containing an area of .1785 HA more or less."
AaEcHC

TAX DECL. NO. 9267 "A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-A. Bounded on the NE. by (Lot 699) 109, on the South West by (Lot 701) 113, on the SE. by (Lot 700-B) 111, and on the NW. by (lot 714) 040039; containing an area of .1785 HA more or less." 3

Petitioners claimed that during the foreclosure sale of the subject properties held on 30 October 1992, PNB, as the lone bidder, offered a bid in the amount of P8,511,000.00. By virtue of the said bid, a Certificate of Sale of the subject properties was issued by the Mandaue City Sheriff in favor of PNB. PNB did not pay to the Sheriff who conducted the auction sale the amount of its bid which was P8,511,000.00 or give an accounting of how said amount was applied against petitioners' outstanding loan, which, as of 10 March 1992, amounted only to 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. One year after the issuance of the Certificate of Sale, PNB secured a Certificate of Final Sale from the Mandaue City Sheriff and, as a result, PNB transferred registration of all the subject properties to its name.

HDAaIc

Owing to the failure of PNB as the winning bidder to deliver to the petitioners the amount of its bid or even just the amount in excess of petitioners' obligation, the latter averred that the extrajudicial foreclosure conducted over the subject properties by the Mandaue City Sheriff, as well as the Certificate of Sale and the Certificate of Finality of Sale of the subject properties issued by the Mandaue City Sheriff, in favor of PNB, were all null and void. Petitioners, in their Complaint in Civil Case No. MAN-2793, prayed for:
caSDCA

a)Declaring the Nullity of Extra-judicial Foreclosure of Mortgage under EJF Case No. 92-5-15 including the certificate of sale and the final deed of sale of the properties affected; b)Order[ing] the cancellation of the certificates of titles and tax declaration already in the name of [herein respondent] PNB and revert the same back to herein [petitioners'] name;
CAaSED

c)Ordering the [PNB] to pay [petitioners] moral damages amounting to more than P1,000,000.00; Exemplary damages of P500,000.00; Litigation expenses of P100,000.00 and attorney's fees of P300,000.00. 4 PNB filed a Motion to Dismiss 5 Civil Case No. MAN-2793 citing the pendency of another action between the same parties, specifically Civil Case No. CEB-15236 before the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo and Elizabeth Suico where PNB was seeking the payment of the balance of petitioners' obligation not covered by the proceeds of the auction sale held on 30 October 1992. PNB argued that these two cases involve the same parties. Petitioners opposed the Motion to Dismiss filed by PNB. 6 Subsequently, the Motion to Dismiss Civil Case No. MAN-2793 was denied in the Order of the RTC dated 15 July 1997; 7 thus, PNB was constrained to file its Answer. 8

PNB disputed petitioners' factual narration. PNB asserted that petitioners had other loans which had likewise become due. Petitioners' outstanding obligation of P1,991,770.38 as of 10 March 1992 was exclusive of attorney's fees, and other export related obligations which it did not consider due and demandable as of said date. PNB maintained that the outstanding obligation of the petitioners under their regular and export-related loans was already more than the bid price of 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.
TIHCcA

PNB admitted the non-delivery of the bid price to the sheriff and the execution of the final deed of sale, but claimed that it had not transferred in its name all the foreclosed properties because the petition to register in its name Transfer Certificates of Title (TCT) No. 37029 and No. 13196 were still pending. On 2 February 1999, the RTC rendered its Decision 9 in Civil Case No. MAN-2793 for the declaration of nullity of the extrajudicial foreclosure of mortgage, the dispositive portion of which states:
CTSDAI

WHEREFORE, based on the foregoing, judgment is rendered in favor of [herein petitioners] Sps. Esmeraldo & Elizabeth Suico and against [herein respondent], Philippine National Bank (PNB), declaring the nullity of Extrajudicial Foreclosure of Mortgage under EJF Case No. 92-5-15, including the certificate of sale and the final deed of sale of the subject properties; ordering the cancellation of the certificates of titles and tax declaration already in the name of [respondent] PNB, if any, and revert the same back to the [petitioners'] name; ordering [respondent] PNB to cause a new foreclosure proceeding, either judicially or extra-judicially. Furnish parties thru counsels copy of this order.
10
DSETcC

In granting the nullification of the extrajudicial foreclosure of mortgage, the RTC reasoned that given that petitioners had other loan obligations which had not yet matured on 10 March 1992 but became due by the date of the auction sale on 30 October 1992, it does not justify the shortcut taken by PNB and will not excuse it from paying to the Sheriff who conducted the auction sale the excess bid in the foreclosure sale. To allow PNB to do so would constitute fraud, for not only is the filing fee in the said foreclosure inadequate but, worse, the same constitutes a misrepresentation regarding the amount of the indebtedness to be paid in the foreclosure sale as posted and published in the notice of sale. 11 Such misrepresentation is fatal because in an extrajudicial foreclosure of mortgage, notice of sale is jurisdictional. Any error in the notice of sale is fatal and invalidates the notice. 12 When the PNB appealed its case to the Court of Appeals, 12 April 2005, the fallo of which provides:
ADCIca

13 the

appellate court rendered a Decision

14 dated

WHEREFORE, premises considered, the instant appeal is GRANTED. The questioned decision of the Regional Trial Court of Mandaue City, Branch 55 dated February 2, 1999 is hereby REVERSED and SET ASIDE. Accordingly, the extra judicial foreclosure of mortgage under EJF 92-5-15 including the certificate of sale and final deed of sale executed appurtenant thereto are hereby declared to be valid and binding. 15

In justifying reversal, the Court of Appeals held:

DSacAE

A careful scrutiny of the evidence extant on record would show that in a letter dated January 12, 1994, [petitioners] expressly admitted that their outstanding principal obligation amounted to P5.4 Million and in fact offered to redeem the properties at P6.5 Million. They eventually increased their offer at P7.5 Million as evidenced by that letter dated February 4, 1994. And finally on May 16, 1994, they offered to redeem the foreclosed properties by paying the whole amount of the obligation by installment in a period of six years. All those offers made by the [petitioners] not only contradicted their very assertion that their obligation is merely that amount appearing on the petition for foreclosure but are also indicative of the fact that they have admitted the validity of the extra judicial

foreclosure proceedings and in effect have cured the impugned defect. Thus, for the [petitioners] to insist that their obligation is only over a million is unworthy of belief. Oddly enough, it is evident from their acts that they themselves likewise believe otherwise.

Even assuming that indeed there was a surplus and the [PNB] is retaining more than the proceeds of the sale than it is entitled, this fact alone will not affect the validity of the sale but simply gives the [petitioners] a cause of action to recover such surplus. In fine, the failure of the [PNB] to remit the surplus, if any, is not tantamount to a non-compliance of statutory requisites that could constitute a jurisdictional defect invalidating the sale. This situation only gives rise to a cause of action on the part of the [petitioners] to recover the alleged surplus from the [PNB]. This ruling is in harmony with the decisional rule that in suing for the return of the surplus proceeds, the mortgagor is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made. 16
aIHCSA

Petitioners filed a Motion for Reconsideration 17 of the foregoing Decision, but the Court of Appeals was not persuaded. It maintained the validity of the foreclosure sale and, in its Amended Decision dated 28 September 2005, it merely directed PNB to pay the deficiency in the filing fees, holding thus:
WHEREFORE, Our decision dated April 12, 2005 is hereby AMENDED. [Herein respondent PNB] is hereby required to pay the deficiency in the filing fees due on the petition for extra judicial foreclosure sale to be based on the actual amount of mortgage debts at the time of filing thereof. In all other respects, Our decision subject of herein petitioners'] motion for reconsideration is hereby AFFIRMED. 18
cda

Unflinching, petitioners elevated the case before this Court via the present Petition for Review essentially seeking the nullification of the extrajudicial foreclosure of the mortgage constituted on the subject properties. Petitioners forward two reasons for declaring null and void the said extrajudicial foreclosure: (1) the alleged defect or misrepresentation in the notice of sheriff's sale; and/or (2) failure of PNB to pay and tender the price of its bid or the surplus thereof to the sheriff. Petitioners argue that since the Notice of Sheriff's Sale stated that their obligation was only P1,991,770.38 and PNB bidded P8,511,000.00, the said Notice as well as the consequent sale of the subject properties were null and void.
SEIcAD

It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and that even slight deviations therefrom will invalidate the notice and render the sale at least voidable. 19 Nonetheless, we must not also lose sight of the fact that the purpose of the publication of the Notice of Sheriff's Sale is to inform all interested parties of the date, time and place of the foreclosure sale of the real property subject thereof. Logically, this not only requires that the correct date, time and place of the foreclosure sale appear in the notice, but also that any and all interested parties be able to determinethat what is about to be sold at the foreclosure sale is the real property in which they have an interest. 20 Considering the purpose behind the Notice of Sheriff's Sale, we disagree with the finding of the RTC that the discrepancy between the amount of petitioners' obligation as reflected in the Notice of Sale and the amount actually due and collected from the petitioners at the time of the auction sale constitute fraud which renders the extrajudicial foreclosure sale null and void.
DTEAHI

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the sale made pursuant thereto. 21

All these considered, we are of the view that the Notice of Sale in this case is valid. Petitioners failed to convince this Court that the difference between the amount stated in the Notice of Sale and the amount of PNB's bid resulted in discouraging or misleading bidders, depreciated the value of the property or prevented it from commanding a fair price.
DaScCH

The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals 22 refers to a Notice of Sheriff's Sale which did not state the correct number of the transfer certificates of title of the property to be sold. This Court considered the oversight as a substantial and fatal error which resulted in invalidating the entire notice. The case of Community Savings and Loan Association, Inc. v. Court of Appeals 23 is also inapplicable, because the said case refers to an extrajudicial foreclosure tainted with fraud committed by therein petitioners, which denied therein respondents the right to redeem the property. It actually has no reference to a Notice of Sale. We now proceed to the effect of the non-delivery by PNB of the bid price or the surplus to the petitioners. The following antecedents are not disputed: For failure to pay their loan obligation secured by a real estate mortgage on the subject properties, PNB foreclosed the said mortgage. In its petition for foreclosure sale under ACT No. 3135 filed before the Mandaue City Sheriff, PNB stated therein that petitioners' total outstanding obligation amounted to P1,991,770.38. 24 PNB bidded the amount of P8,511,000.00. Admittedly, PNB did not pay its bid in cash or deliver the excess either to the City Sheriff who conducted the bid or to the petitioners after deducting the difference between the amount of its bid and the amount of petitioners' obligation in the Notice of Sale. The petitioners then sought to declare the nullity of the foreclosure, alleging that their loan obligation amounted only to P1,991,770.38 in the Notice of Sale, and that PNB did not pay its bid in cash or deliver to petitioner the surplus, which is required under the law. 25
DTaSIc ISTECA

On the other hand, PNB claims that petitioners' loan obligation reflected in the Notice of Sale dated 10 March 1992 did not include their other obligations, which became due at the date of the auction sale on 10 October 1992; as well as interests, penalties, other charges, and attorney's fees due on the said obligation. 26 Pertinent provisions under Rule 39 of the Rules of Court on extrajudicial foreclosure sale provide:
DHTECc

SEC. 21.Judgment obligee as purchaser. When the purchaser is the judgment obligee, and no thirdparty claim has been filed, he need not pay the amount of the bid if it does not exceed the amount of his judgment. If it does, he shall pay only the excess . (Emphasis supplied.) SEC. 39.Obligor may pay execution against obligee. After a writ of execution against property has been issued, a person indebted to the judgment obligor may pay to the sheriff holding the writ of execution the amount of his debt or so much thereof as may be necessary to satisfy the judgment, in the manner prescribed in section 9 of this Rule, and the sheriff's receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the judgment obligee on the execution.
EICScD

Conspicuously emphasized under Section 21 of Rule 39 is that if the amount of the loan is equal to the amount of the bid, there is no need to pay the amount in cash. Same provision mandates that in the absence of a third-party claim, the purchaser in an execution sale need not pay his bid if it does not exceed the amount of the judgment; otherwise, he shall pay only the excess. 27 The raison de etre is that it would obviously be senseless for the Sheriff or the Notary Public conducting the foreclosure sale to go through the idle ceremony of receiving the money and paying it back to the creditor, under the truism that the lawmaking body did not contemplate such a pointless application of the law in requiring that the creditor must bid under the same conditions as any other bidder. It bears stressing that the rule holds true only where the amount of the bid represents the total amount of the mortgage debt. 28
CDAHIT

The question that needs to be addressed in this case is: considering the amount of PNB's bid of P8,511,000.00 as against the amount of the petitioners' obligation of P1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess?
ACETSa

Petitioners insist that the PNB should deliver the excess. On the other hand PNB counters that on the date of the auction sale on 30 October 1992, petitioners' other loan obligation already exceeded the amount of P1,991,770.38 in the Notice of Sale. Rule 68, Section 4 of the Rules of Court provides:
CDHacE

SEC. 4.Disposition of proceeds of sale. The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person entitled to it.

Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows: (a)first, pay the costs (b)secondly, pay off the mortgage debt
SCDaET

TICAcD

(c)thirdly, pay the junior encumbrancers, if any in the order of priority (d)fourthly, give the balance to the mortgagor, his agent or the person entitled to it.
29
EHScCA

Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first mortgagee/senior mortgagee, the claim of the second mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The application of the proceeds from the sale of the mortgaged property to the mortgagor's obligation is an act of payment, not payment by dacion; hence, it is the mortgagee's duty to return any surplus in the selling price to the mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the fund and, being bound to apply it properly, is liable to the persons entitled thereto if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption. 30

Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply give the mortgagor a cause of action to recover such surplus. 31
ECDaAc

In the case before us, PNB claims that petitioners' loan obligations on the date of the auction sale were already more than the amount of P1,991,770.38 in the Notice of Sale. In fact, PNB claims that on the date of the auction sale, petitioners' principal obligation, plus penalties, interests, attorneys fees and other charges were already beyond the amount of its bid of P8,511,000.00. After a careful review of the evidence on record, we find that the same is insufficient to support PNB's claim. Instead, what is available on record is petitioner's Statement of Account as prepared by PNB and attached as Annex A 32 to its Answer with counterclaim. 33 In this Statement of Account, petitioners' principal obligation with interest/penalty and attorney's fees as of 30 October 1992 already amounted to P6,409,814.92.
cdphil

Although petitioners denied the amounts reflected in the Statement of Account from PNB, they did not interpose any defense to refute the computations therein. Petitioners' mere denials, far from being compelling, had nothing to offer by way of evidence. This then enfeebles the foundation of petitioners' protestation and will not suffice to overcome the computation of their loan obligations as presented in the Statement of Account submitted by PNB. 34 Noticeably, this Statement of Account is the only piece of evidence available before us from which we can determine the outstanding obligations of petitioners to PNB as of the date of the auction sale on 10 October 1992.
CaHAcT

It did not escape the attention of this Court that petitioners wrote a number of letters to PNB almost two years after the auction sale, 35 in which they offered to redeem the property. In their last letter, petitioners offered to redeem their foreclosed properties for P9,500,000.00. However, these letters by themselves cannot be used as bases to support PNB's claim that petitioners' obligation is more than its bid of P8,500,000.00, without any other evidence. There was no computation presented to show how petitioners' obligation already reached P9,500,000.00. Petitioners could very well have offered such an amount on the basis of the value of the foreclosed properties rather than their total obligation to PNB. We cannot take petitioners' offer to redeem their properties in the amount of P9,500,000.00 on its face as an admission of the amount of their obligation to PNB without any supporting evidence. Given that the Statement of Account from PNB, being the only existing documentary evidence to support its claim, shows that petitioners' loan obligations to PNB as of 30 October 1992 amounted to P6,409,814.92, and considering that the amount of PNB's bid 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, 36 regarding the manner of computing legal interest, viz:
HIaTDS

II.With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1.When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
cDIHES

2.When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3.When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
IEHaSc

In Philippine National Bank v. Court of Appeals,

37

it was held that:

The rate of 12% interest referred to in Cir. 416 applies only to:

CAcEaS

Loan or forbearance of money, or to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is adjudged. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance of any, money, goods or credit does not fall within its coverage for such imposition is not within the ambit of the authority granted to the Central Bank. When an obligation not constituting a loan or forbearance of money is breached then an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209 of the Civil Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or forbearance of money, hence the proper imposable rate of interest is six (6%) per cent.

Using the above rule as yardstick, since the responsibility of PNB arises not from a loan or forbearance of money which bears an interest rate of 12%, the proper rate of interest for the amount which PNB must return to the petitioners is only 6%. This interest according to Eastern Shipping shall be computed from the time of the filing of the complaint. However, once the judgment becomes final and executory, the "interim period from the finality of judgment awarding a monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of credit." Thus, in accordance with the pronouncement in Eastern Shipping, the rate of 12% per annum should be imposed, to be computed from the time the judgment becomes final and executory until fully satisfied.
CIaHDc

It must be emphasized, however, that our holding in this case does not preclude PNB from proving and recovering in a proper proceeding any deficiency in the amount of petitioners' loan obligation that may have accrued after the date of the auction sale. WHEREFORE, premises considered, the Decision of the Court of Appeals dated 12 April 2005 is MODIFIED in that the PNB is directed to return to the petitioners the amount of P2,101,185.08 with interest computed at 6% per annum from the time of the filing of the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time the judgment became final and executory until fully satisfied. Costs against private respondent.
cDCSET

SO ORDERED.

Ynares-Santiago, Austria-Martinez, Nachura and Reyes, JJ., concur.

[G.R. No. L-21720. January 30, 1967.] IFC SERVICE LEASING AND ACCEPTANCE CORPORATION, petitioner-appellee, vs. VENANCIO NERA, movant-appellant.

Ramon Encarnacion, Jr. for movant and appellant. E. Jacinto Law Office for petitioner and appellee.
SYLLABUS 1.EXTRAJUDICIAL SALE; REDEMPTION; LAW THAT GOVERNS. Section 6 of Act No. 3135 provides that, in cases in which an extrajudicial sale is made, "redemption shall be governed by the provisions of sections 464466, inclusive, of the Code of Civil Procedure in so far as these are not inconsistent with the provisions of this

Act." Sections 464-466 of the Code of Civil Procedure were superseded by Sections 25-27 and Section 31 of Rule 39 of the Rules of Court, which in turn were replaced by Sections 29-31 and Section 35 of Rule 39 of the Revised Rules of Court. 2.ID.; EFFECT OF FAILURE TO REDEEM WITHIN 12 MONTHS AFTER THE SALE. Section 35 of Rule 39 of the Revised Rules of Court expressly states that "if no redemption be made within twelve (12) months after the sale, the purchaser, or his assignee, is entitled to a conveyance and possession of the property. The possession of the property shall be given to the purchaser or last redemptioner by the officer unless a third party is actually holding the property adversely to the judgment debtor. 3.ID.; PURCHASER NOT OBLIGED TO BRING INDEPENDENT ACTION FOR POSSESSION AFTER EXPIRATION OF ONE-YEAR PERIOD FOR REDEMPTION. There is no law in this jurisdiction whereby the purchaser at a sheriff's sale of real property is obliged to bring a separate and independent suit for possession after the oneyear period for redemption has expired and after he has obtained the sheriff's final certificate of sale. There is neither legal ground nor reason of public policy precluding the court from ordering the sheriff in this case to yield possession of the property purchased at public auction where it appears that the judgment debtor is the one in possession thereof and no rights of third persons are involved (Tan Soo Huat vs. Ongwico, 63 Phil. 746).

DECISION

REGALA, J :
p

This is an appeal from an order of the Court of First Instance of Rizal, denying appellant's motion to set aside the writ of possession issued by the court and the auction sale held before that by the sheriff. The writ of possession was issued by the lower court on February 26, 1963, on the ex parte application of the appellee. The petition recited that, as mortgagee of the property of the spouses Venancio Nera and Rosa F. Nera, situated at No. 9 Aleman Street, Quezon City, appellee filed with the sheriff's office in Quezon City a verified petition for the extrajudicial foreclosure of the mortgage; that on October 27, 1961, after notice and publication, the property (consisting of a house and lot) was sold to appellee as the highest bidder for P28,451.77; that the period of redemption expired on October 27, 1962 without the property being redeemed, for which reason the property was consolidated in the name of appellee to whom a new title, Transfer Certificate of Title No. 65575, was issued. On March 6, 1963, appellant asked for a reconsideration of the order granting the writ of possession on the ground that his failure to redeem the property was due to appellee's misrepresentation. According to appellant, he was notified by the appellee on October 31, 1962 that the period of redemption had expired when the truth was, as he found later, that the sale was registered only on November 3, 1961 from which date the period of redemption must be reckoned. The court denied the motion for failure of appellant to serve a copy on the appellee. On March 26, 1963, appellant filed another motion, an ex parte application to set aside the writ of possession and the auction sale, on the ground that the court had no jurisdiction to issue the writ and that the price at which the mortgaged property was sold was grossly inadequate. As stated in the beginning, the motion was denied, prompting appellant to bring this appeal. The only issue raised in this appeal is whether in cases of extrajudicial foreclosure of real estate mortgages, a regular action must be instituted in order to secure possession of the property sold. Appellant contends that the jurisdiction of the lower court to issue a writ of possession is limited only to the duration of the period of

redemption and that after the expiration of that period, the mortgagee's remedy is an ordinary action for recovery of possession. In support of this proposition, appellant cites the following provisions of Act No. 3135, as amended by Act No. 4118:
"SEC. 7.In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing a bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately." (Italics supplied)

Appellant also invokes Luna vs. Encarnacion, 91 Phil. 531 (1952) in which it was held that in case of refusal of the mortgagor to surrender the possession of the property sold by the sheriff the remedy of the purchaser is to bring an ordinary action for recovery of possession, instead of merely asking for a writ of possession, in order to give the mortgagor the opportunity to be heard not only regarding possession but also regarding the obligation covered by the mortgage. The contention is without merit. The applicable provision of Act No. 3135 is Section 6 which provides that, in cases in which an extrajudicial sale is made, "redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure in so far as these are not inconsistent with the provisions of this Act." Sections 464-466 of the Code of Civil Procedure were superseded by Sections 25- 27 and Section 31 of Rule 39 of the Rules of Court, which in turn were replaced by Sections 29-31 and Section 35 of Rule 39 of the Revised Rules of Court. Section 35 of Rule 39 of the Revised Rules of Court expressly states that "If no redemption be made within twelve (12) months after the sale, the purchaser, or his assignee, is entitled to a conveyance and possession of the property . . . The

possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment debtor."
Indeed, as this Court held in Tan Soo Huat vs. Ongwico, 63 Phil. 746, 749 (1936),
"There is no law in this jurisdiction whereby the purchaser at a sheriff's sale of real property is obliged to bring a separate and independent suit for possession after the one-year period for redemption has expired and after he has obtained the sheriff's final certificate of sale. There is neither legal ground nor reason of public policy precluding the court from ordering the sheriff in this case to yield possession of the property purchased at public auction where it appears that the judgment debtor is the one in possession thereof and no rights of third persons are involved."

This same ruling was made in Rivera vs. Court of First Instance of Nueva Ecija, 61 Phil. 201 (1935) (judicial foreclosure of mortgage) and in Republic vs. Nable, G. R. No. L-4979, April 30, 1952 (execution sale). Moreover, if under Section 7 of Act No. 3135 the court has the power, on the ex parte application of the purchaser, to issue a writ of possession during the period of redemption, there is no reason why it should not

also have the same power after the expiration of that period, especially where, as in this case, a new title has already been issued in the name of the purchaser. The case of Luna vs. Encarnacion, supra, cannot be applied to the present case because that case involves the extrajudicial foreclosure of a chattel mortgage. The Chattel Mortgage Law (Act No. 1508) contains no provisions similar to Sections 6 and 7 of Act No. 3135 which, as already pointed out, make the Rules of Court provisions on redemption in cases of judicial and execution sales applicable. In view of the foregoing, the order appealed from is hereby affirmed, without pronouncement as to costs.

Concepcion, C. J., Reyes, J. B. L., Dizon, Makalintal, Bengzon, J. P., Zaldivar, Sanchez and Ruiz Castro, JJ.,
concur.