Credit Digest

CASE 1: Prudential Bank v.
Alviar & Alviar

Facts:
1. the Alviars obtained several loans from Prudential Bank and
these include:
a. loan for the amount of P250,000.00 as seen in a
Promissory note. it was secured by a REAL ESTATE
MORTGAGE over a parcel of land and this was duly
annotated.
b. a loan in the amount of P545K for DOnalco Trading
wherein they are the officers.
2. 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
incumbrances
free
from
all
liens
and
3. The Spouses Alviar then paid P2M tp be applied to the

obligations of GB Alviar Realty Development and for the
release of the Real Estate Mortgage.
4. Extrajudicial Foreclosure: the petitioner then moved for
the extrajudicial foreclosure of the mortgage on the
property saying that there still obligations remaining to be
paid. The Public auction was scheduled.
5. The complaint: the spouses Alviar then filed a complaint
for damages and injunction claiming that they have
already paid their principa loan secured by the
mortgaged property, and thus, the mortgage cannot be
foreclosed.
a. Answer of the defendant Bank, the P2M
payment was made by GB Alviar, which was a
separate loan.
6. The trial court Ruled in favour of the plaintiff: and did
not allow the foreclosure of the mortgage because
according to the court, the mortgage only covered the
P250k loan.
a. That the other loan referred to by the defendant
was secured by a foreign currency deposit
b. That the P545k loan was unsecured
c. That the Blanket clause alleged by the bank only
covered future loans of the spouses Alviar and
not to Donalco who were merely officers thereof
7. CA decision: the CA affirmed the decision of the RTC
and ruled that:
a. 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.
ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |
b. However, the court found that respondents have

not yet paid the P250,000.00 covered by PN
BD#75/C-252
since
the
payment
ofP2,000,000.00 adverted to by respondents
was issued for the obligations of G.B. Alviar
Realty and Development, Inc.
8. Hence, the present action by the petitioner arguing that:
a. 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
b. it further argues that there is no law which
prohibits an obligation from being covered by 2
or more securities
There are three main issues in this case:
1. WON there dragnet clause is valid
2. What does the dragnet clause cove, may it involve
obligations which are already covered by other
securities?
3. May foreclosure be done?
Issue 1: WON the dragnet clause is valid
Ruling: the dragnet clause is valid
1. The Provision in this case:
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
2. Nature of a Dragnet clause
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.
3. Purpose
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
4. hence, in this case, it is clear that the petitioner and the
respondent 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.
Issue 2: What does the dragnet clause cove, may it involve
obligations which are already covered by other securities?
Ruling: Yes. However, following the reliance on security test, the
mortgage will not secure a note that expresses on its face that is
otherwise secured as to its entirety, at least to anything other than a
deficiency after exhausting the security specified therein.
1. 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.
Issue 3: Should the foreclosure be granted?
Ruling: No. the security to the debt due must be exhausted first
before the REM with the dragnet clause be used.
1. 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.
2. 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.
a. 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.
CASE 2: Peoples Bank & Trust Company & Atlantic Gulf and
Pacific Co. of Manila v. Dahican Lumber Company, et al.,
FACTS: ATLANTIC sold and assigned all its right in the DALCO for
the total sum of P500,000.00 of which only the amount of $50,000.00
was paid. DALCO obtained various loans from the People's Bank &
Trust Company amounting to P200,000.00. DALCO also 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, payable to the BANK
or its order.
As security for the payment of the loans, DALCO executed in favor of
the BANK 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 themortgagor located in its place of business in the
municipalities of Mambulao and Capalonga,Camarines Norte.
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. Both deeds contained a provision which stated that it
included essential after-acquired properties such as machineries,

fixtures, tools and equiptments. Both mortgages wereregistered in
the Office of the Register of Deeds of Camarines Norte.
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
creditand the first mortgage securing it. Subsequently, the BANK
gave DALCO and DAMCO up to April 1,1953 to pay the overdue
promissory note. 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.
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. 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 CFI of Camarines Norte
against DALCO and DAMCO.
ISSUE: (1) WON after acquired machinery and equipment of

DAMCO are included as subject of the Real Estate mortgage, thus
can be foreclosed.
(2) WON the deed should be registered in the Chattel Mortgage
registry
HELD: Yes, it can be foreclosed.
(2) No more.
RATIO: (1) The after acquired machinery andequipment are included
in the executed mortgages. 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
acquiredproperties" and affect third parties.
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.
(2) Since under Articles 415 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 theneeds of the said industry or works, are classified
as immovable properties, therefore not covered bythe Chattel
Mortgage Law
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
assecurity. 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 inthe contract.
CASE 3 : STAR TWO (SPV-AMC), INC. vs. PAPER CITY

CORPORATION OF THE PHILIPPINES
FACTS:
1. Rizal Commercial Banking Corporation (RCBC), Metropolitan
Bank and Trust Co. (Metrobank) and Union Bank of the Philippines
(Union Bank) are banking corporations duly organized and existing
under the laws of the Philippines. On the other hand, respondent
Paper City is a domestic corporation engaged in the manufacture of
paper products particularly cartons, newsprint and clay-coated paper.
2. From 1990-1991, Paper City applied for and was granted four (4)
loans and credit accommodations by RCBC, now substituted by Star
Two (SPV-AMC), Inc by virtue of Republic Act No. 9182.
-The loans were secured by four (4) Deeds of Continuing
Chattel Mortgages on its machineries and equipments found inside
its paper plants.
3. However, RCBC eventually executed a unilateral Cancellation of
Deed of Continuing Chattel Mortgage.
4. In 1992, RCBC, as the trustee bank, together with Metrobank and
Union Bank, entered into a Mortgage Trust Indenture (MTI), with
Paper City.
-In the said MTI, Paper City acquired additional loans
secured by five (5) Deed of Real Estate Mortgage, plus real and
personal properties in an annex to the MTI, which covered the
machineries and equipment of Paper City.
5. The MTI was later on amended and supplemented three (3) times,
wherein the loan was increased and included the same mortgages
with an additional building and other improvements in the plant site.
6. Paper City was able to comply with the loans but only until 1997
due to an economic crisis.
7. RCBC filed a petition for extra-judicial foreclosure against the
real estate executed by Paper City including all the improvements
because of payment default.
8. The property was foreclosed and subjected to public auction.
-The three banks as the highest bidders were issued a

Certificate of Sale.
9. Paper City filed a complaint alleging that the sale was null and
void due to lack of prior notice. During the pendency of the
complaint, Paper City filed a motion to remove machinery out of the
foreclosed land and building, that the same were not included in the
foreclosure of the real estate mortgage.
10. RTC: The trial court denied the motion, ruling that the
machineries and equipment were included. Thereafter, Paper City's
Motion for Reconsideration, the trial court granted the same and
justified the reversal by finding that the machineries and equipment
are chattels by agreement thru the four Deeds of Continuing Chattel
Mortgages; and that the deed of cancellation executed by RCBC of
said mortgage was not valid because it was one unilaterally. RCBC's
Motion for Reconsideration was denied.
11. CA: The case was petitioned at CA:
1. That Paper City gave its consent to consider the disputed
machineries and equipment as real properties when they signed the
MTI's and all its amendments;
2. That the machineries and equipment are the same as in
the MTI's, hence treated by agreement of the parties as real
properties. The CA affirmed the orders of the trial court because it
relied on the plain language of the MTI's stating that nowhere from
any of the MTIs executed by the parties can we find the alleged
"express" agreement adverted to by petitioner. There is no provision
in any of the parties MTI, which expressly states to the effect that the
parties shall treat the equipments and machineries as real property.
ISSUE/S: WON the subsequent contracts of the parties such as
Mortgage Trust Indenture as well as the subsequent supplementary
amendments included in its coverage of mortgaged properties the
subject machineries and equipment;
WON the subject machineries and equipment were considered real
properties and should therefore be included in the extra-judicial
foreclosure which in turn were sold to the banks.
HELD: Yes. Yes.
RATIO:
1. Repeatedly, the parties stipulated that the properties mortgaged by

Paper City to RCBC are various parcels of land including the
buildings and existing improvements thereon as well as the
machineries and equipments, which as stated in the granting clause
of the original mortgage, are more particularly described and listed
that is to say, the real and personal properties listed in Annexes A
and B x x x of which the [Paper City] is the lawful and registered
owner. Significantly, Annexes A and B are itemized listings of the
buildings, machineries and equipments typed single spaced in
twenty-seven pages of the document made part of the records.
As held in Gateway Electronics Corp. v. Land Bank of the
Philippines, the rule in this jurisdiction is that the contracting parties
may establish any agreement, term, and condition they may deem
advisable, provided they are not contrary to law, morals or public
policy. The right to enter into lawful contracts constitutes one of the
liberties guaranteed by the Constitution.
Law and jurisprudence provide and guide that even if not expressly
so stated, the mortgage extends to the improvements. Article 2127 of
the Civil Code provides: The mortgage extends to the natural
accessions, to the improvements, growing fruits, and the rents or
income not yet received when the obligation becomes due, and to
the amount of the indemnity granted or owing to the proprietor from
the insurers of the property mortgaged, or in virtue of expropriation
for public use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of
the mortgagor, or it passes into the hands of a third person.
2. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of
Mortgage includes the machineries and equipments of respondent.
While captioned as a Petition for Extra-Judicial Foreclosure of Real
Estate Mortgage Under Act No. 3135 As Amended, the averments
state that the petition is based on x x x the Mortgage Trust
Indenture, the Deed of Amendment to the Mortgage Trust Indenture,
the Second Supplemental Indenture to the Mortgage Trust Indenture,
and the Third Supplemental Indenture to the Mortgage Trust
Indenture (hereinafter collectively referred to as the Indenture) duly
notarized and entered as x x x. Noting that herein respondent has
an outstanding obligation in the total amount of Nine Hundred One
Million Eight Hundred One Thousand Four Hundred Eighty Four and
10/100 Pesos (P901,801,484.10), the petition for foreclosure prayed
that a foreclosure proceedings x x x on the aforesaid real

properties, including all improvements thereon covered by the
real estate mortgage be undertaken and the appropriate auction
sale be conducted x x x.
Considering that the Indenture which is the instrument of the
mortgage that was foreclosed exactly states through the Deed
of Amendment that the machineries and equipments listed in
Annexes A and B form part of the improvements listed and
located on the parcels of land subject of the mortgage, such
machineries and equipments are surely part of the foreclosure
of the real estate properties, including all improvements
thereon as prayed for in the petition.
Indeed, the lower courts ought to have noticed the fact that the
chattel mortgages adverted to were dated 8 January 1990, 19 July
1990, 28 June 1991 and 28 November 1991. The real estate
mortgages which specifically included the machineries and
equipments were subsequent to the chattel mortgages dated 26
August 1992, 20 November 1992, 7 June 1994 and 24 January
1995. Without doubt, the real estate mortgages superseded the
earlier chattel mortgages. The real estate mortgage over the
machineries and equipments is even in full accord with the
classification of such properties by the Civil Code of the Philippines
as immovable property.
CASE 4: GARCIA v. VILLAR
FACTS: 1. Lourdes V. Galas was the original owner of a piece of
property located at Malindang St., Quezon City
2. On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol
(Pingol), as co-maker, mortgaged the subject property to Yolanda
Valdez Villar (Villar) as security for a loan in the amount of
P2,200,000.00
3. On October 10, 1994, Galas, again with Pingol as her co-maker,
mortgaged the same subject property to Pablo P. Garcia to secure
her loan of P1,800,000.00.
4. Both mortgages were annotated at the back of TCT No. RT-67970
(253279)
5. On November 21, 1996, Galas sold the subject property to Villar

for P1, 500,000.00, and declared in the Deed of Sale that such
property was free and clear of all liens and encumbrances of any
kind whatsoever.
6. On October 27, 1999, Garcia filed a Petition for Mandamus with
Damages against Villar. Garcia alleged that when Villar bought the
said property, she acted in bad faith as she knowingly and willfully
disregarded the provisions on laws on judicial and extrajudicial
foreclosure of mortgaged property.
7. Garcia further claimed that when Villar purchased the subject
property, Galas was relieved of her contractual obligation and the
characters of creditor and debtor were merged in the person of
Villar. Therefore, Garcia argued, he, as the second mortgagee, was
subrogated to Villars original status as first mortgagee, which is the
creditor with the right to foreclose.
8. Villar, in her Answer, claimed that the complaint stated no cause of
action and that the second mortgage was done in bad faith as it was
without her consent and knowledge. Villar alleged that she only
discovered the second mortgage when she had the Deed of Sale
registered.
9. RTC ruled in favor Garcia, declaring that the direct sale of the
subject property to Villar, the first mortgagee, could not operate to
deprive Garcia of his right as a second mortgagee.
10. Upon Villars appeal to the CA, the said court rendered a
decision reversing that of the RTC. CA declared that Galas was free
to mortgage the subject property even without Villars consent as the
restriction that the mortgagees consent was necessary in case of a
subsequent encumbrance was absent in the Deed of Real Estate
Mortgage. Court of Appeals held that Garcia had no cause of action
against Villar in the absence of evidence showing that the second
mortgage executed in his favor by Lourdes V. Galas [had] been
violated and that he [had] made a demand on the latter for the
payment of the obligation secured by said mortgage prior to the
institution of his complaint against Villar.
ISSUE/S: 1. WON the second mortgage to Garcis is valid.

2. WON the sale of the subject property to VIllar was valid.
3. WON Garcias action for foreclosure of mortgage on the subject
property will prosper.
HELD: 1. Yes. The second mortgage to Garcia is valid.
2. Yes. The sale of the subject property to VIllar was valid.
3. No. Garcias action for foreclosure of mortgage on the subject
property will NOT prosper.
RATIO: 1. The SC agrees with the CA that the second mortgage is
valid. While it is true that the annotation of the first mortgage to Villar
on Galass TCT contained a restriction on further encumbrances
without the mortgagees prior consent, this restriction was nowhere
to be found in the Deed of Real Estate Mortgage. As this Deed
became the basis for the annotation on Galass title, its terms and
conditions take precedence over the standard, stamped annotation
placed on her title. If it were the intention of the parties to impose
such restriction, they would have and should have stipulated such in
the Deed of Real Estate Mortgage itself.
2. The SC agrees with the CA that the sale of the subject property to
VIllar was valid. The Deed of Real Estate Mortgage does NOT
proscribe the sale or alienation of the subject property during the life
of the mortgages. Garcias insistence that Villar should have
judicially or extrajudicially foreclosed the mortgage to satisfy Galass
debt is misplaced. The Deed of Real Estate Mortgage merely
provided for the options Villar may undertake in case Galas or Pingol
fail to pay their loan. Nowhere was it stated in the Deed that Galas
could not opt to sell the subject property to Villar, or to any other
person. Such stipulation would have been void anyway, as it is not
allowed under Article 2130 of the Civil Code, to wit: Art. 2130. A
stipulation forbidding the owner from alienating the immovable
mortgaged shall be void.
3. Art. 2126. The mortgage directly and immediately
subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for
whose security it was constituted.
Simply put, a mortgage is a real right, which follows the

property, even after subsequent transfers by the
mortgagor. A registered mortgage lien is considered
inseparable from the property inasmuch as it is a right
in rem.
The sale or transfer of the mortgaged property cannot affect or
release the mortgage; thus the purchaser or transferee is necessarily
bound to acknowledge and respect the encumbrance.
In fact, under Article 2129 of the Civil Code, the mortgage on the
property may still be foreclosed despite the transfer, viz:
Art. 2129. The creditor may claim from a third
person in possession of the mortgaged property, the
payment of the part of the credit secured by the
property which said third person possesses, in terms
and with the formalities which the law establishes.
While we agree with Garcia that since the second mortgage, of
which he is the mortgagee, has not yet been discharged, we find that
said mortgage subsists and is still enforceable. However, Villar, in
buying the subject property with notice that it was mortgaged, only
undertook to pay such mortgage or allow the subject property to be
sold upon failure of the mortgage creditor to obtain payment from the
principal debtor once the debt matures. Villar did not obligate herself
to replace the debtor in the principal obligation, and could not do so
in law without the creditors consent.
Art. 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be
made even without the knowledge or against the will
of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237.
Therefore, the obligation to pay the mortgage indebtedness remains
with the original debtors Galas and Pingol.
CASE 5: Korea Exchange Bank v. Filkor Business Integrated,

Inc., et al.
FACTS: 1. Filkor borrowed $140,000 from Korea Exhange Bank
payable on July 9, 1997. Only $40,000 was paid back by Filkor. Later
on, Filkor entered into more transactions but before those, Filkor
executed a Real Estate Mortgage on Feb 9, 1996. It mortgaged to
the bank the improvements belonging to it constructed on the lot it
was leasing at the Cavite Export Processing Zone Authority.
2. Respondents Kim Eung Joe and Lee Han Sang also executed
Continuing Suretyships binding themselves jointly and severally with
Filkor to pay for the obligations to the bank.
3. Another of Filkors obligation is it executed 9 trust receipts in favor
of the bank from June 26 to Sept 11, 1997. However, it failed to turn
over 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. Another obligation was when Filkor negotiated to the bank
proceeds of 17 letters of credit issued by the Republic Bank of New
York and the Banque Leumi France to pay for goods which Filkor
sold to Segerman International and Davyco. The problem in the
obligation is that when the brank tried to collect the proceeds of the
letters of credit by presenting the bills of exchange, they were
dishonored because of discrepancies.
5. Since Filkor breached on its obligations, the bank filed a case in
the RTC-Cavite with 27 causes of action, praying to get paid and to
foreclose the mortgage. RTC granted the banks petition with respect
ot the 27 causes of action but failed to order the foreclosure and
public auction in case Filkor fails to pay.
6. The bank filed a Motion for Partial Reconsideration praying for
foreclosure & public auction. RTC denied saying that in opting to file
a civil action for the collection of obligations, it has abandoned its
mortgage lien on the property subject of the real estate mortgage.
ISSUE: (1) WON the bank abandoned the real estate mortgage in its
favor because it filed a simple collection case
(2) WON the banks 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
HELD: (1) No, it did not.
(2) it was an action for foreclosure of a real estate mortgage
RATIO: In the banks complaint before the TC, Par 183 alleges:To
secure payment of the obligations of Filkor, it executed a Real Estate
Mortgage by virtue of which it mortgaged to thebank the
improvements standing on Rosario, Cavite, belonging to Filkor
consisting of a one-story building calledwarehouse and spooling
area, the guardhouse, the cutting/sewing area building and the
packing area building.
This allegation satisfies the requirements of Rule 68.1 1997 Rules of
Civil Procedure on foreclosure of real estate mortgage,
whichprovides:SEC 1. Complaint in action for foreclosure. In an
action for the foreclosure of a mortgage or other encumbrance
uponreal estate, the complaint shall set forth the date and due
execution of the mortgage; its assignments, if any; the namesand
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 unpaidthereon; and the names and
residences of all persons having or claiming an interest in the
property subordinate in right tothat of the holder of the mortgage, all
of whom shall be made defendants in the action.
The banks allegations in its complaint, and its prayer that the
mortgaged property be foreclosed and sold at public auction, indicate
that the action was one for foreclosure of real estate mortgage. SC
has 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.
SC finds no indication that the bank waived its rights under

the real estate mortgage executed in its favor. TC erred in
concluding that the bank abandoned its mortgage lien on
Filkor's property, and that what it had filed was an action for
collection of a sum of money. Since the action was one for
foreclosure of real estate mortgage, it was incumbent upon
the TC to order that the mortgaged property be foreclosed
and sold at public auction if Filkor fails to pay its outstanding
obligations pursuant to Rule 68.2 1997 Rules of Civ Pro:
Judgment on foreclosure for payment or sale .- If upon the
trial in such action the court shall find the facts set forth in
thecomplaint to be true, it shall ascertain the amount due to
the plaintiff upon the mortgage debt or obligation,
includinginterest and other charges as approved by the
court, and costs, and shall render judgment for the sum so
found due and order that the same be paid to the court or to
the judgment obligee within a period of not less than 90 days
nor more than 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.
CASE 6: Huerta Alba Resort, Inc. v. Court of Appeals and
Syndicated Management Group (SMG) G.R. No. 128567,
September 1, 2000, 339 SCRA 534
Facts:
1. the Judicial Foreclosure: the private respondent SMG filed
a complaint for judicial foreclosure before the RTC of Makati
City for the 4 parcels of land mortgaged by Huerta Alba
Resort to Intercon. SMG is an assignee of Intercon.
2. The Trial Court decision: granted the SMGs complaint for
foreclosure proceedings. The Court disposed of the said
case by ruling that the loan with charges shall be paid within
150 days from receipt of decision and in default of such
payment, the 4 parcels of lands including the improvemets
shall be sold to realize the mortgage debt.
3. The order became final and executory.
4. The Foreclosure Sale: 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.
5. Motion to clarify by petitioner regarding period of
redemption: 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.
a. The CA resolved the issues 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.
Issue: May the petitioner still exercise its right of redemption?
Ruling: No. the petitioner in this case has no right of redemption
because the foreclosure was judicial. Only equitable redemption is
available.
Difference between a judicial and extrajudicial foreclosure:
Judicial Foreclosure
Extrajudicial Foreclosure
equity of redemption: This is simply the Act 3135 grants to the mortgagor the
right of the defendant mortgagor to
right of redemption within one (1) year
extinguish the mortgage and retain
from the registration of the sheriffs
ownership of the property by paying the certificate of foreclosure sale.
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. Redemption similar to that

granted by Act. 3135 only applies when
mortgagee is the Philippine National
Bank or a bank or banking institution.
Under Section 78 of R.A. No. 337, it
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.
2. 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.
the right to redeem the property sold

on foreclosure - after confirmation by 3. Private respondent, through its deputy liquidator, responded under
oath to the request and countered that petitioners were "notified of
the court of the foreclosure sale the auction sale by the posting of notices and the publication of
which right may be exercised within a
notice in the Metropolitan Newsweek, a newspaper of general
period of one (1) year, counted from circulation in the province where the subject properties are located
the date of registration of the
and in the Philippines on February 13, 20 and 28, 1988."
certificate of sale in the Registry of
4. On the basis of the alleged implied admission by private
Property.
respondent that no formal notice of foreclosure was sent to
petitioners, the latter filed a motion for summary judgment
In relation to these rules, did the petitioner invoke his right to
contending that the foreclosure was violative of the provisions of the
redeem timely?
mortgage contract, specifically paragraph (k) thereof which provides:
Ruling: No. it was too late in the day for petitioner to invoke a
- k) All correspondence relative to this Mortgage, including
right to redeem under Section 78 of R.A. No. 337. Petitioner
demand letters, summons, subpoena or notifications of any judicial
failed to assert a right to redeem in several crucial stages of the
or extrajudical actions shall be sent to the Mortgagor at the address
Proceedings.
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
1. facts show that it was only on May 2, 1995 when, in
correspondence by mail or by personal delivery to the said address
opposition to the Motion for Issuance of Writ of Possession,
shall be valid and effective notice to the Mortgagor for all legal
did petitioner file a Motion to Compel Private Respondent to
purposes, and the fact that any communication is not actually
Accept Redemption, invoking for the very first time its
received by the Mortgagor, or that it has been returned unclaimed to
alleged right to redeem subject properties under to Section
the Mortgagee, or that no person was found at the address given, or
78 of R.A. No. 337.
that the address is fictitious, or cannot be located, shall not excuse or
relieve the Mortgagor from the effects of such notice;
CASE 7: GRAND FARMS, INC. and PHILIPPINE SHARES
5. RTC: issued an order, denying petitioners' motion for summary
CORPORATION v. CA
judgment.
FACTS:
6. Petitioners thereafter went on a petition for certiorari to respondent
1. Sometime on April 15, 1988, petitioners filed Civil Case in the RTC
court attacking said orders of denial as having been issued with
for annulment and/or declaration of nullity of the extrajudicial
grave abuse of discretion.
foreclosure proceedings over their mortgaged properties, with
7. CA: dismissed the petition, holding that no personal notice was
damages, against respondents clerk of court, deputy sheriff and
required to foreclose since private respondent was constituted by
herein private respondent Banco Filipino Savings and Mortgage
petitioners as their attorney-in-fact to sell the mortgaged property. It
Bank.
further held that paragraph (k) of the mortgage contract merely
10
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.
RATIO: While private respondent was constituted as their attorneyin-fact by petitioners, the inclusion of the aforequoted paragraph (k)
in the mortgage contract nonetheless rendered personal notice to the
latter indispensable. As we stated in Community Savings & Loan
Association, Inc., et al. vs. Court of Appeals, et al., where we had the
occasion to construe an identical provision:
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
On the other important point that militates against

the petitioners' first ground for this petition is the fact
that no notice of the foreclosure proceedings was
ever sent by CSLA to the deceased mortgagor
Antonio Esguerra or his heirs in spite of an express
stipulation in the mortgage agreement to that effect.
Said Real Estate Mortgage provides, in Sec. 10
thereof that:
As the record is bereft of any evidence which even

impliedly indicate that the required notice of the
extrajudicial foreclosure was ever sent to the
deceased debtor-mortgagor Antonio Esguerra or to
his heirs, the extrajudicial foreclosure proceedings
on the property in question are fatally defective and
are not binding on the deceased debtor-mortgagor
or to his heirs (p. 37, Rollo)
(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.)
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.
ISSUE: WON personal notice was required to foreclose.

HELD: Yes.
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.
Those mentioned in paragraph (k) are specific and additional
requirements intended for the mortgagors so that, thus
11
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.
CASE 8: Spouses Rabat v. Philippine National Bank, G.R. No.
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.
4. In its letter of 24 July 1986, in response to the letter of the RABATs
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. 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.
FACTS: 1. In 1979, respondent spouses Francisco and Merced

Rabat 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. The RABATs
signed a Credit Agreement and executed a Real Estate Mortgage
over 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.
5. 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 RTC of Manila.
2. On 25 September 1980, the RABATs executed another document

"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 9 parcels of land as
additional security for their medium-term loan of P4.0 M. These
parcels of land are agricultural, commercial and residential lots
situated in Mati, Davao Oriental.
6. The RABATs admitted their loan availments from PNB and their
default in the payment. 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.
3. The several availments of the loan accommodation on various

dates by the RABATs reached the aggregate amount of P3,517,380,
7. The RABATs likewise averred that the bid price was grossly
inadequate and unconscionable. Lastly, the RABATs attacked the
158755, June 18, 2012.
12
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. RTC ruled in favor of
the Rabats. CA upheld the RTCs decision to nullify the foreclosure
sales but rested its ruling upon a different ground, 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. CA, upon MR, set aside its decision on the
basis raised by PNB. CA also declared that the bid price had been
very low and observing that the mortgaged properties might have
been sold for a higher value had PNB conducted a reappraisal of the
properties. Upon PNBs MR, it reversed its decision regarding the
low price of properties. Hence, this appeal.
ISSUE: (1) WON CA erred in upholding the validity of the
subject auction sales and adjudging payment of deficiency
sum, interests, penalty and service charges and attorneys
fees in complete and absolute disregard of its earlier
pronouncements, the arguments of petitioners and evidence
borne in the records of the case
(2) WON PNB has the legal right to recover the deficiency
amount
HELD: (1) No, CA did not err.

(2) Yes, it has.
RATIO: SC 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. PNBs bid price of 3,874,800.00
might not even be said to be outrageously low as to be shocking to
the conscience.
PNB had the legal right to recover the deficiency amount. In the case
of PNB vs. CA, 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 mortgagees 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.
There should be no question that PNB was legally entitled to recover
the penalty charge of 3% per annum and attorneys 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. 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. 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.
CASE 9: GOLDENWAY MERCHANDISING CORP. v. CA
FACTS: 1. On November 29, 1985, Goldenway Merchandising
Corporation (petitioner) executed a Real Estate Mortgage in favor of
Equitable PCI Bank (respondent) over its real properties situated in
Valenzuela, Bulacan (now Valenzuela City) and covered by Transfer
Certificate of Title (TCT) Nos. T-152630, T-151655 and T-214528 of
13
the Registry of Deeds for the Province of Bulacan. The mortgage

secured the Two Million Pesos (P2,000,000.00) loan granted by
respondent to petitioner and was duly registered.
2. As petitioner failed to settle its loan obligation, respondent
extrajudicially foreclosed the mortgage on December 13,
2000. During the public auction, the mortgaged properties
were sold for P3,500,000.00 to respondent. Accordingly, a
Certificate of Sale was issued to respondent on January 26,
2001. On February 16, 2001, the Certificate of Sale was
registered and inscribed on TCT Nos. T-152630, T-151655
and T-214528.
3. In a letter dated March 8, 2001, petitioners counsel
offered to redeem the foreclosed properties by tendering a
check in the amount of P3,500,000.00. However, petitioner
was told that such redemption is no longer possible because
the certificate of sale had already been registered. Petitioner
also verified with the Registry of Deeds that title to the
foreclosed properties had already been consolidated in favor
of respondent and that new certificates of title were issued in
the name of respondent on March 9, 2001.
4. On December 7, 2001, petitioner filed a complaint for
specific performance and damages against the respondent,
asserting that it is the one-year period of redemption under
Act No. 3135 which should apply and not the shorter
redemption period provided in Republic Act (R.A.) No. 8791.
5. In its Answer with Counterclaim, respondent pointed out
that petitioner cannot claim that it was unaware of the
redemption price which is clearly provided in Section 47 of
R.A. No. 8791, and that petitioner had all the opportune time
to redeem the foreclosed properties from the time it received
the letter of demand and the notice of sale before the
registration of the certificate of sale.
6. RTC dismissed the complaint as well as the counterclaim. It noted
that the issue of constitutionality of Sec. 47 of R.A. No. 8791 was
never raised by the petitioner during the pre-trial and the trial.
7. Goldenway appealed to the CA, but the said court affirmed the
ruling of the RTC. According to the CA, petitioner failed to justify why
Section 47 of R.A. No. 8791 should be declared unconstitutional.
Furthermore, the appellate court concluded that a reading of Section
47 plainly reveals the intention to shorten the period of redemption
for juridical persons and that the foreclosure of the mortgaged
properties in this case when R.A. No. 8791 was already in effect
clearly falls within the purview of the said provision.
ISSUE/S: WON RA No. 8791, which gives juridical person
shorter time for redemption, be applied in the case at bar
despite the fact that the Real Estate Mortgage was executed
in 1985 (before the enactment of RA 8791).
HELD: YES. RA No. 8791 may be applied.
RATIO: SECTION 47. Foreclosure of Real Estate Mortgage.
(amended portion with regard to Juridical persons)
Notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the property
in accordance with this provision until, but not after, the
registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever
is earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act shall retain
their redemption rights until their expiration. (Emphasis
supplied.)
Petitioners contention that Section 47 of R.A. 8791 violates the
constitutional proscription against impairment of the obligation of
contract has no basis. The purpose of the non-impairment clause of
the Constitution is to safeguard the integrity of contracts against
unwarranted interference by the State. As a rule, contracts should
not be tampered with by subsequent laws that would change or
modify the rights and obligations of the parties. Impairment is
anything that diminishes the efficacy of the contract. There is
impairment if a subsequent law changes the terms of a contract
14
between the parties, imposes new conditions, dispenses with those

agreed upon or withdraws remedies for the enforcement of the rights
of the parties.
We agree with the CA that the legislature clearly intended to shorten
the period of redemption for juridical persons whose properties were
foreclosed and sold in accordance with the provisions of Act No.
3135.
The difference in the treatment of juridical persons and natural
persons was based on the nature of the properties foreclosed
whether these are used as residence, for which the more liberal oneyear redemption period is retained, or used for industrial or
commercial purposes, in which case a shorter term is deemed
necessary to reduce the period of uncertainty in the ownership of
property and enable mortgagee-banks to dispose sooner of these
acquired assets. It must be underscored that the General Banking
Law of 2000, crafted in the aftermath of the 1997 Southeast Asian
financial crisis, sought to reform the General Banking Act of 1949 by
fashioning a legal framework for maintaining a safe and sound
banking system. In this context, the amendment introduced by
Section 47 embodied one of such safe and sound practices aimed at
ensuring the solvency and liquidity of our banks. It cannot therefore
be disputed that the said provision amending the redemption period
in Act 3135 was based on a reasonable classification and germane
to the purpose of the law.
This legitimate public interest pursued by the legislature further
enfeebles petitioners impairment of contract theory.
The right of redemption being statutory, it must be exercised in the
manner prescribed by the statute, and within the prescribed time
limit, to make it effective. Furthermore, as with other individual rights
to contract and to property, it has to give way to police power
exercised for public welfare. The concept of police power is wellestablished in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty
or property in order to promote the general welfare." Its scope, everexpanding to meet the exigencies of the times, even to anticipate the
future where it could be done, provides enough room for an efficient
and flexible response to conditions and circumstances thus

assuming the greatest benefits.
CASE 10: Medida, City Savings Bank v. Court of Appeals and
the Dolinos et al., G.R. No. 98334, May 8, 1992, 208 SCRA 887 2)
Facts:
1. the spouses Dolino approached the City Savings Bank to
obtain a loan in the amount of P30k and issued a promissory
note for such. They also executed a REM for a parcel of land
in Cebu City
a. the loan was because the Dolinos were alarmed of
losing their right of redemption over the same lot to a
certain Mr. Gandiocho, who was the purchaser of the
land in a foreclosure sale on the mortgage executed
in favour of the Cebu City Development Bank
2. default of the Dolinos and the foreclosure: City Savings
Bank caused the extrajudicial foreclosure of the mortgage
after the posting the publication requirements.
a. the land was sold at public auction on April 19, 1976
to defendant association being the highest bidder.
The certificate of sale was issued on April 20, 1976
and registered on May 10, 1976 with the Register of
Deeds of Cebu.
3. No Redemption was made by the Dolino Spouses,hence,
the title was issued in favour of the City Savings Bank.
4. The Complaint by the Dolinos: the Dolinos then filed a
complaint for the annulment of sale at the public auction
assailing validity of the foreclosure alleging that the same
was not made in accordance with RA 3135.
5. Decision of the trial court: the trial court rendered a
decision upholding the validity of the mortgage but annulling
the extrajudicial foreclosure sale as it did not comply with the
notice requirements of Act. No. 3135.
6. The CA upheld the ruling that the foreclosure was void
and ineffective because:
15
a. The Mortgage contract itself is void because The

mortgagor spouses at the time when the said
mortgage was executed, were no longer the owners
of the lot, having supposedly lost the same when the
lot was sold to a purchaser, Mr. Gandiocho, in the
foreclosure sale under the prior mortgage.
Issue 1: Was the mortgage contract valid?
Ruling: the mortgage is valid.
1. Right to the Disposition of a mortgaged property is not
completely divested upon the foreclosure until the
expiration of the period of redemption. what is divested
from the mortgagor is only his "full right as owner thereof to
dispose (of) and sell the lands," in effect, merely clarifying
that the mortgagor does not have the unconditional power to
absolutely sell the land since the same is encumbered by a
lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the
lapse of the period of redemption. Even on that score, it may
plausibly be argued that what is delimited is not the
mortgagor's jus dispodendi, as an attribute of ownership, but
merely the rights conferred by such act of disposal which
may correspondingly be restricted.
2. Nevertheless, in this case, Such mortgage does not involve
a transfer, cession or conveyance of the property but only
constitutes a lien thereon. There is no obstacle to the legal
creation of such a lien even after the auction sale of the
property but during the redemption period, since no
distinction is made between a mortgage constituted over the
property before or after the auction sale thereof.
3. mortgagor remains as the absolute owner of the
property during the redemption period and has the free
disposal of his property, there would be compliance with
the requisites of Article 2085 of the Civil Code for the
constitution of another mortgage on the property. To hold

otherwise would create the inequitable situation wherein the
mortgagor would be deprived of the opportunity, which may
be his last recourse, to raise funds wherewith to timely
redeem his property through another mortgage thereon.
4. The effect of redemption is not to recover ownership of
the debtor but to eliminate but the elimination from his
title thereto of the lien created by the levy on attachment
or judgment or the registration of a mortgage thereon.
Issue 2: Nevertheless, the Foreclosure Sale is void as found by the
lower Courts. Not being questioned as of present, it is binding to the
parties. (no explanation in the decision regarding the ruling except
statement that the notice requirements were not complied with.
CASE 11: Spouses Yap v. Spouses Dy, et al., G.R. No. 171991
and 171868, July 27, 2011
FACTS: 1. The subject parcels of land designated as lot 1, 3, 4, 5, 6,
8 as well as lot 846 are originally owned by spouses Tirambulos.
They executed a REM over Lots 1,4, 5,6, and 8 in favor of the Rural
Bank of Dumaguete, predecessor of Dumaguete Rural Bank Inc.
(DRBI). Later, Lots 3 and 846 were also mortgaged in favor of the
same bank.
2. Subsequently, the Tirambulos sold all and mortgaged lots to
spouses Dy and spouses Maxinos without consent and knowledge of
DRBI. Tirambulos failed to pay their loans so DRBI foreclosed lots 1,
4, 5, 6, and 8 and sold at public auction. DRBI was the highest
bidder.
3. Later, DRBI sold lots 1, 3, and 6 to spouses Yap. On May 22,
1984, roughly a month before the one-year redemption period was
set to expire, the Dys and the Maxinos attempted to redeem Lots 1,
3 and 6. They tendered the amount of P40,000.00 to DRBI and the
Yaps, but both refused, contending that the redemption should be for
the full amount of the winning bid ofP216,040.93 plus interest for all
the foreclosed properties
ISSUE: (1) Is Lot 3 among the foreclosed properties?
16
(2) To whom should the payment of redemption money be made?

(3) WON the Dys and Maxinos validly redeem Lots 1 and 6?
HELD: (1) Dys and Maxinos were able to prove their claim that Lot 3
was not among the properties foreclosed and that it was merely
inserted by the bank in the Sheriffs Certificate of Sale.
(2) DRBI or the Yaps. If not accepted, to the sheriff who made the
sale.
(3) Yes, they did.
RATIO: (1) The Provincial Sheriff testified that the foreclosure was
only for five parcels of land, namely, Lots 1, 4, 5, 6 and
8. Accordingly, only said five parcels of land were included in the
publication and sold at the foreclosure sale. When he was shown a
copy of the Sheriffs Certificate of Sale consisting of three pages, he
testified that it was altered because Lot 3 and Lot 846 were included
beyond the xxx that marked the end of the enumeration of the lots
foreclosed. Also, a perusal of DRBIs application for foreclosure of
real estate mortgage shows that it explicitly refers to only one deed
of mortgage to settle the Tirambulos indebtedness amounting
to P216,040.93. This is consistent with the Notice of Extrajudicial
Sale of Mortgaged Property, published in the Dumaguete Star
Informer on February 18, 25 and March 4, 1982, announcing the
sale of Lots 1, 4, 5, 6 and 8 for the satisfaction of the indebtedness
amounting to P216,040.93. It is also consistent with the fact that
Lots 1, 4, 5, 6 and 8 are covered by only one real estate mortgage,
the Real Estate Mortgage dated December 3, 1976. Indeed, that the
foreclosure sale refers only to Lots 1, 4, 5, 6 and 8 is clear from the
fact that Lots 1, 4, 5, 6 and 8 and Lot 3 are covered by 2 separate real
estate mortgages. DRBI failed to refute these pieces of evidence
against it.
(2) Well within the redemption period, they initially attempted to pay
the redemption money not only to the purchaser, DRBI, but also to
the Yaps. Both DRBI and the Yaps however refused, insisting that
the Dys and Maxinos should pay the whole purchase price at which
all the foreclosed properties were sold during the foreclosure sale.
Because of said refusal, the Dys and Maxinos correctly availed of the
alternative remedy by going to the sheriff who made the sale. As held
in Natino v. Intermediate Appellate Court, the tender of the
redemption money may be made to the purchaser of the land or to

the sheriff. If made to the sheriff, it is his duty to accept the tender
and execute the certificate of redemption.
The Dys and the Maxinos have legal personality to redeem the
subject properties despite the fact that the sale to the Dys and
Maxinos was without DRBIs consent. In Litonjua v. L & R
Corporation, this Court declared valid the sale by the mortgagor of
mortgaged property to a third person notwithstanding the lack of
written consent by the mortgagee, and likewise recognized the third
persons right to redeem the foreclosed property
(3) The requisites for a valid redemption are: (1) the redemption must
be made within twelve (12) months from the time of the registration
of the sale in the Office of the Register of Deeds; (2) payment of the
purchase price of the property involved, plus 1% interest per month
thereon in addition, up to the time of redemption, together with the
amount of any assessments or taxes which the purchaser may have
paid thereon after the purchase, also with 1% interest on such last
named amount; and (3) written notice of the redemption must be
served on the officer who made the sale and a duplicate filed with the
Register of Deeds of the province
The Yaps argue that P40,000.00 cannot be a valid tender of
redemption since the amount of the auction sale was P216,040.93.
They further contend that the mortgage is indivisible so in order for
the tender to be valid and effectual, it must be for the entire auction
price plus legal interest.
The court cannot subscribe to the Yaps' argument on the indivisibility
of the mortgage. As held in the case of PNB v. De los Reyes, the
doctrine of indivisibility of mortgage does not apply once the
mortgage is extinguished by a complete foreclosure thereof as in the
instant case. The rule on the indivisibility of mortgage finds no
application to the case at bar. The particular provision of the Civil
Code referred to provides: Art. 2089. A pledge or mortgage is
indivisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot
ask for the proportionate extinguishment of the pledge or mortgage
as long as the debt is not completely satisfied. Neither can the
creditor's heir who received his share of the debt return the pledge or
17
cancel the mortgage, to the prejudice of the other heirs who have not
been paid. From these provisions is excepted the case in which,
there being several things given in mortgage or pledge, each one of
these guarantees only a determinate portion of the credit. The
debtor, in this case, shall have a right to the extinguishment of the
pledge or mortgage as the portion of the debt for which each thing is
specially answerable is satisfied.
It is apparent that what the law proscribes is the foreclosure of only a
portion of the property or a number of the several properties
mortgaged corresponding to the unpaid portion of the debt where
before foreclosure proceedings partial payment was made by the
debtor on his total outstanding loan or obligation. This also means
that the debtor cannot ask for the release of any portion of the
mortgaged property or of one or some of the several lots mortgaged
unless and until the loan thus, secured has been fully paid,
notwithstanding the fact that there has been a partial fulfillment of the
obligation. Hence, it is provided that the debtor who has paid a part
of the debt cannot ask for the proportionate extinguishment of the
mortgage as long as the debt is not completely satisfied.
That the situation obtaining in the case at bar is not within the
purview of the aforesaid rule on indivisibility is obvious since the
aggregate number of the lots which comprise the collaterals for the
mortgage had already been foreclosed and sold at public auction.
There is no partial payment nor partial extinguishment of the
obligation to speak of. The aforesaid doctrine, which is actually
intended for the protection of the mortgagee, specifically refers to the
release of the mortgage which secures the satisfaction of the
indebtedness and naturally presupposes that the mortgage is
existing. Once the mortgage is extinguished by a complete
foreclosure thereof, said doctrine of indivisibility ceases to apply
since, with the full payment of the debt, there is nothing more to
secure.
CASE 12: HEIRS OF SPS. MAGLASANG v. MANILA BANKING

CORP.
FACTS: 1. On June 16, 1975, spouses Flaviano and Salud
Maglasang (Sps.Maglasang) obtained a credit line from respondent
in the amount of P350,000.00 which was secured by a real estate
mortgage executed over seven of their properties located in Ormoc

City and the Municipality of Kananga, Province of Leyte.
-
They availed of their credit line by securing loans in the

amounts of P209,790.50 and P139,805.83 on October 24, 1975and
March 15, 1976, respectively, both of which becoming due and
demandable within a period of one year.
- Further, the parties agreed that the said loans would earn
interest at 12% per annum (p.a.) and an additional 4% penalty would
be charged upon default.10
2. After Flaviano Maglasang (Flaviano) died intestate, his widow
Salud and their surviving children, herein petitioners appointed their
brother petitioner Edgar as their attorney-in-fact.
3.
Edgar filed a verified petition for letters of administration of the

intestate estate of Flaviano before the then Court of First Instance of
Leyte, Ormoc City, Branch 5 (probate court).
4. On August 9, 1977, the probate court issued an Order granting the
petition, thereby appointing Edgar as the administrator of Flavianos
estate.
5. In view of the issuance of letters of administration, the probate
court, on August 30, 1977, issued a Notice to Creditors for the filing
of money claims against Flavianos estate.
6. Accordingly, as one of the creditors of Flaviano, respondent
notified the probate court of its claim in the amount of P382,753.19
as of October 11, 1978, exclusive of interests and charges.
7. During the pendency of the intestate proceedings, Edgar and
Oscar were able to obtain several loans from respondent, secured by
promissory notes which they signed.
8. December 14, 1978 Order: the probate court terminated the
proceedings with the surviving heirs executing an extra-judicial
18
partition of the properties of Flavianos estate. The loan obligations

owed by the estate to respondent, however, remained unsatisfied
due to respondents certification that Flavianos account was
undergoing a restructuring. Nonetheless, the probate court expressly
recognized the rights of respondent under the mortgage and
promissory notes executed by the Sps. Maglasang, specifically, its
"right to foreclose the same within the statutory period."
ISSUE/S: 1) WON CA erred in affirming the RTCs award of the

deficiency amount in favor of respondent.
9. Respondent proceeded to extra-judicially foreclose the mortgage

covering the Sps. Maglasangs properties and emerged as the
highest bidder at the public auction for the amount of P350,000.00.
There, however, remained a deficiency on Sps. Maglasangs
obligation to respondent.
HELD: 1) Yes 2) No
10. Thus, respondent filed a suit to recover the deficiency amount of

P250,601.05 as of May 31, 1981 against the estate of Flaviano, his
widow Salud and petitioners.
11. RTC: directing the petitioners to pay respondent, jointly and
severally, the amount of P434,742.36 with interest at the rate of 12%
p.a., plus a 4% penalty charge, reckoned from September 5,1984
until fully paid. The RTC found that it was shown, by a
preponderance of evidence, that petitioners, after the extra-judicial
foreclosure of all the properties mortgaged, still have an outstanding
obligation in the amount and as of the date as above-stated.
12. During the pendency of the appeal, Flavianos widow, Salud,
passed away.
13. CA: denied the petitioners appeal and affirmed the RTCs
Decision. Section 7, Rule 86 of the Rules does not apply to the
present case since the same does not involve a mortgage made by
the administrator over any property belonging to the estate of the
decedent. According to the CA, what should apply is Act No. 3135
which entitles respondent to claim the deficiency amount after the
extra-judicial foreclosure of the real estate mortgage of Sps.
Maglasangs properties.
2) WON extra-judicial foreclosure of the subject properties was null

and void, not having been conducted in the capital of the Province of
Leyte in violation of the stipulations in the real estate mortgage
contract.
RATIO: 1) Claims against deceased persons should be filed during

the settlement proceedings of their estate. Such proceedings are
primarily governed by special rules found under Rules 73 to 90 of the
Rules, although rules governing ordinary actions may, as far as
practicable, apply suppletorily. Among these special rules, Section 7,
Rule 86 of the Rules (Section 7, Rule86) provides the rule in dealing
with secured claims against the estate:
SEC. 7. Mortgage debt due from estate. A creditor holding a claim
against the deceased secured by a mortgage or other collateral
security, may abandon the security and prosecute his claim in the
manner provided in this rule, and share in the general distribution of
the assets of the estate; or he may foreclose his mortgage or realize
upon his security, by action in court, making the executor or
administrator a party defendant, and if there is a judgment for a
deficiency, after the sale of the mortgaged premises, or the property
pledged, in the foreclosure or other proceeding to realize upon the
security, he may claim his deficiency judgment in the manner
provided in the preceding section; or he may rely upon his mortgage
or other security alone, and foreclose the same at any time within the
period of the statute of limitations, and in that event he shall not be
admitted as a creditor, and shall receive no share in the distribution
of the other assets of the estate; but nothing herein contained shall
prohibit the executor or administrator from redeeming the property
mortgaged or pledged, by paying the debt for which it is held as
security, under the direction of the court, if the court shall adjudged it
to be for the best interest of the estate that such redemption shall be
made. (Emphasis and underscoring supplied)
19
As the foregoing generally speaks of "a creditor holding a claim

against the deceased secured by a mortgage or other collateral
security" as above-highlighted, it may be reasonably concluded that
the aforementioned section covers all secured claims, whether by
mortgage or any other form of collateral, which a creditor may
enforce against the estate of the deceased debtor. On the contrary,
nowhere from its language can it be fairly deducible that the said
section would as the CA interpreted narrowly apply only to
mortgages made by the administrator over any property belonging to
the estate of the decedent. To note, mortgages of estate property
executed by the administrator, are also governed by Rule 89 of the
Rules, captioned as "Sales, Mortgages, and Other Encumbrances of
Property of Decedent."
In this accord, it bears to stress that the CAs reliance on Philippine
National Bank v. CA (PNB) was misplaced as the said case did not,
in any manner, limit the scope of Section 7, Rule 86. It only stated
that the aforesaid section equally applies to cases where the
administrator mortgages the property of the estate to secure the loan
he obtained. Clearly, the pronouncement was a ruling of inclusion
and not one which created a distinction. It cannot, therefore, be
doubted that it is Section 7, Rule 86which remains applicable in
dealing with a creditors claim against the mortgaged property of the
deceased debtor, as in this case, as well as mortgages made by the
administrator, as that in the PNB case.
Jurisprudence breaks down the rule under Section 7, Rule 86 and
explains that the secured creditor has three remedies/options that he
may alternatively adopt for the satisfaction of his indebtedness. In
particular, he may choose to: (a) waive the mortgage and claim the
entire debt from the estate of the mortgagor as an ordinary claim; (b)
foreclose the mortgage judicially and prove the deficiency as an
ordinary claim; and (c) rely on the mortgage exclusively, or other
security and foreclose the same before it is barred by prescription,
without the right to file a claim for any deficiency. It must, however, be
emphasized that these remedies are distinct, independent and
mutually exclusive from each other; thus, the election of one
effectively bars the exercise of the others.
To obviate any confusion, the Court observes that the operation of

Act No. 3135 does not entirely discount the application of Section 7,
Rule 86, or vice-versa. Rather, the two complement each other within
their respective spheres of operation. On the one hand, Section 7,
Rule 86 lays down the options for the secured creditor to claim
against the estate and, according to jurisprudence, the availment of
the third option bars him from claiming any deficiency amount. On
the other hand, after the third option is chosen, the procedure
governing the manner in which the extra-judicial foreclosure should
proceed would still be governed by the provisions of Act No.
3135.Simply put, Section 7, Rule 86 governs the parameters and the
extent to which a claim may be advanced against the estate,
whereas Act No. 3135sets out the specific procedure to be followed
when the creditor subsequently chooses the third option
specifically, that of extra-judicially foreclosing real property belonging
to the estate. The application of the procedure under Act No. 3135
must be concordant with Section 7, Rule 86 as the latter is a special
rule applicable to claims against the estate, and at the same time,
since Section 7, Rule 86 does not detail the procedure for extrajudicial foreclosures, the formalities governing the manner of availing
of the third option such as the place where the application for
extra-judicial foreclosure is filed, the requirements of publication and
posting and the place of sale must be governed by Act No. 3135.
In this case, respondent sought to extra-judicially foreclose the
mortgage of the properties previously belonging to Sps. Maglasang
(and now, their estates) and, therefore, availed of the third option.
Lest it be misunderstood, it did not exercise the first option of directly
filing a claim against the estate, as petitioners assert, since it merely
notified the probate court of the outstanding amount of its claim
against the estate of Flaviano and that it was currently restructuring
the account. Thus, having unequivocally opted to exercise the third
option of extra-judicial foreclosure under Section 7, Rule 86,
respondent is now precluded from filing a suit to recover any
deficiency amount as earlier discussed.
2) As may be gleaned from the records, the stipulation under the real
estate mortgage executed by Sps. Maglasang which fixed the place
of the foreclosure sale at Tacloban City lacks words of exclusivity
20
which would bar any other acceptable for a wherein the said sale
may be conducted, to wit:
It is hereby agreed that in case of foreclosure of this mortgage under
Act 3135, the auction sale shall be held at the capital of the province
if the property is within the territorial jurisdiction of the province
concerned, or shall be held in the city if the property is within the
territorial jurisdiction of the city concerned; x x x.
FACTS:
1.
Herein
petitioners,
Spouses Esmeraldo and
Elizabeth Suico, obtained a loan from the Philippine National Bank
(PNB) secured by a real estate mortgage on real properties in the
name of the former.
2. 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.
Case law states that absent such qualifying or restrictive words to

indicate the exclusivity of the agreed forum, the stipulated place
should only be as an additional, not a limiting venue. As a
consequence, the stipulated venue and that provided under Act No.
3135 can be applied alternatively.
3. 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.
In particular, Section 2 of Act No. 3135 allows the foreclosure sale to

be done within the province where the property to be sold is situated,
viz.:
4. 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 ofP8,511,000.00.
SEC. 2. Said sale cannot be made legally outside of the province

which the property sold is situated; and in case the place within said
province in which the sale is to be made is subject to stipulation,
such sale shall be made in said place or in the municipal building of
the municipality in which the property or part thereof is situated.
(Italics supplied) ..
5. 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.
In this regard, since the auction sale was conducted in Ormoc City,
which is within the territorial jurisdiction of the Province of Leyte, then
the Court finds sufficient compliance with the above-cited
requirement. All told, finding that the extra-judicial foreclosure subject
of this case was properly conducted in accordance with the
formalities of Act No. 3135, the Court upholds the same as a valid
exercise of respondent's third option under Section 7, Rule 86. To
reiterate, respondent cannot, however, file any suit to recover any
deficiency amount since it effectively waived its right thereto when it
chose to avail of extra-judicial foreclosure as jurisprudence instructs.
CASE 13: SUICO v. PNB
6. 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.
7. 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
21
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.
8. PNB asserted that Suico had other loans which fell due, and the
aggregate sum of the said loans was already more than the bid price
of P8,511,000.00.
9. 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.
10. RTC decided in favor of Suico. 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.
11. The case was appealed to the CA, wherein the said court
reversed the decision of the RTC. Hence, the present petition
ensued by Suico before the SC.
ISSUE/S: 1. WON the extrajudicial foreclosure of sale is null and
void.
2. WON PNB is required to give to Suico the excess amount.
HELD: 1. The extrajudicial foreclosure is VALID.
2. Yes. PNB is required to give back 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.
RATIO:
Petitioners
argue
that
since
the
Notice
of
Sheriffs 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.
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. Nonetheless, we must not also lose sight
of the fact that the purpose of the publication of the Notice of
Sheriffs Sale is
to
inform
all
interested
parties
of
the date, time and place of the foreclosure sale of the real property
subject thereof. Logically, this not only requires that the correct date,
time and place of the foreclosure sale appear in the notice, but also
that any and all interested parties be able to determine that what is
about to be sold at the foreclosure sale is the real property in which
they have an interest.
Considering the purpose behind the Notice of Sheriffs Sale, we
disagree with the finding of the RTC that the discrepancy between
the amount of petitioners obligation as reflected in the Notice of Sale
and the amount actually due and collected from the petitioners at the
time of the auction sale constitute fraud which renders the
extrajudicial foreclosure sale null and void.
Notices are given for the purpose of securing bidders and to prevent
a sacrifice of the property. If these objects are attained, immaterial
errors and mistakes will not affect the sufficiency of the notice; but if
mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of the
property, or to prevent it from bringing a fair price, such mistakes or
omissions will be fatal to the validity of the notice, and also to the
sale made pursuant thereto.
22
2. Under Rule 68, Section 4 the disposition of the proceeds of the

sale in foreclosure shall be as follows: first, pay the costs; secondly,
pay off the mortgage debt; thirdly, pay the junior encumbrancers, if
any in the order of priority; fourthly, give the balance to the
mortgagor, his agent or the person entitled to it.
Based on the foregoing, after payment of the costs of suit and
satisfaction of the claim of the first mortgagee/senior mortgagee, the
claim of the second mortgagee/junior mortgagee may be satisfied
from the surplus proceeds. The application of the proceeds from the
sale of the mortgaged property to the mortgagors obligation is an act
of payment, not payment by dacion; hence, it is the mortgagees duty
to return any surplus in the selling price to the mortgagor.
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 PNBs claim. Instead, what is
available on record is petitioners Statement of Account as prepared
by PNB and attached as Annex A to its Answer with counterclaim. In
this Statement of Account, petitioners principal obligation with
interest/penalty and attorneys fees as of 30 October 1992 already
amounted to P6,409,814.92.
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 PNBs bid
is P8,511,000.00, there is clearly an excess in the bid price which
PNB must return, together with the interest computed.
Communication. To secure the loan, petitioners mortgaged their

property covered by TCT No. 22990. In August 1997, petitioners
amended the Deed of Real Estate Mortgage increasing the loan
by P1,800,000, bringing the total loan amount to P5,000,000.
For failure of petitioners to pay the outstanding loan upon demand,
private respondent applied for the extrajudicial foreclosure of the real
estate mortgage. Upon receipt of a notice of the extrajudicial
foreclosure sale, petitioners filed a petition to annul the extrajudicial
foreclosure sale with a TRO. The extrajudicial foreclosure sale did
not push through as originally scheduled because the trial court
granted petitioners prayer for TRO. TC 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 was executed in favor of private respondent. On
7 June 2002, the certificate of sale was annotated as Entry No. 1855
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, the Register of Deeds cancelled TCT
No. 22990 and issued in its stead TCT No. 251835, 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. Petitioners filed an
opposition. TC granted private respondents motion for a declaration
of general default and allowed private respondent to present
evidence ex parte. TC denied petitioners notice of appeal.
Undeterred, petitioners filed in the CA a petition for certiorari. The
appellate court dismissed the petition. It also denied petitioners
motion for reconsideration.
Case 14: Chu, et al. v. Lacqui & Philippine Bank of

Communications
ISSUE: WON 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)
FACTS: In 1994, Petitioners obtained a loan in the amount

of P3,200,000 from private respondent Philippine Bank of
HELD: Yes, it was proper.
23
RATIO: In the present case, the certificate of sale of the foreclosed

property was annotated on 7 June 2002. The redemption period thus
lapsed on 7 June 2003, one year from the registration of the sale.
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. 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.
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.
CASE 15: BPI Family Savings Bank, Inc. v. Golden Power Diesel
Sales Center, Inc., G.R. No. 176019, January 12, 2011, 639 SCRA
405.
Facts:
1. the loan and the mortgage: CEDEC (predecessor-ininterest of Golden Power Diesel Sales Center) executed a
real estate mortgage in favour of BPI Family Savings to
secure a loan of P6.5M. subsequently, CEDEC obtained
other several loans
a. the mortgage was duly annotated.
2. Default and Extrajudicial Foreclosure: CEDEC failed to
pay its obligations, hence, BPI Family Savings filed with the
ex-officio sheriff of the RTC a petition for extrajudicial
foreclosure of real estate mortgage over the properties under
Act No. 3135.
a. After the notice reqs had been complied with, the
sale was done in the public auction and was sold
to BPI family as the highest bidder.
3. the 1 year redemption lapsed from the date of sale
without the CEDEC exercising redemption.
4. Issue of Possession: Despite repeated demands by the
Bank to vacate the land, CEDEC refused to surrender the
possession to BPI Family
a. Because of this, the trial court granted and issued
the writ of possession in favour of BPI.
5. the Assignee: Golden power then filed a motion To Hold
implementation of the Writ of Possession alleging that they
are in possession of the properties acquired g form CEDEC
pursuant to a Deed of Sale with Assumption of Mortgage.
a. They argue that they are claiming possession
adverse to CEDEC, hence, seeking exception to the
rule that the purchaser has the right to possess
under Sec. 33 of Rule 39 of the Rules of Court which
states that:
24
The possession of the property shall be given to the

purchaser or last redemptioner by the same officer
unless a third party is actually holding the property
adversely to the judgment obligor
6. because of this, the trial court suspended the implementation
of the writ of possession to take into consideration the claim
of Golden Power.
7. The APPEAL: the Court of Appeals upheld the said decision
of the RTC and ruled that the suspension was proper
because Golden power was in actual possession of the
properties and are claiming rights adverse to CEDEC and
The ministerial implementation of the writ of possession has
an exceptionwhen in it in possession of third persons
claiming adverse title.
8. Hence, the present action by the petitioner BPI Family
Savings bank arguing that the exception under Sec. 33 of
Rule 39 will not apply because Power Diesel Sale was not
possessing the property adversely to CEDEC and is merely
stepping into the shoes of CEDEC because it acquired its
rights by buying the property of CEDEC.
Issue: Does the BPI Family Savings Bank, being the purchaser in the
public sale, have the right to possess the property or to the remedy
of writ of execution?
Controlling issue: is Golden Power under adverse title to
CEDEC
Ruling: BPI has the right to possess because Golden Power is not a
third person claiming adversely to the debtor.
1. Rights of the purchaser:
a. Under Sec. 7 of RA 3135, the purchaser has the
following rights:
i. to petition made under oath to give him the
possession of the property during the
redemption period, after furnishing bond
in an amount equivalent to the use of the

property for the period of 12 months.
ii. To possess the foreclosed property bought
at the public auction after the redemption
period has expired without the
redemption having been made.
2. The RULE: it is settled under jurisprudence that once the
expiration of the period of redemption had already lapsed
without the exercise of redemption, the purchaser become
the absolute owner. hence, he has the absolute right
possession of the property at any time. The issuance of
writ of possession is merely ministerial.
The Exception: under Sec. 33 of Rule 39 of Rules of Court,
The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a
third party is actually holding the property adversely to
the judgment obligor
3. Applying the said rules in this case: In this case,
respondents possession of the properties was premised on
the sale to them by CEDEC. Therefore, respondents hold
title to and possess the properties as CEDECs transferees
and any right they have over the properties is derived from
CEDEC.
a. As transferees of CEDEC, respondents merely
stepped into CEDECs shoes and are necessarily
bound to acknowledge and respect the mortgage
CEDEC had earlier executed in favor of BPI Family.
Respondents are the successors-in-interest of
CEDEC and thus, respondents occupancy over the
properties cannot be considered adverse to CEDEC.
4. Furthermore, it is settled that a pending action for
annulment of mortgage or foreclosure sale does not stay the
issuance of the writ of possession. The trial court, where the
application for a writ of possession is filed, does not need to
look into the validity of the mortgage or the manner of its
foreclosure. The purchaser is entitled to a writ of possession
25
without prejudice to the outcome of the pending annulment

case.
CASE 16: NAGTALON v. UNITED COCONUT PLANTERS BANK
(2013)
FACTS: 1. Roman Nagtalon and petitioner, Donna Nagtalon,
mortgaged some properties in order to secure a credit agreement
they made with respondent United Coconut Planters Bank.
2. The spouses failed to comply with the terms of conditions thereof
so the properties were foreclosed and sold at public auction.
3. The UCPB was the sole and highest bidder. It was issued a
certificate of sale and caused the entry of the sale in the records of
the Registry of Deeds.
4. After the one-year redemption period had expired with Nagtalon
having failed to redeem the properties, the UCPB consolidated the
ownership over the properties, cancelling the Nagtalon titles while
issuing new TCTs in UCPBs name.
5. UCPB then filed an ex parte petition for the issuance of a writ of
possession from the RTC. In the petition, the respondent alleged that
it had been issued the corresponding TCTs to the properties it
purchased, and has the right to acquire the possession of the subject
properties as the current registered owner of these properties.
6. Nagtalon opposed this petition by reason of a pending civil case
concerning the credit agreement.
7. The RTC agreed with Nagtalon, but the UCPB brought this to the
CA after its motion for reconsideration was denied and the CA
reversed the RTC decision.
ISSUE: WON the pendency of a civil case challenging the validity of

the credit agreement, the promissory notes and the mortgage can
bar the issuance of a writ of possession after the foreclosure and
sale of the mortgaged properties and the lapse of the one- year
redemption period.
HELD: No, it cannot be a bar.
RATIO: The issuance of a writ of possession is a ministerial
function of the court
We have long recognized the rule that once title to the property has
been consolidated in the buyers name upon failure of the mortgagor
to redeem the property within the one-year redemption period, the
writ of possession becomes a matter of right belonging to the buyer.
Consequently, the buyer can demand possession of the property at
anytime. Its right to possession has then ripened into the right of a
confirmed absolute owner17 and the issuance of the writ becomes a
ministerial function that does not admit of the exercise of the courts
discretion.18 The court, acting on an application for its issuance,
should issue the writ as a matter of course and without any delay.
Pendency of a civil case questioning the mortgage and
foreclosure not a bar to the issuance of a writ of execution
In the case of Spouses Montano T. Tolosa and Merlinda Tolosa v.
United Coconut Planters Bank,27 a case closely similar to the
present petition, the Court explained that a pending action for
annulment of mortgage or foreclosure (where the nullity of the loan
documents and mortgage had been alleged) does not stay the
issuance of a writ of possession. It reiterated the well-established
rule that as a ministerial function of the court, the judge need not look
into the validity of the mortgage or the manner of its foreclosure, as
these are the questions that should be properly decided by a court of
competent jurisdiction in the pending case filed before it. It added
that questions on the regularity and the validity of the mortgage and
foreclosure cannot be invoked as justification for opposing the
issuance of a writ of possession in favor of the new owner.
Exceptions to the rule that issuance of a writ of possession is a
ministerial function: (1) Gross inadequacy of purchase price; (2)
26
Third party claiming right adverse to debtor/mortgagor; (3) Failure to

pay the surplus proceeds of the sale to mortgagor
where the relief is granted without requiring an opportunity to be

heard for the person from whom relief is sought.
PETITIONER WAS ACCORDED DUE PROCESS. Issuance of a writ

of possession is an ex parte petition, a non litigious proceeding
27

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CASE 1: Prudential Bank v.

Alviar & Alviar

3. The Spouses Alviar then paid P2M tp be applied to the

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

b. However, the court found that respondents have

provide continuous dealings, the nature or extent of

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

included essential after-acquired properties such as machineries,

ISSUE: (1) WON after acquired machinery and equipment of

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

connection with, and for use in the development of its lumber

CASE 3 : STAR TWO (SPV-AMC), INC. vs. PAPER CITY

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

-The three banks as the highest bidders were issued a

1. Repeatedly, the parties stipulated that the properties mortgaged by

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

that a foreclosure proceedings x x x on the aforesaid real

5. On November 21, 1996, Galas sold the subject property to Villar

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

ISSUE/S: 1. WON the second mortgage to Garcis is valid.

Simply put, a mortgage is a real right, which follows the

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

CASE 5: Korea Exchange Bank v. Filkor Business Integrated,

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

SC finds no indication that the bank waived its rights under

4. The Foreclosure Sale: On September 6, 1994, the

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

confirmation. Redemption similar to that

2. Soon after private respondent had filed its answer to the

the right to redeem the property sold

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

specified the address where correspondence should be sent and did

The Court of Appeals, in appreciating the foregoing

On the other important point that militates against

As the record is bereft of any evidence which even

(10) All correspondence relative to

Hence, even on the premise that there was no

ISSUE: WON personal notice was required to foreclose.

We do not agree with respondent court that paragraph (k) of the

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

CASE 8: Spouses Rabat v. Philippine National Bank, G.R. No.

as evidenced by the several promissory notes, all of which were due

FACTS: 1. In 1979, respondent spouses Francisco and Merced

5. As the proceeds of the public auction were not enough to satisfy

2. On 25 September 1980, the RABATs executed another document

3. The several availments of the loan accommodation on various

158755, June 18, 2012.

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

validity of the accumulated interest and penalty charges because

HELD: (1) No, CA did not err.

RATIO: SC have consistently held that the inadequacy of the bid

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

the Registry of Deeds for the Province of Bulacan. The mortgage

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

between the parties, imposes new conditions, dispenses with those

and flexible response to conditions and circumstances thus

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

a. The Mortgage contract itself is void because The

constitution of another mortgage on the property. To hold

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

(2) To whom should the payment of redemption money be made?

redemption money may be made to the purchaser of the land or to

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla |

CASE 12: HEIRS OF SPS. MAGLASANG v. MANILA BANKING