Professional Documents
Culture Documents
TENDER INEFFECTIVE AS PREEMPTIVE RIGHT TO PURCHASE BY OTHER PARTY HAS BEEN EXERCISED
The tender of P1,800 to redeem the mortgage by spouses Bautista was ineffective for the purpose intended.
Such tender must have been made after the option to purchase had been exercised by spouses Soriano.
Bautista’s offer to redeem could be defeated by Soriano’s preemptive right to purchase within the period of 2
years from May 30, 1956. Such right was availed of and spouses Bautista were accordingly notified by Soriano.
Offer and acceptance converged and gave rise to a perfected and binding contract of purchase and sale.
FACTS
GOYU was granted credit facilities and accommodations by the RCBC initially in the amount of P 30 million.
Upon GOYU’s application, the credit was increased to P50 Million, then P90 Million, then P117 Million. As security,
GOYU executed 2 REM and 2 CM in favor of RCBC, which were registered with the RD. Under the 4 contracts, GOYU
committed itself to insure the mortgaged properties with an insurance company approved by RCBC, and
subsequently endorse and deliver the insurance policies to RCBC. GOYU then obtained 10 policies from MICO.
GOYU’s buildings were gutted by fire and it claimed indemnity from MICO but the latter denied the claim on the
ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by
various courts or that the proceeds were also claimed by other creditors of GOYU. GOYU, alleging better rights to
the proceeds, filed for specific performance and damges before the RTC of Manila Br 3. The trial court ruled in favor
of GOYU for the fire loss claims but ordered it to pay RCBC its loan obligations. On appeal to the CA, it affirmed the
ruling with regard to the liabilities of MICO and RCBC. The trial court and appellate courts both held that, since the
endorsements do not bear the signature of any officer of GOYU, they concluded that the endorsements are
defective. The CA then ordered GOYU to pay its obligation to RCBC without any interest, surcharges and penalties.
ISSUE
Whether or not the ruling of the appellate court is correct.
HELD
The Court held in the negative. The essence or rationale for the payment of interest or cost of money is separate and
distinct from that of surcharges and penalties. The charging of interest for loans forms a very essential and
fundamental element of the banking business.
CASE No. 4 VEGA v SSS
Topic: Article 1237 – Whoever pays on behalf of the debtor without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or
penalty.
Facts:
Magdalena Reyes owned a piece of titled land in Pilar Village, Las PiñasCIty. On August 17, 1979, she got a
housing loan from SSS for which she mortgaged her land. Late 1979, Reyes asked the Sps Vega to assume the loan
and buy her house and lot since she was to emigrate.
An employee at SSS said, however, that SSS did not approve of members transferring their mortgaged
homes. But the Sps Vega (Vegas) could make a private arrangement with Reyes provided that they pay the monthly
amortizations on time. Vegas agreed for Reyes to execute in their favor a deed of assignment of real property with
assumption of mortgage and paid Reyes P20,000 after she undertook to update the amortizations before leaving
the country. The Vegas took possession of the house in January 1981.
Reyes did not execute the deed of assignment. She left the country and left her sister (Julieta Ofilada) a
special power of attorney to convey ownership of property. Sometime between 1983 and 1984, Ofilada executed the
deed of assignment in favor of the Vegas, kept the original and gave the Vegas two copies, one to be given to the
Home Development Mortgage Fund and kept the other. A storm in 1984 resulted in flood and destroyed their
personal copy.
In 1992, the Vegas learned that Reyes did not update the amortizations because they received a notice to
Reyes from the SSS. They told the SSS that they already gave the payment to Reyes but, since it appeared
indifferent, on January 6, 1992, the Vegas updated the amortization and paid P115,738.48 to the SSS. They
negotiated seven additional remittances and the SSS accepted P8,681 more from the Vegas.
On April 16, 1993, PDC filed an action for sum of money against Reyes before the RTC of Manila, claiming
that Reyes borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500 to buy the lot and construct a
house on it. Apex assigned Reyes' credit to PDC on December 29, 1992. RTC: Reyes must pay the PDC the loan of
P46,398 plus interest and penalties beginning April 11, 1979 as well as attorney's fees and costs. Unable to pay, RTC
issued a writ of execution against Reyes and its Sheriff levied on the property in Pilar Village.
On Feb 16, 1994, the Vegas requested the SSS to acknowledge their status as subrogees and to give them an
update of the account so they could settle it in full. SSS did not reply. RTC sheriff published a notice for the auction
sale of the property on Feb 24, March 3 and 10, 1994. He also gave notice to the Vegas on March 20. The Vegas filed
an affidavit of third party claimant and a motion to quash the levy on the property. However, RTC directed the
sheriff to proceed with the execution.
The Vegas got a telegram informing them that the SSS intended to foreclose on the property to satisfy the
unpaid debt of P38,789.58. The Vegas requested from the SSS in writing for the exact amount of the indebtedness
and for assurance that they would be entitled to the discharge of the mortgage and delivery of the proper
subrogation documents upon payment. They also sent a P37,521.95 manager's check that SSS refused to accept.
The Vegas filed an action for consignation, damages, and injunction with application for preliminary
injunction and TRO against SSS, PDC, the RTC sheriff and the Register of Deeds before the RTC in Las Piñas. While
the case was pending, SSS released the mortgage to PDC. A writ of possession evicted the Vegas from the property.
RTC decided in favor of the Vegas. CA reversed.
Issues:
Whether Reyes validly sold her SSS-mortgaged property to the Vegas given a provision in the mortgage agreement
that she could not do so without the written consent of SSS.
Held:
Yes. SC reversed CA decision.
- The Vegas were able to present adequate proof of Reye's sale of the property to them. The Vegas proved the loss
of the deed of assignment in their favor and what it contained, they offered strong corroboration of the fact of
Reyes' sale of the property to them. They took possession of the house and lot after they bought it. They also paid
for the amortizations to the SSS. And when SSS wanted to foreclose the property, the Vegas sent a manager's check
for the balance of the loan.
- Article 1237 of the Civil Code cannot apply in this case since the debtor (Reyes) consented to the transfer of
ownership of the mortgaged property to the Vegas. Although Paragraph 4 of the mortgage agreement which states
that Reyes must secure the consent of SSS before selling the property, is valid and binding in the sense that SSS
cannot be compelled to recognize the sale before the loan is completely paid, it does not absolutely forbid her, as
owner, from selling the property while the loan remained unpaid. Such stipulation is against public policy, being an
undue impediment or interference on the transmission of property.
- Article 2129 of the Civil Code gives SSS the option of collecting from the third person in possession of the
mortgaged property.
***There are other issues but I focused on that which involved Art. 1237
CASE No. 5 DBP V MIRANG
The Court held that when the bank resorted to Act No. 3135 in order to sell the mortgaged property
extrajudicially, it did so merely to find a proceeding for the sale.
In Development Bank of the Philippines v. Mirang, the Court held that the redemption price for properties
mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at the agreed
rate. The Court held that, “The unavoidable conclusion is that the appellant, in redeeming the foreclosed property,
should pay the entire amount he owed to the Bank on the date of the sale, with interest thereon at the rate agreed
upon.
FACTS:
Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for a loan. Valencia
arranged everything about the loan with the bank. He supplied to the latter the personal data required for Castro's
loan application. After the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the
Valencia spouses, signed a promissory note corresponding to her loan in favor of the bank. On the same day, the
Valencia spouses obtained from the bank an equal amount of loan for P3,000.00. They signed another promissory
note (Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her signature as
co-maker.
Both loans were secured by a real-estate mortgage on Castro's house and lot. Later, the sheriff of Manila sent a
notice to Castro, saying that her property would be sold at public auction to satisfy the obligation covering the two
promissory notes plus interest and attorney's fees. Upon request by Castro and the Valencias and with conformity of
the bank, the auction sale was postponed, but was nevertheless auctioned at a later date.
Castro claimed that she is a 70-year old widow who cannot read and write in English. According to her, she has only
finished second grade. She needed money in the amount of P3,000.00 to invest in the business of the defendant
spouses Valencia, who accompanied her to the bank to secure a loan of P3,000.00. While at the bank, an employee
handed to her several forms already prepared which she was asked to sign, with no one explaining to her the nature
and contents of the documents. She also alleged that it was only when she received the letter from the sheriff that
she learned that the mortgage contract which was an encumbrance on her property was for P6.000.00 and not for
P3,000.00 and that she was made to sign as co-maker of the promissory note without her being informed.
Castro filed a suit against petitioners contending that thru mistake on her part or fraud on the part of Valencias she
was induced to sign as co-maker of a promissory note and to constitute a mortgage on her house and lot to secure
the questioned note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with
the court a quo in full payment of her personal loan plus interest.
Castro prayed for:
(1) the annulment as far as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6")
insofar as it exceeds P3,000.00; and
(2) for the discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the court
a quo upon the filing of her complaint.
ISSUE:
Whether or not respondent court correctly affirmed the lower court in declaring the promissory note (Exhibit 2)
invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid
up to the amount of P3,000.00 only.
HELD:
Yes.
RATIO:
While the Valencias defrauded Castro by making her sign the promissory note and the mortgage contract, they also
misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan. Thus, as a
result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and
the bank committed mistake in giving their consents to the contracts. In other words, substantial mistake vitiated
their consents given. For if Castro had been aware of what she signed and the bank of the true qualifications of the
loan applicants, it is evident that they would not have given their consents to the contracts.
Article 1342 of the Civil Code which provides:
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.
We cannot declare the promissory note valid between the bank and Castro and the mortgage contract binding on
Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated insofar as they affect the
bank and Castro on the ground of fraud because the bank was not a participant thereto, such may however be
invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and
misrepresentation inflicted by the Valencias.
Thus, in the case of Hill vs. Veloso, this Court declared that a contract may be annulled on the ground of vitiated
consent if deceit by a third person, even without connivance or complicity with one of the contracting parties,
resulted in mutual error on the part of the parties to the contract.
The fraud particularly averred in the complaint, having been proven, is deemed sufficient basis for the declaration of
the promissory note invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract valid only up to
the amount of P3,000.00.
The defendant-appellant, C. N. Hodges, was the owner of three lots which he sold on July 6, 1941 to the
plaintiff-appellee, Benito Tan Chat, for P15,105. The latter paid P3,105 in cash mortgaged the lots in favor of
the appellant to secure the payment of the balance of P12,000. The appellant handed over to the appelle a
printed form of mortgage contract which the appellee more or less followed in drafting the deed of mortgage
actually executed and signed by him. In view of appellee's failure to comply with its conditions, the appellant
filed a petition with the sheriff of Iloilo City for the sale of the mortgaged lots in accordance with the provisions
of Act No. 3135 as amended. The corresponding notice was made and the sale at public auction was set for
November 23, 1953. Whereupon the appellee filed in the Court of First Instance of Iloilo a petition for
prohibition with injunction. After trial the court rendered a decision granting the petition and ordering the
defendants C. N. Hodges and the sheriff of Iloilo City to desist from carrying out the scheduled sale. The
defendant C. N. Hodges has appealed.
The main issue to be decided is whether or not the deed of mortgage contains a special power to foreclose
extra-judicially. The model printed form, Exhibit E, contains in paragraph 7 of the condition that "this mortgage
shall, after notice to the mortgagor, be considered automatically foreclosed, without the necessity of any
judicial proceedings upon the failure of the mortgagor (to comply with the conditions therein specified)"; and, in
paragraph 8, the condition that "when this mortgage is automatically foreclosed for any of the causes or
reasons enumerated in the next proceeding paragraph, the mortgagee is hereby authorized by the mortgagor
to take possession of the property herein mortgage without the necessity of resorting to any court proceedings,
or any other judicial action." These provisions were omitted in the deed of mortgage, Exhibit D, actually
executed by the appellee in favor of the appellant, although this contains the following conditions:
3. It is also stipulated that the MORTGAGEE, in selling the property at public auction, shall follow the
procedure provided for in Act No. 3135, the MORTGAGOR in any case to be notified by the
MORTGAGEE in writing by registered mail of the sale.
4. It is further agreed and stipulated that the conditions and stipulations set forth in the preceding
paragraphs shall not be construed as depriving the MORTGAGEE of his right to institute the
corresponding judicial proceedings to foreclose this mortgage if, in the opinion of the MORTGAGEE,
his interests require such an action.
It is contended for the appellee that the elimination from Exhibit D of the conditions contained in paragraphs 7
and 8 of Exhibit E shows a clear intention on his part to disauthorized extra-judicial foreclosure; and that, in any
event, the special power to foreclose extra-judicially referred to in Act No. 3135 should be specific and
unequivocal.
Upon the other hand, it is the theory of the appellant that while the provisions contained in paragraphs 3 and 4
of the deed of mortgage, Exhibit D, do not contain direct phraseology, they nevertheless amount to an express
authority to foreclose extra-judicially.
We are inclined to rule in favor of appellant's contention. Section 1 of Act No. 3135, as amended by Act no.
4118, provides that "when a sale is made under a special power inserted in or attached to any real estate
mortgage hereafter made as security for the payment of money or the fulfillment of any other obligations, the
provisions of the following sections shall govern as to the manner in which the sale and redemption shall be
effected, whether or not provisions for the same is made in the power." The sale spoken of is extra-judicial.
Paragraphs 3 and 4 of the deed of mortgage, Exhibit D, taken together, is plainly an express authority for the
mortgagee to foreclose extra-judicially. It is noteworthy that paragraph 3 is to the effect that the mortgagee, in
selling the property at public auction, shall follow the procedure prescribed in Act No. 3135, the mortgagor to
be notified by the mortgagee in writing by registered mail of the date of the sale; and paragraph 4 reserves to
the mortgagee the right to foreclose judicially. If these were not intended to allow extra-judicial foreclosure, the
procedure prescribed in Act No. 3135 would not have been mentioned and the mortgagee would not have
been required to notify the mortgagor in writing by registered mail of the sale; and the right would not be
reserved to the mortgagee to institute judicial foreclosure proceedings. This reservation implies the existence
of another right, namely, the only remaining remedy of extra-judicial foreclosure. The omission in Exhibit D of
paragraphs 7 and 8 contained in the printed form, Exhibit E is of no moment since paragraphs 3 and 4 of the
deed of mortgage are already sufficient.
While it has been held that a power of sale will not be recognized as contained in mortgage unless it is
given by express grant and in clear and explicit terms, and that there can be no implied power of sale
where a mortgage holds by a deed absolute in form, it is generally held that no particular formality is
required in the creation of the power of sale. Any words are sufficient which evince an intention that the
sale may be made upon default or other contingency. (41 Corpus Juris, p. 926.).
We are not inclined, however, to render judgment in favor of the appellant with reference to his claim for
expenses, attorney's fees, and damages.
Wherefore, the appealed decision is reversed and the petition for prohibition with injunction filed in the court
below dismissed. So ordered, with costs of both instances against the plaintiff-appellee.
FACTS:
It is a Petition for Review on Certiorari filed by spouses LIM assailing the Decision of the Appellate Court in CA-G.R.
No. 35006-R. Based on records, Amparo LIM one of the petitioner, acquired a twenty one (21) hectares property,
comprising of two parcel, at Brgy. Luna, Claveria, Misamis Oriental from Catalino ALEMAN on January 19, 1959,
through a foreclosure for nonpayment of mortgage. The first and second parcel comprising of 11 hectares and 10
hectares, was mortgage to LIM by ALEMAN on February 1, 1957 and March 3, 1960, respectively. Because of
nonpayment, LIM prompted to initiate a foreclosure proceeding against ALEMAN before the Court of First Instance
of Misamis Oriental.
On January 19, 1959, the court rendered judgment, foreclosing the property in favor of LIM. However, on February
29, 1959, the disputed property was levied and sold at a public auction by the Provincial Sheriff of Misamis Oriental
on order of the MTC, Cagayan de Oro. Eugenio LAMBERANG, being the highest bidder, won and took possession of
the property. Thereafter, a corresponding certificate of sale was issued in his favor. On February 27, 1960, LIM
through the sheriff, offered redemption but LAMBERANG objected. Thus, on March 14, 1960 and April 11, 1960
respectively, the court finally issued a certificate of conveyance and writ of possession to LAMBERANG.
On October 31, 1960, the petitioners (spouses LIM) seek final judicial remedy, by filing a case against the Sheriff for
the annulment of execution of sale. It was alleged, that the disputed property cannot be made the subject of any
levy and execution since it was still a public agricultural land at the time of the sale. Ultimately, the court ruled in
favor of petitioner, declaring that the Disputed Property, having been a public land, could not be subjected to a levy
and sale at the public auction. As intervenor, LAMBERANG brought the case on appeal to the CA, which reversed the
judgment.
ISSUE: Whether or not the auction sale of the Disputed Property was valid?
RULING:
The court gave weight and credence to the petition of spouses LIM. Two important dates were given full attention
by the Court; firstly, the mortgage date which would have otherwise appear as January 19,1959 instead of January 17,
1957 and secondly, thepublic auction initiated by the Deputy Sheriff of Misamis Orientalon February 28, 1959, levying
and selling the two parcels of land in question. The court declared that when the Disputed Property was sold at
public auction on February 28, 1959, ALEMAN, as judgment debtor, was no longer the owner of the Disputed
Property, the ownership having been acquired by LIM on January 19, 1959 trough a foreclosure. Therefore, the sale
to LAMBERANG could not have been valid as a result. At the very least, LIM having acquired substantial rights over
the Disputed Property by virtue of the foreclosure, should have been allowed to redeem within the one year period.
Indisputably, LIM offered to do it on February 27, 1960 counting from the one year starting February 28, 1959 during
the auction sale. Also, the mortgage in favor of LIM was executed on February 1, 1957, while the judgment against
ALEMAN was rendered on June 18, 1956. The mortgage was then subsequent to the judgment. In this wise, the court
declared that it is not necessary to rule on whether or not the Disputed Property had already become private
property on the date of the public auction. What is important is the "rights" acquired over the Disputed Property,
irrespective of whether the physical property was or was not a private property. Petitioner’s motion was upheld and
Court of First Instance Order was reinstated, setting aside the decision of C.A. in CA-G.R. No. 35006-R.
CASE No. 9 Malayan Bank v Lagrama
This is a petition for review of the decision,[1] dated April 17, 2000, of the Court of Appeals in CA-G.R. SP No.
53856, affirming an order, dated September 29, 1998, of the Regional Trial Court, Branch 56, Lucena City, the dispositive
portion of which reads:
WHEREFORE, FROM THE FOREGOING, defendant Republic Planters Bank is hereby ordered to execute within
twenty (20) days from receipt hereof, the necessary deed of reconveyance called for in the order of the Court dated 17
May 1993 in favor of the plaintiffs.
SO ORDERED.[2]
WHEREFORE, by reason of the overwhelming evidence presented, the Court finds the case of the plaintiffs and
conformably declares that plaintiffs [herein private respondents] herein are the absolute owners of the land in question and
defendant Demetrio Llego is heretofore directed to execute the necessary conveyance for him and defendant Ceferino Tan
to redeem the said property from the defendant bank.
Consequently, the Register of Deeds of Quezon is directed to cancel Transfer Certificate of Title No. T-31753 and upon
the execution and registration of the corresponding deed of sale the title be registered in the names of plaintiffs Agustin
Lagrama, Edgardo Lagrama, Danilo Lagrama, Artemio Lagrama and Corazon Lagrama.
Plaintiffs not being able to prove damages, the Court denies the same.
SO ORDERED.[9]
Republic Planters Bank appealed, but the appeal was dismissed for its failure to file the brief on time. As a
consequence, the decision of the lower court became final.
Thereafter, a writ of execution was issued, but it was returned unsatisfied because it turned out that petitioner bank
had consolidated its title over the land in dispute for failure of Demetrio Llego to redeem it.[10] Private respondents then
filed a motion to require the petitioner bank to execute the necessary deed of reconveyance, which was opposed by the
latter.[11]
On September 29, 1998, the trial court granted private respondents motion and ordered Republic Planters Bank to
execute the necessary deed of reconveyance called for in the order of the Court dated May 17, 1995 in favor of the
plaintiffs.[12] Petitioner bank moved for reconsideration, but its motion was denied.
On appeal, the Court of Appeals rendered its questioned decision affirming the trial courts decision and dismissing
the petition. The Court of Appeals held:
It is well to remember that Republic Planters Bank was impleaded in the action below precisely because plaintiffs therein,
now private respondents Agustin Lagrama, et al., questioned the act of Demetrio Llego in mortgaging the property to the
bank despite the fact that he had previously sold the same to Agustin Lagrama. In its decision, the court found that, by his
acts, Llego engaged in a scheme designed to defraud plaintiffs. The court noted that Llego did not even bother to answer
the complaint and allowed himself to be declared in default. Neither did Ceferino Tan offer any evidence to counteract the
imputation of fraud against him, in conspiracy with Llego. Significantly, during the proceedings, title to the land was still
in the name of Demetrio Llego. This therefore explains why the court in its judgment ordered Llego himself, and not the
mortgagee bank, to effect the conveyance to the plaintiffs. The court in fact ordered the Register of Deeds to cancel the
title (TCT No. T-31753) of Llego and issue a new title to the Lagramas upon the execution and registration of the
corresponding deed of sale.
Now, when execution of the final judgment was made, the sheriff reported that defendant (Demeterio) Llego refused to
sign the document of reconveyance while defendant Ceferino Tan cannot be located. Consequently, private respondents,
as prevailing parties, invoked the remedy provided for in section 10(a) of the 1997 Revised Rules of Civil Procedure
which provides that in lieu of directing a conveyance of the property, the court may by an order divest the title of any
party and vest it in others, which shall have the same form of a conveyance executed in due form of law.
Republic Planters Bank cannot blunt the impact of the courts order of September 29, 1998 on the allegation that it is a
mortgagee in good faith. It was, to repeat, impleaded as a defendant in the action for specific performance. It was aware of
the charge of fraud imputed to Demeterio Llego in mortgaging the property to the bank despite the previous sale thereof to
Agustin Lagrama. The court indeed found the existence of fraud in the transaction. The bank appealed the decision of the
court but its appeal was thrown out. Meantime, the bank consolidated its title over the property. How then can the bank
insist on its protestation that it has a good title thereto?[13]
Petitioner banks motion for reconsideration was likewise denied. Hence this petition.
The main question in this case is whether or not petitioner bank may be compelled to execute a deed of reconveyance
transferring the parcel of land mortgaged to petitioner in favor of private respondents.
The Court of Appeals rejected the contention that petitioner cannot be compelled to execute the deed of
reconveyance since it was Demetrio Llego himself who was ordered by the court to do so. It stressed that title to the
property had been consolidated in the name of the bank by virtue of the failure of Llego to redeem the mortgage. Hence, it
could not be insisted that Llego should effect the reconveyance. The Court of Appeals agreed with the trial court that the
bank took title to the property pendente lite and, therefore, it was bound by the courts decision.[14]
On the other hand, petitioner contends that it is a mortgagee in good faith and for value of the property as of March
12, 1982 when the same was mortgaged to it by Demetrio Llego. It points out that the complaint for specific performance
was filed by private respondents only on May 3, 1984, more than one year after the mortgage was validly constituted on
November 12, 1982. As it was an innocent purchaser for value long before the case against it was filed, it could not be
considered a transferee pendente lite.
Petitioner likewise cites St. Dominic Corp. v. Intermediate Appellate Court,[15] in which it was held that the
foreclosure sale retroacts to the date of the registration of the mortgage and that a person who takes a mortgage in good
faith and for valuable consideration, the record showing clear title to the mortgagor, will be protected against equitable
claims on the title in favor of third persons of which he had no actual or constructive notice. Prescinding from this,
petitioner contends that the foreclosure sale in the case at bar must be treated to have taken place not on the actual date of
the sale or during the pendency of the case but on the date the mortgage was executed and registered, or on November 12,
1982, more than one year before the case in the lower court was filed. Consequently, petitioner cannot be considered a
transferee pendente lite and it could not be accused of being aware of the flaw on said title when it transferred the
property.[16]
Petitioners contentions are without merit.
Several circumstances militate against petitioners argument that the mortgage in its favor and the subsequent
foreclosure and consolidation of title of the property under its name must be protected and respected.
First. In the complaint for specific performance filed by private respondents, petitioner bank was impleaded as co-
defendant along with Demetrio Llego and Ceferino Tan. The trial courts decision, dated May 17, 1993, has already
attained finality as petitioners appeal to the Court of Appeals was dismissed for being filed out of time. As correctly
pointed out by private respondents in their comment, the instant petition is improper considering that it attempts to reverse
the trial courts decision which is already final and executory.[17] This being the case, whatever judgment was rendered by
the court in that case is necessarily binding on all defendants therein, i.e., Llego, Tan and petitioner bank. As to which
defendant would actually execute the reconveyance is not important, for this merely involves the implementation of the
courts order.
The trial court ordered Llego to execute the necessary deed of reconveyance and, together with Ceferino Tan, to
redeem the property from petitioner bank believing that title to the land was still in the name of Llego. As the writ of
execution directed at Llego could not be carried out, because in the meantime petitioner bank had obtained title to the
land, the trial court directed its order to petitioner bank. It cannot be argued that, in so doing, the court modified its earlier
judgment. It is noteworthy that petitioner bank tried to appeal from the decision of the trial court which ordered the
Register of Deeds of Quezon to cancel TCT No. T-31753 and issue a new title to private respondents, but the banks
appeal was dismissed for its failure to file its brief. As a result, the trial courts decision became final, and petitioner bank
cannot now claim that it is not bound by the trial courts order to reconvey the land to private respondents.
Second. Both the trial court and the Court of Appeals correctly held that petitioner bank was a transferee pendente
lite whose title was subject to the incidents and results of the pending litigation.Petitioner bank contends that it constituted
the mortgage more than a year before the private respondents action for specific performance was filed and the fact that
the foreclosure and public auction sale took place after the institution of the case is immaterial since the foreclosure sale
retroacts to the date of the constitution of the mortgage. Petitioner bank argues that it was a purchaser for value long
before the filing of the case and, therefore, it cannot be considered a transferee pendente lite.
This argument is specious. Petitioner acquired the property only after the filing of private respondents case for
specific performance. When the mortgage was constituted, petitioner was not yet, properly speaking, a transferee, being a
mere mortgagee of the property. Only when petitioner acquired the property in the foreclosure sale and subsequently
consolidated its title did it become the transferee of the property.
Thus, petitioner bank is a transferee pendente lite of the property in litigation within the contemplation of Rule 39,
47(b). As such, it is bound by the decision against Demetrio Llego. As this Court held in one case:[18]
. . . A transferee pendente lite stands exactly in the shoes of the transferor and is bound by any judgment or decree
which may be rendered for or against the transferor; his title is subject to the incidents and results of the pending
litigation, and his transfer certificate of title will, in that respect, afford him no special protection.[19]
Petitioner bank may thus be properly ordered to execute the necessary deed of reconveyance in favor of private
respondents. The remedy left to petitioner is to pursue its claim against Llego and his attorney-in-fact Ceferino Tan by
filing the appropriate action to recover the unpaid indebtedness.
Third. Petitioner insists that it is not a transferee pendente lite because it was a purchaser for value long before the
case for specific performance was filed. The contention is without merit. Even if it is not a transferee pendente lite,
petitioner nevertheless cannot claim a right superior to that of private respondents because petitioner acted in bad faith
when it foreclosed and acquired the property. As the Court of Appeals pointed out, petitioner was aware of the charge of
fraud against Demetrio Llego in mortgaging the property to it despite the previous sale thereof to private respondent
Agustin Lagrama. The trial court found the existence of fraud in the transaction and declared private respondents to be the
absolute owners of the property. As already stated, this decision of the trial court is now final and is binding on petitioner
bank. In the meantime, the bank consolidated its title over the property. Since the bank acquired the land in question with
knowledge of the fraud committed by Llego, it cannot claim to be a purchaser in good faith and, therefore, to have a better
right than its predecessor-in-interest.[20]
Petitioners reliance on the case of St. Dominic Corp. v. Intermediate Appellate Court[21] is misplaced. The facts of
that case are different from those of the case at bar. In the Dominic case, the facts were as follows: In 1961, the Peoples
Homesite and Housing Corporation (PHHC) awarded a parcel of land covered by TCT No. 83783 to Cristobal Santiago,
who sold the same to the spouses Carlos Robes and Adelia Francisco. The spouses Robes mortgaged the lot to
Manufacturers Bank and Trust Company, and this fact was duly annotated on the back of TCT 84387. Thereafter, Civil
Case No. Q-11895, entitled Ricardo Castulo and Juan V. Ebreo v. Carlos Robes, Adelia Francisco, and Peoples Homesite
and Housing Corporation, was filed seeking the cancellation of TCT No. 83783. Claiming legal interest in the property,
the Bustamante spouses were allowed to intervene in the case. A notice of lis pendens was annotated on the title at the
instance of the Bustamante spouses. For failure of the Robes spouses to pay the mortgage obligation, Manufacturers Bank
foreclosed the lot which was then bought at public auction by Aurora Francisco, who was subsequently issued a certificate
of sale. As no redemption of the property was effected, TCT No. 84387 issued in the name of the Robes spouses was
cancelled and TCT No. 217192 was issued to the buyer Aurora Francisco. The notice of lis pendens was not carried over
to TCT No. 217192.
Aurora Francisco applied for, and was issued, a writ of possession for the property. The Bustamante spouses filed a
motion to quash the writ, which motion was denied by the lower court. The spouses then filed a petition
for certiorari with the Supreme Court. Thereafter, Aurora Francisco sold the property to petitioner St. Dominic Corp,
which was issued TCT No. 22337. Again, no notice of any lien or encumbrance appeared on the title.
Meanwhile, Civil Case No. Q-11895 was decided. The trial court ruled that the sale by PHHC to Cristobal Santiago
was void and cancelled TCT No. 83783. The sale of the same lot to the spouses Robes was likewise declared void and
TCT No. 84387 was cancelled. PHHC was ordered to process Bustamantes application to purchase the lot and
execute documents awarding the lot to her. A writ of execution was issued to the Bustamante spouses, with the
qualification, however, that the writ could not be enforced against St. Dominic Corp. The spouses questioned the order via
certiorari with the Intermediate Appellate Court, which granted the writ of certiorari and ordered the trial court to issue
the writ of execution against St. Dominic Corp.
On appeal, this Court reversed the ruling of the Intermediate Appellate Court and held that St. Dominic Corp. was
not bound by the decision in that case because it was never impleaded in Civil Case No. Q-11895. Anent the effect of the
trial courts judgment on Manufacturers Banks (mortgagee bank) rights and on the foreclosure of the property in question,
it was held that the invalidation of the title issued as a result of regular land registration proceedings in the name of the
mortgagor when given as a security for a loan would not nullify the rights of a mortgagee who acted in good faith. The
mortgagee is under no obligation to look beyond the certificate of title and has the right to rely on what appears on its
face. The title to the property given as security to Manufacturers Bank by the spouses was valid, regular, and free from
any lien or encumbrance. The title of Aurora Francisco, as a purchaser at the public auction sale of the property in
question, could not be affected by any adverse claim as the plaintiffs in the civil case. This is even more true with
petitioner St. Dominic Corp. which had acquired title from Francisco without any notice or flaw.
In the case of St. Dominic, when the property in question was mortgaged to Manufacturers Bank, the title showed
that it was valid, regular, and free from any lien or encumbrance. When it was later foreclosed and sold at public auction
and a new transfer certificate of title was issued to the buyer, the notice of lis pendens was not carried over to the new
title. And, when the property was sold to petitioner St. Dominic Corp., which was again issued TCT No. 22337, no notice
of any lien or encumbrance appeared on the title. These factual circumstances led the Court to conclude that the
mortgagee bank and its subsequent transferrees had acted in good faith. It is obvious that the case of St. Dominic Corp. v.
Intermediate Appellate Court cannot be invoked in this case where both the trial court[22] and the Court of
Appeals[23] found that petitioner bank did not act in good faith in acquiring title to the property.
WHEREFORE, the decision of the Court of Appeals appealed from is AFFIRMED.
SO ORDERED.
WON vendor’s lien can only become effective in the event of insolvency of vendee.
*NOTE: Cruzado is no longer the owner of the property. RFC is the owner.
Facts:
Involved in this case is a duplex-apartment house on a lot situated at San Diego Street, Sampaloc, Manila, and owned
by the spouses Filomeno and Socorro Tabligan.
The duplex-apartment house was built for the spouses by private respondent Candido Ramos, a duly licensed
architect and building contractor, at a total cost of P32,927.00. The spouses paid private respondent the sum of
P7,139.00 only. Hence, the latter used his own money, P25,788.50 in all, to finish the construction of the duplex-
apartment. Later on, the spouses got a loan from Philippine Savings Bank (PSB) and they mortgaged the said
apartment. At the time the mortgages were registered in 1967, the titles were clean from any encumbrance. The
spouses failed to pay. In 1969, the bank foreclosed the property. However, prior to that, year 1968, the architect
filed a collection suit against the spouses. A judgment was rendered in favor of the architect. In 1970, the bank
consolidated ownership.
As the spouses did not have any properties to satisfy the judgment in Civil Case No. 69228, the private respondent
addressed a letter to the petitioner for the delivery to him (private respondent) of his pro-rata share in the value of
the duplex-apartment in accordance with Article 2242 of the Civil Code. The petitioner refused to pay the pro-rata
value prompting the private respondent to file the instant action. As earlier stated, a decision was rendered in favor
of the private respondent.
The parties are agreed that the only issue is whether or not the private respondent is entitled to claim a pro-rata
share in the value of the property in question.
The bank states that the proceeding before the court could not apply Article 2242 because in order to do so, there
must first be foreclosure proceedings or other insolvency proceedings. Consequently, it is argued that private
respondent's unpaid contractor's claim did not acquire the character of a statutory lien equal to the petitioner's
registered mortgage.
Upon the other hand, private respondent Ramos maintains that the proceedings had before the court below can
qualify as a general liquidation of the estate of the spouses Tabligan because the only existing property of said
spouses is the property subject matter of this litigation.
I: WON a collection suit, with only 2 creditors, can be qualified as a settlement of a decedent’s estate thereby
allowing the application of Art 2242?
H:
The proceedings in the court below do not partake of the nature of the insolvency proceedings or
settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid cost of the construction
of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem which are
binding against the whole world. All persons having interest in the subject matter involved, whether they were
notified or not, are equally bound. Consequently, a liquidation of similar import or "other equivalent general
liquidation' must also necessarily be a proceeding in rem so that all interested persons whether known to the parties
or not may be bound by such proceeding.
In the case at bar, although the lower court found that "there were no known creditors other than the plaintiff and
the defendant herein", this can not be conclusive. It will not bar other creditors in the event they show up and
present their claims against the petitioner bank, claiming that they also have preferred liens against the property
involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the bank which is supposed to be
indefeasible would remain constantly unstable and questionable. Such could not have been the intention of Article
2243 of the Civil Code although it considers claims and credits under Article 2242 as statutory liens.
Respondent Ramos admitted in the partial stipulation of facts submitted by both parties that at the time of
the loans to the spouses, the petitioner's bank had no actual or constructive knowledge of any lien against the
property in question. The duplex apartment house was built for P32,927.00. The spouses Tabligan borrowed
P35,000.00 for the construction of the apartment house. The bank could not have known of any contractor's lien
because, as far as it was concerned, it financed the entire construction even if the stated purpose of the loans was
only to "complete" the construction.
Since the action filed by the private respondent is not one which can be considered as "equivalent general
liquidation" having the same import as an insolvency or settlement of the decedent's estate proceeding, the well
established principle must be applied that a purchaser in good faith and for value takes registered land free from
liens and encumbrances other than statutory liens and those recorded in the Certificate of Title. It is an admitted fact
that at the time the deeds of real estate mortgage in favor of the petitioner bank were constituted, the transfer
certificate of title of the spouses Tabligan was free from any recorded lien and encumbrances, so that the only
registered liens in the title were deeds in favor of the petitioner.