B.
Real Guaranty
1. Involving real property
a. Real Mortgage
i. Laws
>Land Registration Act (Act No. 496)
>Sec. 194 of the Revised Administrative Code
>Property Registration Decree (P.D. No. 1529)
>Republic Act No. 4882
>Act 3135
>Rule 68 of the Revised Rules of Court
>A.M. No. 99-10-05-0, Jan. 15, 2000, as amended
Feb. 20, 2007
ii. Subject Matter
Dilag v. Heirs of Resurreccion, 76 Phil 650
Norberto L. Dilag, as administrator of the
intestate estate of Laureano Marquez,
vs.
The Legal Heirs of Fortunato Resurreccion, et
al.,
G.R. No. 48941, May 6, 1946 (76 Phil 650)
FACTS:
● Laureano Marquez was indebted to
Fortunato Resurreccion in the sum of
P5,000 as the balance of the purchase
price of a parcel of land which the Marquez
had bought and received from the
Fortunato Resurreccion.
● Fortunato Resurreccion, in turn, was
indebted to the Luzon Surety Company in
the same amount, which was secured by a
mortgage on three parcels of land, one of
which was that bought by Laureano
Marquez from him. The deed of sale from
Resurreccion to Marquez was to have been
executed after Marquez shall have fully
paid the purchase price and after
Resurreccion shall have secured the
cancellation of the mortgage by the Luzon
Surety Company.
● Laureano Marquez had agreed to pay
Fortunato Resurreccion's indebtedness of
P5,000 to the Luzon Surety Company by
way of satisfaction of his own indebtedness
to Fortunato Resurreccion in the same
amount. Laureano Marquez signed a
document where he bound himself as
follows: "In the event an action is presented
by the Luzon Surety Company against
Fortunato Resurreccion for the recovery of
the said indebtedness and the interests
thereon, I, Laureano Marquez, obligate
myself to indemnify Fortunato
Ressurreccion for all the damages he may
suffer in case the parcels of land
mortgaged to the Luzon Surety Company
are sold at public auction, including the
fees of the attorneys of Fortunato
Ressurrecion as well as in the action that
Fortunato Resurreccion in the suit brought
by the Luzon Surety Company as well as in
the action that Fortunato Resurreccion may
bring against me in relation to this
agreement."
● Laureano Marquez failed to pay the
indebteness of Fortunato Resurreccion to
the Luzon Surety Company, and the latter
foreclosed judicially the mortgaged
executed in its favor by Fortunato
Resurreccion.
● Pending the foreclosure sale of the
Company, Laureano Marquez executed
and delivered to Fortunato Resurreccion
another document. Since Laureano
Marquez again did not fulfill his promise,
the mortgaged properties were sold at
public auction and were totally lost by
Fortunato Resurreccion.
● Resurreccion commenced the present
action against Laureano Marquez to
recover the value of the lost properties
amounting to P16,500, with legal interest
thereon from the date of the filing of the
complaint, plus P2,000 as indemnity for the
rents of the lands sold and P1,000 as
attorney's fees, and to foreclose the
mortgage embodied in said instrument.
ISSUE:
Whether a property that is subsequently acquired
can be the subject of a mortgage.
HELD: NO. AFFIRMED WITH MODIFICATIONS.
The petitioner contends that Fortunato
Resurreccion cannot be granted damages caused
by the loss of two of the three parcels of land
mortgaged to the Luzon Surety Company because
they did not belong to Fortunato Resurreccion but
to Emiliana Resurreccion and the children of
Vicente Platon. He contends that it was only the
said owners of those lands who could have brought
the present action. This contention runs counter to
the provision of section 3 of Rule 3 of the Rules of
Court, which says that a party with whom or in
whose name a contract has been made for the
benefit of another may sue or be sued without
joining the party for whose benefit the action is
presented or defended. We do not think that the
word "contract" used in section 3 of Rule 3 refers
exclusively to a bilateral contract.
It obviously refers to any contract — bilateral or
unilateral — enforcible in court. The rule in question
refers to a suit by or against "a party with whom or
in whose name a contract has been made for the
benefit of another. Article 1254 of the Civil Code
says that a contract exists from the moment one or
more persons consent to be bound with respect to
another or others to deliver something or to render
some service.
A deed of sale or mortgage is usually a unilateral
contract in the sense that only the vendor or
mortgagor signs it. Likewise a promissor note is a
unilateral contract in the sense that only the
promissor or maker signs it. But these do not mean
that the signer is the only party to that contract and
the only one entitled to sue thereon. The obligee is
as much a party to the contract as the obligor, for
there can be no obligor without an obligee; and as
a matter of course it is the obligee who has the right
to sue on and enforce the obligation.
The petitioner assails the judgment against him
insofar as it authorizes the sale at public auction of
five parcels of land which were not specifically
described in the mortgage deed. Those five parcels
are said to have been acquired by Laureano
Marquez subsequent to the execution of the
document. In the fifth clause of said document
Laureano Marquez stipulated that inasmuch as the
five parcels of land described in the fourth clause
were not sufficient to cover all his obligations in
favor of Fortunato Resurreccion, he also
constituted a mortgage in favor of the latter and his
assignees on any other property he then might
have and on those he might acquire in the future.
Did such a stipulation constitute a valid mortgage
on the five other parcels of land which Laureano
Marquez subsequently acquired? We do not think
so. In the first place, Laureano Marquez could not
legally mortgage any property he did not yet
own. In the second place, in order that a
mortgage may be validly constituted, the
instrument by which it is created must be
recorded in the registry of deeds and insofar as
the additional five parcels of land are
concerned, the registration of the document did
not affect and could not have affected them
because they were not specifically described
therein.
The contention of the respondents that after the
institution of the present action notice of lis
pendens was filed in the registry of deeds affecting
the said five additional parcels of land, merely
serves to emphasize the fact that there was no
mortgage thereon; otherwise there would have
been no necessity for any notice of lis pendens.
Peoples Bank & Trust co. v. Dahican Lumber
Co., 20 SCRA 84
People’s Bank & Trust Co. & Atlantic, Gulf &
Pacific Co. of Manila
vs.
Dahican Lumber Company, Dahican American
Lumber Corporation, & Connell Bros. Co. (Phil),
G.R. No. L-17500, May 16, 1967 (20 SCRA 84)
FACTS:
● Dahican Lumber Co. (DALCO) obtained
a loan from People's Bank and Trust Co.
(Bank) secured by a deed of mortgage
covering 5 parcels of land together with
all the buildings and other improvements
existing thereon and all the personal
properties of DALCO located in its place
of business.
● After the day of the execution of the
mortgage, DALCO purchased various
 machinery, equipment, spare parts and
supplies.
● Pursuant to the provision of the mortgage
deeds regarding "after acquired
properties", the Bank requested DALCO
to submit complete list of the said
properties but DALCO refused to do so.
ISSUE:
Whether or not the "after acquired properties"
were subject to the deed of mortgage.
HELD:
Yes, they are subject to the deeds of mortgage.
Article 415 of the Civil Code does not define real
property but enumerates what are considered as
such, among them being machinery, receptacles,
instruments or replacements intended by owner
of the tenement for an industry or works which
may be carried on in a building or on a piece of
land, and shall tend directly to meet the needs of
the said industry or works.
The chattels or the "after acquired properties"
were placed in the real properties mortgaged to
the Bank. They came within the operation of
Article 145.
Hence, the "after acquired properties" were
subject to the deed of mortgage.
Luzon Lumber & Hardware Co., Inc. v.
Quiambao, 94 Phil 663
Luzon Lumber & Hardware Company, Inc.
vs.
Manuel Quiambao, Virginia Santiago, & Manuel and Virginia to pay to the plaintiff lumber
Rehabilitation Finance Corporation,
G.R. No. L-5638, March 30, 1954 (94 Phil 663)
FACTS:
● Manuel Quiambao and his wife Virginia
Santiago, owners of three lots mortgaged
the said lots in favor of the Rehabilitation
Finance Corporation (RFC) to secure the
payment of a loan in the amount of
P37,000
● The sum was to be spent for the
construction of two buildings, one for a
hotel and the other for residence. The
mortgage was later on registered.
● The two buildings were subsequently
constructed.
● Upon violation of the terms of the
mortgage, the RFC foreclosed the same. In
the auction sale, said RFC, as highest
bidder, was awarded the mortgaged
properties for the total sum of P31,000
followed by the issuance of the
corresponding Transfer Certificates of Title.
● The hotel and residence buildings were
valued at P18,000 and P4,000,
respectively.
● In the edification(improvement) of the two
buildings, the spouses bought on credit
construction materials valued at about
P7,000 from the plaintiff Luzon Lumber &
Hardware Co. Said building materials were
furnished by the lumber company between
October 1948 and March 1949. Only
P3,500 of this amount was paid, leaving an
unpaid balance of P3,456.50.
To recover this balance including interests and
attorney's fees the lumber company filed this suit
against the spouses, the complaint being later
amended so as to include the RFC as party
defendant. According to the RFC said amendment
was made about a week after the auction sale of
the foreclosed properties.
After hearing, the Court of First Instance of Tarlac
rendered judgment ordering the defendant spouses
company the sum of P3,456.49 with legal interests
and in default of such payment by them, the RFC
was ordered to pay to plaintiff out of the proceeds
of the sale of the hotel and the house, the said sum
of P3,456.49 together with the corresponding legal
interests thereon. The RFC is appealing from that
decision.
ISSUE:
Whether a registered mortgage is preferred over a
refectionary credit on construction materials.
HELD: YES. REVERSED.
Art. 2242 (claims, mortgages & liens that constitute
encumbrance over specific immovable property)
and 2253 (effectivity of law & non-impairment of
vested rights clause) of the New Civil Code may not
be applied in the instant case for the reason that
the credit of the plaintiff is not a new right or one
declared for the first time, a condition required by
Article 2253 of the new Civil Code for its
enforcement and application, because said right
was already provided for by article 1923 of the old
Civil Code particularly paragraphs 3 and 5. The
question now to be decided is whether the
furnishing of lumber and building materials by the
plaintiff for the construction of the two buildings of
the spouses falls under refection credit mentioned
in paragraphs 3 and 5.
Refectionary credit is primarily an indebtedness
incurred in the repair or reconstruction of something
and does not ordinarily include an entirely new
work, but that Spanish jurisprudence appears to
have sanctioned in certain cases this broader view
to include a new work or construction. The word
"refaccionario" from which come the English
translation of "refectionary" is derived from the Latin
verb "refacio", "refacere", meaning "rehacer" which
implies the idea of reconstruction or repair for
reason of destruction or deterioration. As already
said, that was the original idea of the word
"refectionary". The liberal interpretation of the
refectionary credit to include new construction
is upheld in the ENCICLOPEDIA JURIDICA
ESPAÑOLA.
And this view is shared by our Code Commission
which prepared the new Civil Code. In its Report on
the proposed Civil Code of the Philippines (now our
new Civil Code) which went into effect in 1950,
referring to article 2242 of the new Code, it said
that the new encumbrances in said article are Nos.
2, 3, 6, 7 and 9, meaning to say that paragraph 4
referring to claims of furnishers of materials used in
the construction, reconstruction or repair of building
which as invoked by the plaintiff and applied by the
trial court is not a new provision, clearly implying
that it was already provided for in article 1923,
paragraphs 3 and 5 under refectionary credits. This
liberal view and interpretation of refectionary credit
is in consonance with principles of justice and
fairness, for there seems to be no valid reason why
one furnishing material for purposes of repair or
reconstruction should be given preference while
another furnishing material on new construction is
not given the same consideration.
With respect to the holding of the trial court that in
point of time the credit of the plaintiff enjoys priority
over that of the RFC for the reason that according
to said court the lien of the plaintiff vested when the
materials were furnished while the mortgage credit
of the RFC vested only when the buildings were
constructed, we must not forget that according to
the facts of the case the loan of P37,000 was given
to the spouses to construct the two buildings, and
that under the terms of the deed of mortgage, not
only the lots but also all the improvements now
existing or which may hereafter be constructed on
the mortgaged property are included. In other
words, the mortgage in favor of the defendant RFC
not only enjoyed the presumption provided by law
that a mortgage includes all improvements on the
land mortgaged when the obligation falls due, but
there was an express stipulation to include all
buildings and improvements thereafter to be
constructed on the mortgaged premises.
This lien on all improvements vested on the day
and hour the mortgage was registered - about one
month before plaintiff began furnishing materials for
construction. One of the purposes of the creation of
the RFC was to finance the construction and
reconstruction of buildings for purposes of
rehabilitation. We may even take judicial notice of
the fact that the security of the loans from the RFC
is based mainly on the buildings and constructions
themselves, and that to assure that the loans are
spent for the said construction, the money is
sometimes given on the installment basis, that is,
so much money is released by the RFC as the
construction progresses. This is to show the
intimate relation between an RFC loan and the
construction financed by it, for purposes of security.
In the discussion of this case among the members
of this Tribunal, there was a suggestion, even a
contention that the credit of the plaintiff herein
might be made to fall under article 1922 of the old
Civil Code (preferred encumbrances over personal
property). But we believe that the two buildings in
question constructed partly with building materials
furnished by the plaintiff may not be considered as
personal property under article 1922. Once said
building materials were used in the construction
and had become part of the building, they lost their
classification as personal property and become real
property.
It is true that in the case of Unson vs. Orquije, et
al., 50 Phil., 160, this Tribunal applied the provision
of article 1922, paragraph 1, referring to the
purchase price of personal property in the
possession of the debtor (machinery and grinder
sold to the Capiz Central and installed in its
building), the reason being that said machinery and
grinder did not lose their form and substance and
they preserved their identity. Besides, they could
easily be removed from the building of the Central.
May the same thing be said in the present case as
regards the building materials which went into the
construction of the hotel and the house? The
answer can be given only in the negative. Said
materials had already become part of the two
buildings either as posts, frames, floor, partition,
roof, etc. They have lost their form and identity and
had become part of the buildings which are real
property.
There is another circumstance in this case which
greatly weakens plaintiff's claim. While as already
stated, appellant RFC's mortgage which included
the two buildings in question was recorded in
September 1948, thus serving as notice to third
parties including the plaintiff, the latter began
furnishing building materials for the construction of
the two buildings only in October 1948, that is the
month following, and what is more, the evidence
fails to show that it was ever recorded in the
Registry of Deeds, so that said refection credit
comes not under paragraph 3 of article 1923 of the
old Civil Code, as does the RFC mortgage, but
under paragraph 5 of the same article under
unregistered and unrecorded refection credits.
Ajax Marketing & Dev. Corp. v. CA, 284 SCRA
222
Ajax Marketing & Development Corporation,
Antonio Tan, Elisa Tan Yee, & Sps. Marcial See
& Lilian Tan
vs.
CA, Metropolitan Bank & Trust Company, & the
Sheriff of Manila,
G.R. No. L-118585, September 14, 1995 (248
SCRA 222)
FACTS:
Ylang-Ylang Merchandising Company, a
partnership between Angelita Rodriguez and
Antonio Tan, obtained a loan in the amount of
P250,000.00 from the Metropolitan Bank and Trust
Company, and to secure payment of the same,
spouses Marcial See and Lilian Tan constituted a
real estate mortgage in favor of said bank over their
property in the District of Paco, Manila. The
mortgage was annotated at the back of the title.
Subsequently, after the partnership had changed its
name to Ajax Marketing Company albeit without
changing its composition, it obtained a loan in the
sum of P150,000. 00 from Metropolitan Bank and
Trust Company. Again to secure the loan, spouses
Marcial See and Lilian Tan executed in favor of
said bank a second real estate mortgage over the
same property.
On February 19, 1979, the partnership (Ajax
Marketing Company) was converted into a
corporation denominated as Ajax Marketing and
Development Corporation, with the original partners
(Angelita Rodriguez and Antonio Tan) as
incorporators and three (3) additional incorporators,
namely, Elisa Tan, the wife of Antonio Tan, and
Jose San Diego and Tessie San Diego.
Ajax Marketing and Development Corporation
obtained from Metropolitan Bank and Trust
Company a loan of P600,000.00, the payment of
which was secured by another real estate mortgage
executed by spouses Marcial See and Lilian Tan in
favor of said bank over the same realty.
In December 1980, the three (3) loans with an
aggregate amount of P1,000,000.00 were re-
structured and consolidated into one (1) loan and
Ajax Marketing and Development Corporation,
represented by Antonio Tan as Board
Chairman/President and in his personal capacity as
solidary co-obligor, and Elisa Tan as Vice-
President/Treasurer and in her personal capacity
as solidary co-obligor, executed a Promissory Note.
Due to non-payment, the bank extrajudicially
foreclosed the mortgaged property. A case was
filed with the trial court whereby the debtors
contended that a novation occurred when their
three (3) loans which are all secured by the same
real estate property were consolidated into a single
loan of P1 million under a Promissory Note, thereby
extinguishing their monetary obligations and
releasing the mortgaged property from liability.
The trial court upheld the foreclosure.
The CA affirmed.
ISSUE:
Whether a real estate mortgage can cover future
debts.
HELD: YES. HELD.
Basic principles on novation need to be stressed at
the outset. Novation is the extinguishment of an
obligation by the substitution or change of the
obligation by a subsequent one which extinguishes
or modifies the first, either by changing the object
or principal conditions, or, by substituting another in
place of the debtor, or by subrogating a third
person in the rights of the creditor. Novation, unlike
other modes of extinction of obligations, is a
juridical act with a dual function, namely, it
extinguishes an obligation and creates a new one
in lieu of the old. It can be objective, subjective, or
mixed.
Objective novation occurs when there is a change
of the object or principal conditions of an existing
obligation while subjective novation occurs when
there is a change of either the person of the debtor,
or of the creditor in an existing obligation. When the
change of the object or principal conditions of an
obligation occurs at the same time with the change
of either in the person of the debtor or creditor a
mixed novation occurs.
The well settled rule is that novation is never
presumed. Novation will not be allowed unless it is
clearly shown by express agreement, or by acts of
equal import. Thus, to effect an objective novation it
is imperative that the new obligation expressly
declare that the old obligation is thereby
extinguished, or that the new obligation be on every
point incompatible with the new one.
In the same vein, to effect a subjective novation by
a change in the person of the debtor it is necessary
that the old debtor be released expressly from the
obligation, and the third person or new debtor
assumes his place in the relation. There is no
novation without such release as the third person
who has assumed the debtor's obligation becomes
merely a co-debtor or surety.
The attendant facts herein do not make a case of
novation. There is nothing in the records to show
the unequivocal intent of the parties to novate the
three loan agreements through the execution of a
promissory note. The provisions of the promissory
note yield no indication of the extinguishment of, or
an incompatibility with, the three loan agreements
secured by the real estate mortgages.
The provisions of the real estate mortgage show
that petitioners agreed to apply the real estate
property to secure obligations that they may
thereafter obtain including their renewals or
extensions with the principals fixed at P600,000.00,
P150,000.00, and P250,000.00.
The promissory note merely restructured and
renewed the three previous loans to expediently
make the loans current. There was no change in
the object of the prior obligations. The consolidation
of the three loans, contrary to petitioners'
contention, did not release the mortgaged real
estate property from any liability because the
mortgage annotations all remained uncancelled,
 thus indicating the continuing subsistence of the
real estate-mortgages.
Neither can it be validly contended that there was a
change or substitution in the persons of either the
creditor (Metrobank) or more specifically the
debtors (petitioners) upon the consolidation of the
loans. The bare fact of petitioner's conversion from
a partnership to a corporation, without sufficient
evidence, either testimonial or documentary, that
they were expressly released from their obligations,
did not make petitioner AJAX, with its new
corporate personality, a third person or new debtor
within the context of a subjective novation. If at all,
petitioner AJAX only became a co-debtor or surety.
Without express release of the debtor from the
obligation, any third party who may thereafter
assume the obligation shall be considered merely
as co- debtor or surety. Novation arising from a
purported change in the person of the debtor must
be clear and express because, to repeat, it is never
presumed. Clearly then, from the aforediscussed
points, neither objective nor subjective novation
occurred here.
An action to foreclose a mortgage is usually limited
to the amount mentioned in the mortgage, but
where on the four corners of the mortgage
contracts, as in this case, the intent of the
contracting parties is manifest that the mortgaged
property shall also answer for future loans or
advancements then the same is not improper as it
is valid and binding between the parties.
iii. Formalities & Registration
Samanilla v. Cajucom, 107 Phil 432
Paz Samanilla
Vs.
Cenen A. Cajucom, et al.,
G.R. No. L-13683, March 28, 1960 (107 Phil 432)
FACTS:
The Cajucoms had executed in Samanilla’s favor,
on December 20, 1955, a real estate mortgage
over their rights and participation on the parcel of
land covered by Original Certificate of Title No. O-
966 to secure a loan of P10,000. Sometime in
February, 1956, the Cajucoms borrowed the title
from her on the excuse that they needed it to
segregate from the land the portion claimed by
other persons.
Thereafter, Samanilla asked for the return of the
title so that she could register her mortgage, but the
Cajucoms refused.
Samanilla filed a petition against the Cajucoms.
They opposed the petition, claiming that the
mortgage in question was void ab initio for want of
consideration, and that the issues should be
litigated in an ordinary civil action.
The court found the petition well-taken and ordered
the Cajucoms to surrender their title either to the
Register of Deeds or to the Court. From this order,
the Cajucoms appealed.
ISSUE:
Whether a mortgage which has not been registered
is valid.
HELD: YES. AFFIRMED.
The appeal has no merit. Appellants' sole objection
to the registration of the deed of mortgage is that
the same was executed without any consideration.
But there is a legal presumption of sufficient cause
or consideration supporting a contract, even if such
cause is not stated therein. This presumption
appellants cannot overcome by a simple assertion
of lack of consideration. Especially may not the
presumption be so lightly set aside when the
contract itself states that consideration was given,
and the same has been reduced into a public
instrument with all due formalities and solemnities
as in this case.
Appellants assert that they cannot be compelled to
surrender their title for registration of the mortgage
in question until they are given an opportunity to
show its invalidity in an ordinary civil action,
because registration is an essential element of a
real estate mortgage and the surrender of their title
would complete this requirement of registration.
The argument is fallacious, for a mortgage, whether
registered or not, is binding between the parties,
registration being necessary only to make the same
valid against third persons (Art. 2125, New Civil
Code).
In other words, registration only operates as a
notice of the mortgage to others, but neither adds
to its validity nor convert an invalid mortgage into a
valid one between the parties. Appellants still have
the right to show that the mortgage in question is
invalid for lack of consideration in an ordinary
action and there ask for the avoidance of the deed
and the cancellation of its registration. But until
such action is filed and decided, it would be too
dangerous to the rights of the mortgagee to deny
registration of her mortgage, because her rights
can so easily be defeated by a transfer or
conveyance of the mortgaged property to an
innocent third person.
If the purpose of registration is merely to give
notice, the questions regarding the effect or
invalidity of instruments are expected to be decided
after, not before, registration. It must follow as a
necessary consequence that registration must first
be allowed and validity or effect litigated afterwards.
Gonzales v. Basa, 73 Phil 704
Antonio Gonzalez
Vs.
Feliciano Basa, Jr. & Pilar Lopez de Basa,
G.R. No. 48695, September 30, 1942 (73 Phil
704)
FACTS:
In the matter of the estate of the deceased Amalia
Arcega y Alfonso Vda. de Basa, Pilar Lopez de
Basa, as administratrix; Feliciano Basa, Jr., as sole
and universal heir, and Antonio Gonzalez, as
creditor and attorney of the estate, presented to the
court a project of partition jointly signed by them
and asked that it be approved. The said document
consists of several clauses. Clause 2 contains an
inventory of the properties left by the deceased,
and clause 3 contains a list of all the obligations of
the estate. The adjudication is contained in clause
4. Said project of partition was approved by the
court.
Thereafter Feliciano Basa, Jr., thru his present
attorney Mr. Benedicto M. Javier, procured from the
clerk of court a certified copy of said project of
partition in a modified or mutilated form in that page
22 thereof was omitted at the express request of
Attorney Javier. That certified copy, together with
the owner's duplicates of the certificates of title
covering the real properties adjudicated to Feliciano
Basa, Jr., was presented to the register of deeds of
Manila for registration with a view to the issuance of
the corresponding transfer certificates of title in the
name of Feliciano Basa, Jr., free from the mortgage
lien in favor of Antonio Gonzalez. The latter, upon
learning thereof, objected to the registration of the
project of partition as thus mutilated and requested
the register of deeds, in lieu thereof, to register the
certified complete copy of said document which he
then and there presented with a view to the
annotation of the mortgage in his favor on the
certificates of title to be issued in the name of
Feliciano Basa, Jr.
The register of deeds refused to accede to said
request of Attorney Gonzalez claiming Attorneys
Javier & Javier, representing Feliciano Basa Jr.,
refused to grant him authority to annotate said
mortgage on the certificates of title to be issued in
the name of Basa, and that since a mortgage is
presumed to be a voluntary transaction between
the parties he had no authority to make such
annotation without the consent of both parties. The
matter was brought to the CFI which ruled to
instruct the register of deeds of Manila to register a
certain project of partition in its entirety and not in a
mutilated form as requested by the appellants.
ISSUE:
Whether the mortgagee is entitled to register the
mortgage as a matter of right.
HELD: YES. AFFIRMED.
In deciding to comply with the request of the
appellants for the registration of the project of
partition as mutilated, over the objection of the
appellee, who tendered a complete, certified true
copy of the same document, the register of deeds
of Manila impliedly conceded to them the right to
repudiate and annul an obligation evidenced by
said document against the will of the obligee and
without judicial intervention.
That is obviously wrong. It is precisely his duty to
see to it that a document presented for registration
is regular and in due form. The mutilated certified
copy was irregular on its face and should have
been rejected by him.
In fact his authority in the premises goes no farther
than this. He has no authority to inquire into the
intrinsic validity of a document based upon proofs
aliunde. If he had no authority to inquire into the
truth of appellants' allegation as to lack of
consideration for the mortgage in question, much
less was he authorized to assume the truth of such
allegation without any investigation.
The project of partition in question, having been
signed by the parties and approved by the court, is
presumed to be valid and is acceptable for
registration in its entirety. Neither of the parties may
alter it without the consent of the other and the
approval of the court.
The reasoning of the register of deeds that,
inasmuch as a mortgage is a voluntary transaction,
he had no authority to register it without the
consent of both parties, is fallacious. He confuses
the execution of a mortgage with its registration. It
is the execution of the mortgage that is voluntary.
Once a mortgage has been signed in due form, the
mortgagee is entitled to its registration as a matter
of right. By executing the mortgage, the mortgagor
is understood to have given his consent to its
registration, and he cannot be permitted to revoke it
unilaterally.
The validity and fulfillment of contracts cannot be
left to the will of one of the contracting parties
(article 1256 of the Civil Code). In the last analysis,
the case is as if Feliciano Basa, Jr., had presented
to the register of deeds a certified complete copy of
the project of partition with the request that the
register of deeds take into consideration only the
rights, and ignore the obligations, evidenced by
said document.
It is the same as if a buyer of real property who
mortgaged the property bought to secure the
payment of the purchase price, had presented the
combined deed of sale and mortgage to the register
of deeds with the request to transfer the title to him
without annotating the mortgage thereon.
Is the register of deeds authorized to comply with
such request? No reasonable person would so
contend; and yet that is what the register of deeds
of Manila proposes to do in the present case.
Agri Credit Coop Assoc. Of Hinigaran v. Yusay,
107 Phil 791
Agricultural Credit Cooperative Association of
Hinigaran
vs. Estanislao Yulo Yusay, et al.,
G.R. No. L-13313, April 28, 1960 (107 Phil 791)
FACTS:
Rafaela Yulo executed in favor of the cooperative a
mortgage for P33,626.29, due from her, her
mother, sisters, brothers, and others, which amount
she assumed to pay to the cooperative. A motion
was presented to the court by the cooperative
demanding the surrender of the owner's duplicate
certificate of title that it may annotate said mortgage
at the back of the certificate. Estanislao Yusay, a
part owner of the lot, opposed the petition on the
ground that he is owner of a part of the property in
question; that the granting of the motion would
operate to his prejudice, as he has not participated
in the mortgage cited in the motion; that Rafaela
Yulo is dead; that the motion is not verified and
movant's rights have lapsed by prescription. Finally
it is argued that his opposition raises a
controversial matter which the court has no
jurisdiction to pass upon.
The existence of the mortgage is not disrupted, and
neither is the fact that the mortgagor Rafaela Yulo
is part owner of the lot. The oppositors do not
dispute that she is such a part owner, and their
main objection to the petition is that as part owners
of the property, the annotation of the mortgage on
the common title will affect their rights.

The matter was brought to the CFI, and it ordered
the Register of Deeds to register the mortgage.
ISSUE:
Whether the validity or effectivity of a mortgage
may be determined during its registration
HELD: NO. AFFIRMED.
In his Brief before this Court, counsel for appellants
argue that the mortgage sought to be registered
was not recorded before the closing of the intestate
proceedings of the deceased mortgagor, but was
so recorded only four months after the termination
of said proceedings, so that the claim of movant
has been reduced to the character of a mere
money claim, not a mortgage, hence the mortgage
may not be registered.
In the first place, the proceeding to register the
mortgage does not purport to determine the
supposed invalidity of the mortgage or its effect.
Registration is a mere ministerial act by which a
deed, contract or instrument is sought to be
inscribed in the records of the Office of the Register
of Deeds and annotated at the back of the
certificate of title covering the land subject of the
deed.
The registration of a lease or mortgage, or the entry
of a memorial of a lease or mortgage on the
register, is not a declaration by the state that such
an instrument is a valid and subsisting interest in
land; it is merely a declaration that the record of the
title appears to be burdened with the lease or
mortgage described, according to the priority set
forth in the certificate. The mere fact that a lease or
mortgage was registered does not stop any party to
it from setting up that it now has no force or effect.
The court below, in ordering the registration and
annotation of the mortgage, did not pass on its
invalidity or effect. As the mortgage is admittedly an
act of the registered owner, all that the judge below
did and could do, as a registration court, is to order
its registration and annotation on the certificate of
title covering the land mortgaged. By said order the
court did not pass upon the effect or validity of the
mortgage - these can only be determined in an
ordinary case before the courts, not before a court
acting merely as a registration court, which did not
have the jurisdiction to pass upon the alleged effect
or invalidity.
Ursal v. CA, 473 SCRA 52
Winifreda Ursal vs. CA, the Rural Bank of
Larena (Siquijor), Inc., & Sps. Jesus Moneset &
Cristita Moneset,
G.R. No. 142411, October 14, 2005 (473 SCRA
52)
FACTS:
Jesus and Cristita Moneset (Monesets) are the
registered owners of a 333- square meter land
together with a house thereon situated at Sitio
Laguna, Basak, Cebu City. On January 9, 1985,
they executed a "Contract to Sell Lot & House" in
favor of petitioner Winifreda Ursal.
Ursal paid the down payment and took possession
of the property. She immediately built a concrete
perimeter fence and an artesian well, and planted
fruit bearing trees and flowering plants thereon
which all amounted to P50,000.00. After paying six
monthly installments, petitioner stopped paying due
to the Monesets' failure to deliver to her the transfer
certificate of title of the property as per their
agreement; and because of the failure of the
Monesets to turn over said title, petitioner failed to
have the contract of sale annotated thereon.
Unknown to Ursal, the Monesets executed on
November 5, 1985 an absolute deed of sale in
favor of Dr. Rafael Canora, Jr. over the said
property for P14,000.00. On September 15, 1986,
the Monesets executed another sale, this time with
pacto de retro with Restituto Bundalo. On the same
day, Bundalo, as attorney- in-fact of the Monesets,
executed a real estate mortgage over said property
with Rural Bank of Larena located in Siquijor for the
amount of P100,000. 00. The special power of
attorney made by the Monesets in favor of Bundalo
as well as the real estate mortgage was then
annotated on the title on September 16, 1986. For
the failure of the Monesets to pay the loan, the
Bank served a notice of extrajudicial foreclosure
dated January 27, 1988 on Bundalo.
Ursal filed an action for declaration of non-
effectivity of mortgage and damages against the
Monesets, Bundalo and the Bank. She claimed that
the defendants committed fraud and/or bad faith in
mortgaging the property she earlier bought from the
Monesets with a bank located in another island,
Siquijor; and the Bank acted in bad faith since it
granted the real estate mortgage in spite of its
knowledge that the property was in the possession
of petitioner.
The trial court ruled that Ursal was more credible
than the Monesets and that the Monesets are liable
for damages, fraud, and breach of contract. As to
the real estate mortgage, the trial court held that
the same was valid and that the bank was under no
obligation to look beyond the title.
CA affirmed.
ISSUE:
Whether the bank, as mortgagee, can rely solely on
the certificate of title and had no obligation to look
beyond the title.
HELD: NO. AFFIRMED WITH MODIFICATIONS.
We agree. Banks cannot merely rely on certificates
of title in ascertaining the status of mortgaged
properties; as their business is impressed with
public interest, they are expected to exercise more
care and prudence in their dealings than private
individuals. Indeed, the rule that persons dealing
with registered lands can rely solely on the
certificate of title does not apply to banks.
Respondent is not an ordinary mortgagee; it is a
mortgagee-bank. As such, unlike private
individuals, it is expected to exercise greater care
and prudence in its dealings, including those
involving registered lands. A banking institution is
expected to exercise due diligence before entering
into a mortgage contract. The ascertainment of the
status or condition of a property offered to it as
security for a loan must be a standard and
indispensable part of its operations.
Our agreement with petitioner on this point of law,
notwithstanding, we are constrained to refrain from
granting the prayers of her petition. The reason is
that, the contract between petitioner and the
Monesets being one of "Contract to Sell Lot and
House," petitioner, under the circumstances, never
acquired ownership over the property and her rights
were limited to demand for specific performance
from the Monesets, which at this juncture however
is no longer feasible as the property had already
been sold to other persons.
A contract to sell is a bilateral contract whereby
the prospective seller, while expressly reserving the
ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to
sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon,
that is, full payment of the purchase price. In such
contract, the prospective seller expressly reserves
the transfer of title to the prospective buyer, until
the happening of an event, which in this case is the
full payment of the purchase price. What the seller
agrees or obligates himself to do is to fulfill his
promise to sell the subject property when the entire
amount of the purchase price is delivered to him.
Stated differently, the full payment of the purchase
price partakes of a suspensive condition, the non-
fulfillment of which prevents the obligation to sell
from arising and thus, ownership is retained by the
prospective seller without further remedies by the
prospective buyer. It is different from contracts of
sale, since ownership in contracts to sell is
reserved by the vendor and is not to pass to the
vendee until full payment of the purchase price,
while in contracts of sale, title to the property
passess to the vendee upon the delivery of the
thing sold. In contracts of sale the vendor loses
ownership over the property and cannot recover it
unless and until the contract is resolved or
rescinded, while in contracts to sell, title is retained
by the vendor until full payment of the price. In
contracts to sell, full payment is a positive
suspensive condition while in contracts of sale,
non-payment is a negative resolutory condition.
Since the contract in this case is a contract to sell,
the ownership of the property remained with the
Monesets even after petitioner has paid the down
payment and took possession of the property. In
Flancia vs. CA, where the vendee in the contract to
sell also took possession of the property, this Court
held that the subsequent mortgage constituted by
the owner over said property in favor of another
person was valid since the vendee retained
absolute ownership over the property. At most, the
vendee in the contract to sell was entitled only to
damages.
Petitioner attributes her decision to stop paying
installments to the failure of the Monesets to
comply with their agreement to deliver the transfer
certificate of title after the down payment of
P50,000.00. On this point, the trial court was
correct in holding that for such failure, the
Monesets are liable to pay damages pursuant to
Art. 1169 of the Civil Code on reciprocal
obligations. The vendors' breach of the contract,
notwithstanding, ownership still remained with the
Monesets and petitioner cannot justify her failure to
complete the payment.
In Pangilinan vs CA, the vendees contended that
their failure to pay the balance of the total contract
price was because the vendor reneged on its
obligation to improve the subdivision and its
facilities. In said case, the Court held that the
vendees were barred by laches from asking for
specific performance eight years from the date of
last installment.
The legal adage finds application in the case at bar.
Tempus enim modus tollendi obligations et
actiones, quia tempus currit contra desides et sui
juris contemptores-For time is a means of
dissipating obligations and actions, because time
runs against the slothful and careless of their own
rights.
In this case, petitioner instituted an action for
"Declaration of Non-Effectivity of Mortgage with
Damages" four years from the date of her last
installment and only as a reaction to the foreclosure
proceedings instituted by respondent Bank. After
the Monesets failed to deliver the TCT, petitioner
merely stopped paying installments and did not
institute an action for specific performance, neither
did she consign payment of the remaining balance
as proof of her willingness and readiness to comply
with her part of the obligation.
As held in San Lorenzo Development Corp vs. CA,
the perfected contract to sell imposed on the
vendee the obligation to pay the balance of the
purchase price. There being an obligation to pay
the price, the vendee should have made the proper
tender of payment and consignation of the price in
court as required by law. Consignation of the
amounts due in court is essential in order to
extinguish the vendee's obligation to pay the
balance of the purchase price. Since there is no
indication in the records that petitioner even
attempted to make the proper consignation of the
amounts due, the obligation on the part of the
Monesets to transfer ownership never acquired
obligatory force.
In other words, petitioner did not acquire ownership
over the subject property as she did not pay in full
the equal price of the contract to sell. Further, the
Monesets' breach did not entitle petitioner to any
preferential treatment over the property especially
when such property has been sold to other
persons.
Petitioner's rights were limited to asking for specific
performance and damages from the Monesets.
Specific performance, however, is no longer
feasible at this point as explained above. This being
the case, it follows that petitioner never had any
cause of action against respondent Bank. Having
no cause of action against the bank and not being
an owner of the subject property, petitioner is not
entitled to redeem the subject property.
Indeed, it is the Monesets who first breached their
obligation towards petitioner and are guilty of fraud
against her. It cannot be denied however that
petitioner is also not without fault. She sat on her
rights and never consigned the full amount of the
property. She therefore cannot ask to be declared
the owner of the property, this late, especially since
the same has already passed hands several times,
neither can she question the mortgage constituted
on the property years after title has already passed
to another person by virtue of a deed of absolute
sale.

Rivera v. Peña, 1 SCRA 747
Teotimo Rivera
Vs.
Timoteo Peña, Rehabilitation Finance
Corporation & Register of Deeds Tarlac,
G.R. No. L-11781, March 24, 1961 (1 SCRA 747)
FACTS:
Timoteo Peña was the registered owner of 2 lots of
the barrios of Pacalcal and Anupul, respectively,
municipality of Bamban, province of Tarlac, and
covered by TCTs. Timoteo Peña executed in favor
of petitioner Rivera a contract of lease over said
two (2) parcels of land, for the period from
September 14, 1956 to September 15,1960, as
evidenced by a public document in the Pampango
dialect. This contract was merely a renewal of a
previous contract of lease over the same parcels of
land, between the same parties.
The owner's duplicates of the aforementioned
transfer certificates of title are in the possession of
the Rehabilitation Finance Corporation, to whom
said lands were mortgaged by Timoteo Peña on
October 26, 1955, to guarantee the payment of a
P25,000.00 loan, which mortgage is duly annotated
on the aforementioned transfer certificates of title;
and that, in order to protect his rights over the
parcels of land aforementioned, petitioner Rivera
desires to have said rights registered in the office of
the register of deeds of Tarlac and annotated in the
certificates of title above referred to, for which
reason he prayed that the Rehabilitation Finance
Corporation be ordered to surrender to said register
of deeds the owner's duplicates of the
aforementioned transfer certificates of title and that
said register of deeds be directed to register the
original of the contract of lease, and to make the
corresponding annotations in said transfer
certificates of title, upon presentation of said
original of the contract of lease and payment of the
corresponding fees.
The Rehabilitation Finance Corporation objected to
said petition upon the ground that, pursuant to the
deed of mortgage executed in its favor by Timoteo
Peña, the lands above referred to shall not be
encumbered in any manner without the written
consent of the mortgagee; that the consent of the
corporation to the contract of lease had never been
sought. The corporation had granted the loan
guaranteed by said mortgage for the development
of the property in question, to be undertaken by the
mortgagor; and, as a matter of policy, the
corporation does not allow, therefore, the leasing of
mortgaged property.
The lower court denied the petition because the
deed of lease sought to be registered is in the
Pampango dialect and that it does not bear the
correct number of the title covering the leased
property.
ISSUE:
Whether a subsequent encumbrance may be
registered when a previous encumbrance disallows
it.
HELD: NO. AFFIRMED.
One of the conditions of the contract executed by
Timoteo Peña in favor of the Rehabilitation Finance
Corporation is that the property thus mortgaged
thereto shall not be encumbered in any manner
whatsoever without the written consent of the
mortgagee. Such consent has never been sought.
Had it been requested, the consent would have
been denied or refused, as a matter of policy, by
the mortgagee, the loan guaranteed by said
mortgage having been granted for the development
of the mortgaged property, which should, therefore,
be cultivated by the mortgagor himself.
Inasmuch as appellant's rights were derived from
Timoteo Peña and is bound, therefore, by his
commitments in favor of said corporation, it is clear
that appellant has no valid adverse claim which
may be ordered registered and that, accordingly,
the lower court has not erred in denying his petition,
regardless of the language or dialect in which the
deed of lease in question is written and of the
inaccuracy of the number therein given of one of
the transfer certificates of title involved in this
incident.
PNB v. CA, 187 SCRA 735
Philippine National Bank
Vs.
CA & Chu Kim Kit represented by Chu Tong U,
G.R. No. 43972, July 24, 1990 (187 SCRA 735)
FACTS:
Chu Kim Kit, a Chinese national and son of
defendant Boyano, is the absolute owner of a
commercial lot and building on Rizal Avenue,
Tacloban City, registered in his name. Chu Kim Kit
went to mainland China, and he was prevented
from returning to the Philippines when the
Communists took over mainland China. Through
letters, he requested Chu Tong U to take care of
his aforementioned property. Although Boyano was
aware that her son was still alive, she executed an
affidavit on May 21, 1963, alleging that he had died
and adjudicating to herself, as his sole heir, the
above-described property. By means of said
affidavit of adjudication, she was able to obtain a
Transfer Certificate of Title over the land in her
name. She thereafter mortgaged the property to the
Philippine National Bank, Tacloban Branch, to
secure a loan of P25,000. She was also about to
dispose of the property.
Chu Kim Kit, represented by his uncle, Chu Tong
U, filed a case against Felisa Boyano for
cancellation of the latter's Certificate of Title.
Boyano admitted that Chu Kim Kit was still alive but
she alleged that she signed the affidavit of
adjudication without having read its contents, the
same being written in English which she does not
understand.
The trial court ruled that the TCT of Boyano were
null and void.
CA affirmed.
ISSUE:
Whether a mortgagee may rely on the correctness
of the certificate of title.
HELD: YES. REVERSED.
The records show that Chu Kim Kit entrusted his
Transfer Certificate of Title No. T-1412 to his
mother, Felisa Boyano, before he left for mainland
China and allowed his mother to administer the
property, and to enjoy its fruits in his absence.
Those acts of his enabled Felisa Boyano to cause
the cancellation of TCT No. T -1412 and to obtain
TCT No. T-1439 in her name. That Felisa Boyano
was administering his property may also have
created the impression in the mind of third persons
that she was the owner of the property and could
dispose of it. It is plain to see that by his own acts
of confidence in Felisa Boyano, the private
respondent was partly to blame for the commission
of the fraud against himself by his mother. As
between him and the petitioner which was totally
innocent and free from negligence or wrongdoing in
the transaction, the latter is entitled to the
protection of the law.
There is no question that the petitioner PNB is a
mortgagee in good faith and for value. At the time
the mortgage was constituted on the property on
October 30, 1963, it was covered by TCT No. T -
1439 in the name of Felisa Boyano. The title carried
no annotation, defect or flaw that would have
aroused suspicion as to its authenticity. "The
certificate of title was in the name of the mortgagor
when the land was mortgaged to the PNB. Such
being the case, petitioner PNB had the right to rely
on what appeared on the certificate of title, and in
the absence of anything to excite suspicion, it was
under no obligation to look beyond the certificate
and investigate the title of the mortgagor appearing
on the face of the certificate."
Where there was nothing in the certificate of
title to indicate any cloud or vice in the
ownership of the property, or any encumbrance
thereon, the purchaser is not required to
explore farther than what the Torrens Title upon
its face indicates in quest for any hidden defect
or inchoate right that may subsequently defeat
his right thereto. If the rule were otherwise, the
efficacy and conclusiveness of the certificate of title
which the Torrens System seeks to insure would
entirely be futile and nugatory.
Where innocent third persons relying on the
correctness of the certificate of title issued, acquire
rights over the property, the court cannot disregard
such rights and order the total cancellation of the
certificate for that would impair public confidence in
the certificate of title; otherwise everyone dealing
with property registered under the torrens system
would have to inquire in every instance as to
whether the title had been regularly or irregularly
issued by the court. Indeed, this is contrary to the
evident purpose of the law. Every person dealing
with registered land may safely rely on the
correctness of the certificate of title issued therefor
and the law will in no way oblige him to go behind
the certificate to determine the condition of the
property. Stated differently, an innocent purchaser
for value relying on a torrens title issued is
protected. A mortgagee has the right to rely on
what appears in the certificate of title and, in the
absence of anything to excite suspicion, he is under
no obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on
the face of said certificate.
The right or lien of an innocent mortgagee for value
upon the land mortgaged must be respected and
protected, even if the mortgagor obtained his title
through fraud. The remedy of the persons
prejudiced is to bring an action for damages against
those who caused the fraud, and if the latter are
insolvent, an action against the Treasurer of the
Philippines may be filed for recovery of damages
against the Assurance Fund.
Baysa v. Plantilla, 762 SCRA 433
Spouses Benito Baysa and Victoria Baysa,
Petitioners,
vs.
Spouses Fidel Plantilla and Susan Plantilla,
Register of Deeds of Quezon City and the
Sheriff of Quezon City, Respondents.
G.R. No. 159271, July 13, 2015
FACTS:
The case involves a real estate mortgage (REM)
entered into by the petitioners involving their parcel
of land in Cubao, Quezon City covered by their
Transfer Certificate of Title No. 260376 of the
Register of Deeds of Quezon City to secure the
payment of their obligation amounting to P2.3
Million in favor of the respondent spouses. Based
on the terms of the REM, the petitioners agreed to
pay interest on the principal amount at the rate of
2.5%/month, or P 57,500.00/month. Upon the
default of the petitioners, the respondent spouses
commenced the extrajudicial foreclosure of the
REM to recover from the petitioners the total liability
of P 3,579, 100.00 (inclusive of the principal and
the unpaid interest).
The petitioners sued the respondent spouses in the
Regional Trial Court (RTC) in Quezon City to annul
the extrajudicial foreclosure of the REM and the
public auction conducted pursuant to the
extrajudicial foreclosure. They alleged that all the
proceedings relevant to the extrajudicial foreclosure
were null and void, pointing out that there had been
no power or authority to sell inserted in the REM or
attached thereto as required by Section 1 Act No.
3135; and that the interest rate of 8% was
unconscionable and violative of the Anti-Usury Law.
The petitioners seek the reversal and setting aside
of the decision of the Court of Appeals (CA)
declaring the extrajudicial foreclosure of their
mortgaged property valid.
ISSUE #1: Whether or not the Court of Appeals
erred when it declared that the extrajudicial
foreclosure was valid despite the lack of provision
in the mortgage deed granting special power to sell
to the mortgagee.
HELD #1: YES. In the extrajudicial foreclosure of
property subject of a real estate mortgage, Section
1 of Act No. 3135[1] (An Act to Regulate the Sale of
Property Under Special Powers Inserted in or
Annexed to Real Estate Mortgages) is quite explicit
and definite about the special power to sell the
property being required to be either inserted in or
attached to the deed of mortgage. Accordingly, to
enable the extra judicial foreclosure of the REM of
the petitioners, the special power to sell should
have been either inserted in the REM itself or
embodied in a separate instrument attached to
the REM. But it is not disputed that no special
power to sell was either inserted in the REM or
attached to the REM. Hence, the respondent
spouses as the foreclosing mortgagees could not
initiate the extrajudicial foreclosure, but must resort
to judicial foreclosure pursuant to the procedure set
forth in Rule 68 of the Rules of Court. The omission
of the special power to sell the property subject of
the mortgage was fatal to the validity and efficacy
of the extrajudicial foreclosure, and warranted the
invalidation of the entire proceedings conducted by
the sheriff.
ISSUE #2: Whether or not the Court of Appeals
erred when it concluded that consenting to the
extrajudicial foreclosure of the property, by
necessary implication, carries with it the grant of
power to sell the property at public action.
HELD #2: YES. What was necessary was the
special power or authority to sell - whether inserted
in the REM itself, or annexed thereto - that
authorized the respondent spouses to sell in the
public auction their mortgaged property. The
requirement for the special power or authority to
sell finds support in the civil law. To begin with,
because the sale of the property by virtue of the
extrajudicial foreclosure would be made through the
sheriff by the respondent spouses as the
mortgagees acting as the agents of the petitioners
as the mortgagors-owners, there must be a written
authority from the latter in favor of the former as
their agents; otherwise, the sale would be void.
And, secondly, considering that, pursuant to Article
1878, (5), of the Civil Code, a special power of
attorney was necessary for entering "into any
contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a
valuable consideration," the written authority must
be a special power of attorney to sell.
ISSUE #3: Whether or not the Court of Appeals
erred in not declaring the 2.5% monthly interest
illegal and usurious, considering that the 8%
interest was already declared as invalid and
unwarranted.
HELD #3: NO. To start with, the petitioners are now
estopped from assailing the validity of the monthly
interest payments made. They expressly consented
to be liable to pay 2.5%/month on the principal loan
of P2.3 Million, and actually made several
payments of interest at that rate. Secondly, they did
not assail the rate of 2.5%/month as interest in the
lower courts, doing so only in this appeal. Hence,
they cannot be permitted to bring the issue for the
first time in this Court, for that would be unfair not
only to the adverse parties but also to the lower
courts by depriving the latter of the opportunity to
pass upon the issue. And, thirdly, the invalidation
by the CA of the 8% compounded interest does not
justify deleting the stipulation on the 2.5%/month
interest that was really separate and distinct from
the former.
[1] Section 1. 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
obligation, the provisions of the following section
shall govern as to the manner in which the sale and
redemption shall be effected, whether or not
provision for the same is made in the power.
United Overseas Bank v. BOC-HLURB, 760
SCRA 300
Facts:
EDUPLAN bought a condominium unit from J.O.S.
Managing Builders, Inc. under a contract to sell.
The condominium unit was fully paid in August
1998 and executed their deed of absolute sale in
December 1998. However, J.O.S. Managing
Builders did not deliver the condominium certificate
title to EDUPLAN, which, in time, discovered that
J.O.S. Managing Builders that the unit was the
subject of mortgage by J.O.S. Managing Builders in
favour of United Overseas Bank. Now EDUPLAN
filed a petition to declare the mortgage between
J.O.S. Managing Builders and United Overseas
Bank null and void. On August 15, 2001, HLURB
(Housing and Land Use Regulatory Board) Arbiter
declared the mortgage null and void. Such decision
led to the petition of United Overseas Bank.
Issues:
W/N the HLURB erred in declaring null and void the
mortgage.
Ruling:
 Yes, the HLURB erred in declaring null and void the
mortgage. This is because EDUPLAN, a unit buyer,
has no legal standing in order for it to seek
complete nullification of the mortgage when it only
has interest to the single unit that it purchased.
iv. Effects
DBP v. CA, 294 SCRA 331
Development Bank of t h e Philippines
Vs.
CA, Celebrada Mangubat & Abner Mangubat,
G.R. No. 110053, October 16, 1995 (249 SCRA
331)
FACTS:
A land, covered by a tax declaration, was originally
owned by one Presentacion Cordovez, who, on
February 9, 1937, donated it to Luciano Sarmiento.
On June 8, 1964 Luciano Sarmiento sold the land
to Pacifico Chica.
On April 27, 1965, Pacifico Chica mortgaged the
land to DBP to secure a loan of P6,000.00.
However, he defaulted in the payment of the loan,
hence DBP caused the extrajudicial foreclosure of
the mortgage.
In the auction sale held on September 9, 1970,
DBP acquired the property as the highest bidder
and was issued a certificate of sale on September
17, 1970 by the sheriff.
On October 14, 1980, spouses Celebrada and
Abner Mangubat offered to buy the property for
P18,599.99. DBP made a counter-offer of
P25,500.00 which was accepted by respondent
spouses. The parties further agreed that payment
was to be made within six months thereafter for it to
be considered as cash payment.
On July 20, 1981, a deed of absolute sale was
executed. Said document contained a waiver of the
seller's warranty against eviction.
Thereafter, the spouses Mangubat applied for an
industrial tree planting loan with DBP. The latter
required the former to submit a certification from
the Bureau of Forest Development that the land is
alienable and disposable. However, on October 29,
1981, said office issued a certificate attesting to the
fact that the said property was classified as
timberland, hence not subject to disposition.
The loan application of respondent spouses was,
nevertheless, eventually approved by DBP in the
sum of P140,000.00, despite the aforesaid
certification of the bureau, on the understanding of
the parties that DBP would work for the release of
the land by the former Ministry of Natural
Resources.
To secure payment of the loan, respondent
spouses executed a real estate mortgage over the
land on March 17, 1982, which document was
registered in the Registry of` Deeds pursuant to Act
No. 3344. The loan was then released to the
spouses Mangubat on a staggered basis. After a
substantial sum of P118,540.00 had been received
by private respondent, they asked for the release of
the remaining amount of the loan. It does not
appear that their request was acted upon by DBP,
ostensibly because the release of the land from the
then Ministry of Natural Resources had not been
obtained.
The spouses Mangubat then filed a complaint
against DBP seeking the annulment of the subject
deed of absolute sale on the ground that the object
thereof was verified to be timberland and, therefore,
is in law an inalienable part of the public domain.
They also alleged that DBP acted fraudulently and
in bad faith by misrepresenting itself as the
absolute owner of the land and in incorporating the
waiver of warranty against eviction in the deed of
sale
In its answer, DBP contended that it was actually
the absolute owner of the land, having purchased it
for value at an auction sale pursuant to an
extrajudicial foreclosure of mortgage; that there
was neither malice nor fraud in the sale of the land
under the terms mutually agreed upon by the
parties; that assuming arguendo that there was a
flaw in its title, DBP cannot be held liable for
anything inasmuch as respondent spouses had full
knowledge of the extent and nature of DBP's rights,
title and interest over the land.
The trial court rendered judgment annulling the
subject deed of absolute sale and ordering DBP to
return the P25,500.00 purchase price, plus interest;
to reimburse to respondent spouses the taxes paid
by them, the cost of the relocation survey,
incidental expenses and other damages in the
amount of P50,000.00; and to further pay them
attorney's fees and litigation expenses in the
amount of P10,000.00, and the costs of suit.
Upon appeal, the CA rendered judgment modifying
the disposition of the lower court by deleting the
award for damages, attorney's fees, litigation
expenses and the costs, but affirming the same in
all its other aspects.
ISSUE:
Whether a loan contract which is secured by a void
mortgage is still valid.
HELD: YES. Affirmed with Modifications.
In its legal context, the contract of loan executed
between the parties is entirely different and discrete
from the deed of sale they entered. The annulment
of the sale will not influence the existence and
demandability of the loan. One who has received
money as a loan is bound to pay to the creditor an
equal amount of the same kind and quality.
The fact that the annulment of the sale will also
result in the invalidity of the mortgage does not
have an effect on the validity and efficacy of the
principal obligation, for even an obligation that is
unsupported by any security of the debtor may also
be enforced by means of an ordinary action. Where
a mortgage is not valid, as where it is executed by
one who is not the owner of the property, or the
consideration of the contract is simulated or false,
the principal obligation which it guarantees is not
thereby rendered null and void. That obligation
matures and becomes demandable in accordance
with the stipulations pertaining to it.
Under the foregoing circumstances, what is lost is
only the right to foreclose the mortgage as a special
remedy for satisfying or settling the indebtedness
which is the principal obligation. In case of nullity,
the mortgage deed remains as evidence or proof of
a personal obligation of the debtor, and the amount
due to the creditor may be enforced in an ordinary
personal action.
Considering that neither party questioned the
legality and correctness of the judgment of the
court a quo, as affirmed by respondent court,
ordering the annulment of the deed of absolute
sale, such decreed nullification of the document
has already achieved finality. We only need,
therefore, to dwell on the effects of that declaration
of nullity.
With respect to the right of a party to recover the
amount given as consideration, this has been
passed upon in the case of Leather Manufacturers
National Bank vs. Merchants National Bank where
it was held that: "What money is paid upon the
representation of the receiver that he has either a
certain title in property transferred in consideration
of the payment or a certain authority to receive the
money paid, when in fact he has no such title or
authority, then, although there be no fraud or
intentional misrepresentation on his part, yet there
is no consideration for the payment, the money
remains, in equity and good conscience, the
property of the payer and may be recovered back
by him."
Therefore, the purchaser is entitled to recover the
money paid by him where the contract is set aside
by reason of the mutual material mistake of the
parties as to the identity or quantity of the land sold.
And where a purchaser recovers the purchase
money from a vendor who fails or refuses to deliver
the title" he is entitled as a general rule to interest
on the money paid from the time of Payment. A
contract which the law denounces as void is
necessarily no contract whatever, and the acts of
the parties in an effort to create one can in no wise
bring about a change of their legal status. The
parties and the subject matter of the contract
remain in all particulars just as they did before any
act was performed in relation thereto.
Carpo v. Chua, 471 SCRA 471
Spouses David B. Carpo & Rechilda S. Carpo
Vs.
Eleanor Chua & Elma Dy Ng,
G.R. Nos. 150773 & 153599, September 30, 2005
(471 SCRA 471)
FACTS:
The spouses Carpo borrowed from Chua and Ng
the amount of P175,000 payable within 6 months
with an interest of 6% per month. To secure the
loan, they mortgaged their residential house and lot
in Camarines Sur. They failed to pay the loan.
Consequently, the property was extrajudicially
foreclosed and sold at an auction sale to Chua and
Ng. Upon failure to exercise their right of
redemption, a certificate of sale was issued and
TCTs were issued in the name of the winning
bidders. Despite such developments, the spouses
Carpo continued to occupy the house and lot
prompting Chua and Ng to file a petition for writ of
possession. Such writ was issued.
The spouses Carpo then filed a complaint for the
annulment of real estate mortgage and the
consequent foreclosure proceedings. They
consigned the amount of P257, 197.26 with the
court. A TRO was issued. The RTC suspended the
enforcement of the writ of possession pending the
final disposition of the complaint.
Chua and Ng questioned this suspension order
before the CA. During the pendency of the case
before the CA, the court handling the complaint for
annulment dismissed the case on the ground that it
was filed out of time and was barred by laches. A
petition was filed assailing the dismissal of the
complaint.
The CA eventually reversed the suspension order
on the ground that it was the ministerial duty of the
lower court to issue the writ of possession when
title over the mortgaged property had been
consolidated in the mortgagee.
ISSUE:
Whether a mortgage can be nullified on the ground
that the interest of the loan which is secured by the
mortgage is usurious.
HELD: NO. Affirmed.
There is no need to unsettle the principle affirmed
in Medel and like cases. From that perspective, it is
apparent that the stipulated interest in the subject
loan is excessive, iniquitous, unconscionable and
exorbitant. Pursuant to the freedom of contract
principle embodied in Article 1306 of the Civil Code,
contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order, or public
policy. In the ordinary course, the codal provision
may be invoked to annul the excessive stipulated
interest.
In the case at bar, the stipulated interest rate is 6%
per month, or 72% per annum. By the standards
set in the above - cited cases, this stipulation is
similarly invalid. However, the RTC refused to apply
the principle cited and employed in Medel on the
ground that Medel did not pertain to the annulment
of a real estate mortgage, as it was a case for
annulment of the loan contract itself. The question
thus sensibly arises whether the invalidity of the
stipulation on interest carries with it the invalidity of
the principal obligation. The question is crucial to
the present petition even if the subject thereof is not
the annulment of the loan contract but that of the
mortgage contract.
The consideration of the mortgage contract is the
same as that of the principal contract from which it
receives life, and without which it cannot exist as an
independent contract. Being a mere accessory
contract, the validity of the mortgage contract
would depend on the validity of the loan
secured by it. Notably in Medel, the Court did not
invalidate the entire loan obligation despite the
inequitability of the stipulated interest, but instead
reduced the rate of interest to the more reasonable
rate of 12% per annum. The same remedial
approach to the wrongful interest rates involved
was employed or affirmed by the Court in
Solangon, Imperial, Ruiz, Cuaton, and Arrofo. The
Court’s ultimate affirmation in the cases cited of the
validity of the principal loan obligation side by side
with the invalidation of the interest rates thereupon
is congruent with the rule that a usurious loan
transaction is not a complete nullity but defective
only with respect to the agreed interest.
The Court’s wholehearted affirmation of the rule
that the principal obligation subsists despite the
nullity of the stipulated interest is evinced by its
subsequent rulings, cited above, in all of which the
main obligation was upheld and the offending
interest rate merely corrected. Hence, it is clear and
settled that the principal loan obligation still stands
and remains valid. By the same token, since the
mortgage contract derives its vitality from the
validity of the principal obligation, the invalid
stipulation on interest rate is similarly insufficient to
render void the ancillary mortgage contract.
The petition for certiorari and mandamus
questioning the suspension order was proper since
the said order was interlocutory in nature and since
the case involved the performance of a ministerial
duty.
Tuason v. Orozco, 5 Phil 596
Gonzalo Tuason
Vs.
Dolores Orozco,
G.R. No. 2344, February10,1906(5Phil596)
FACTS:
On November 19, 1888, Juan de Vargas y Amaya,
the defendant's husband, executed a power of
attorney to Enrique Grupe, authorizing him to
dispose of all his property, and particularly of a
certain house and lot known as No. 24 Calle
Nueva, Malate, in the city of Manila, for the price at
which it was actually sold. He was also authorized
to mortgage the house for the purpose of securing
the payment of any amount advanced to his wife,
Dolores Orozco de Rivero.
On the 21st of January, 1890, Enrique Grupe and
Dolores Orozco de Rivero obtained a loan from the
plaintiff secured by a mortgage on the property
referred to in the power of attorney. In the caption
of the instrument evidencing the debt it is stated the
Grupe and Dolores Orozco appeared as the parties
of the first part and Gonzalo Tuason, the plaintiff,
as the party of the second part; that Grupe acted
for himself and also in behalf of Juan Vargas by
virtue of the power granted him by latter, and that
Dolores Orozco appeared merely for the purpose of
complying with the requirements contained in the
power of attorney. This instrument was duly
recorded in the Registry of Property, and it appears
therefrom that Enrique Grupe, as attorney in fact for
Vargas, received from the plaintiff a loan of 2,200
pesos and delivered the same to the defendant. To
secure its payment, he mortgaged the property of
his principal with defendant's consent as required in
the power of attorney.
The loan was not paid. The creditor filed suit and
won in the lower court.
ISSUE:
Whether validity of the mortgage can be affected by
the circumstances on how the money from the loan
was received by the mortgagor.
HELD: NO. AFFIRMED.
The fact that the defendant received the money
from her husband's agent and not from the creditor
does not affect the validity of the mortgage in view
of the conditions contained in the power of attorney
under which the mortgage was created. Nowhere
does it appear in this power that the money was to
be delivered to her by the creditor himself and not
through the agent or any other person. The
important thing was that she should have received
the money. This we think is fully established by the
record.
A debt thus incurred by the agent is binding directly
upon the principal, provided the former acted, as in
the present case, within the scope of his authority.
(Art. 1727 of the Civil Code.) The fact that the agent
has also bound himself to pay the debt does not
relieve from liability the principal for whose benefit
the debt was incurred.
The individual liability of the agent constitutes in the
present case a further security in favor of the
creditor and does not affect or preclude the liability
of the principal. In the present case the latter's
liability was further guaranteed by a mortgage upon
his property. The law does not provide that the
agent can not bind himself personally to the
fulfillment of an obligation incurred by him in the
name and on behalf of his principal. On the
contrary, it provides that such act on the part of an
agent would be valid. (Art. 1725 of the Civil Code.)
The appellant's final contention is that in order to
render judgment against the mortgaged property it
would be necessary that the minor children of Juan
de Vargas be made parties defendant in this action,
they having an interest in the property. Under
article 154 of the Civil Code, which was in force at
the time of the death of Vargas, the defendant had
the parental authority over her children and
consequently the legal representation of their
persons and property. (Arts. 155 and 159 of the
Civil Code.) It can not be said, therefore, that they
were not properly represented at the trial.
Furthermore this action was brought against the
defendant in her capacity as administratrix of the
estate of the deceased Vargas. She did not deny in
her answer that she was such administratrix.
Vargas having incurred this debt during his
marriage, the same should not be paid out of
property belonging to the defendant exclusively but
from that pertaining to the conjugal partnership.
This fact should be borne in mind in case the
proceeds of the mortgaged property be not
sufficient to pay the debt and interest thereon. The
judgment of the court below should be modified in
so far as it holds the defendant personally liable for
the payment of the debt.
Lagrosa v. CA, 312 SCRA 298
Ruben Lagrosa
Vs.
CA, Spouses Romulo & Evelyn A. Banua, &
Cesar Orolfo,
G.R. Nos. 115981-82, August 12, 1999 (312
SCRA 298)
FACTS:
Involved in this case is the possession of sixty-five
(65) square meters of residential lot located in
Paco, Manila, originally owned by the City of Manila
which, in due course, following its land and housing
program for the under-privileged, awarded it to one
Julio Arizapa who constructed a house and
upholstery shop thereon. The award was in the
nature of a "Contract to Sell" payable monthly for a
period of twenty (20) years. Before Julio Arizapa
could pay for the lot, he died, leaving behind his
wife and children. His wife died the following year.
The surviving children, including Evelyn Arizapa
Banua, executed a Deed of Extrajudicial Partition
adjudicating unto themselves the lot and a
Renunciation in favor of Evelyn. Cesar Orolfo is the
caretaker of the same subject property as
authorized and appointed by Evelyn Banua, in
whose name TCT No. 197603 covering the said
property is registered. The title of Evelyn Banua
to the subject property is evidenced by a Deed
of Sale executed by the City of Manila in her
favor and by a TCT.
Ruben Lagrosa claims to be the lawful possessor of
the subject property by virtue of the "Deed of
Assignment of Real Estate Mortgage" executed in
his favor by Presentacion Quimbo on the basis of a
"Contract of Real Estate Mortgage" executed by
Julio Arizapa in favor of the latter. Lagrosa posits
that he cannot be evicted from the subject property
because he had prior possession as assignee of
the said "Assignment of Real Estate Mortgage"
executed by Presentacion Quimbo in his favor, and
with the consent of Mauricia Albaytar, the sister of
the deceased Josefa Albaytar Arizapa, after the
demise of the spouses Julio Arizapa and Josefa
Albaytar.
Evelyn Banua and her husband filed a case against
Lagrosa. Lagrosa, in turn, filed a case against
Cesar Orolfo.
The case filed by Evelyn Banua was ruled in her
favor.
The case filed by Lagrosa was ruled in his favor.
The case was consolidated in the CA, and the court
affirmed the ruling in favor of Evelyn Banua and
reversed the ruling in favor of Cesar Orolfo.
ISSUE:
Whether a mortgage executed by a person who is
not the owner of the property is valid.
HELD: NO. Affirmed.
The Deed of Real Estate Mortgage" executed by
Julio Arizapa is null and void, the property
mortgaged by Julio Arizapa being owned by the
City of Manila under Transfer Certificate of Title No.
91120. For a person to validly constitute a valid
mortgage on real estate, he must be the
absolute owner thereof as required by Article
2085 of the Civil Code of the Philippines.
Since the mortgage to Presentacion Quimbo of the
lot is null and void, the assignment by Presentacon
Quimbo of her rights as mortgage to Lagrosa is
likewise void. Even if the mortgage is valid as
insisted by herein petitioner, it is well- settled that a
mere mortgagee has no right to eject the occupants
of the property mortgaged. This is so, because a
mortgage passes no title to the mortgagee. Indeed,
by mortgaging a piece of property, a debtor merely
subjects it to a lien but ownership thereof is not
parted with.
Thus, a mortgage is regarded as nothing more than
a mere lien, encumbrance, or security for a debt,
and passes no title or estate to the mortgagee and
gives him no right or claim to the possession of the
property.
Petitioner Lagrosa now contends that what was
mortgaged by Julio Arizapa in favor of Presentacion
Quimbo was "his right as an awardee over the
homelot in question, and not the homelot itself."
Petitioner would have this Court uphold the validity
and legality of the mortgage over the "right as an
awardee" rather than the homelot itself. The
agreement between the City of Manila and Julio
Arizapa was in the nature of a "contract to sell," the
price for the lot being payable on installment for a
period of twenty (20) years which could yet
prevent, such as by the non-fulfillment of the
condition, the obligation to convey title from
acquiring any obligatory force. Hence, there is no
"right" as awardee to speak of, and there is no
alienable interest in the property to deal with.
As to Lagrosa's prior possession of the subject
property, their stay in the property as correctly
found by the respondent Court of Appeals was by
mere tolerance or permission. It is well-settled that
"a person who occupies the land of another at the
latter's tolerance or permission, without any
contract between them is necessarily bound by an
implied promise that he will vacate upon demand,
failing which, a summary action for ejectment is the
proper remedy against him. By Lagrosa's own
admission, he is merely an assignee of the rights of
the mortgage of the lot and that, consequently, the
respondent Court of Appeals correctly ruled that the
only right of action of Lagrosa as such assignee of
the mortgagee, where the mortgagor is already
dead, is that provided for in Section 7 of Rule 86
and Section 5 of Rule 87 of the Rules of Court.
Thus, the mortgagee does not acquire title to the
mortgaged real estate unless and until he
purchases the same at public auction and the
property is not redeemed within the period provided
for by the Rules of Court.
Castro v. CA, 250 SCRA 661
Luis Castro, Jr., Marissa Castro, Ramon Castro,
Mary Ann Castro, Catherine Castro & Antonio
Castro
Vs.
CA & Union Bank of the Philippines,
G.R. No. 97401, December 6, 1995 (250 SCRA
661)
FACTS:
On 15 August 1974, Cabanatuan City Colleges
obtained a loan from the Bancom Development
Corporation. In order to secure the indebtedness,
the college mortgaged to Bancom two parcels of
land covered by TCT No. T -45816 and No. T-
45817 located in Cabanatuan City. The parcels
were both within the school site. While the
mortgage was subsisting, the college board of
directors agreed to lease to petitioners a 1,000-
square-meter portion of the encumbered property
on which the latter, eventually, built a residential
house. Bancom, the mortgagee, was duly advised
of the matter.
The school defaulted in the due payment of the
loan. In time, Bancom extrajudicially foreclosed on
the mortgage, and the mortgaged property was
sold at public auction on 22 August 1979 with
Bancom coming out to be the only bidder. A
certificate of sale was accordingly executed by the
provincial sheriff in favor of Bancom. Subsequently,
the latter assigned its credit to herein private
respondent Union Bank of the Philippines. On 10
October 1984, following the expiration of the
redemption period without the college having
exercised its right of redemption, private
respondent consolidated title to the property. On 08
May 1985, private respondent filed with the
Regional Trial Court of Nueva Ecija, Branch XXVIII
in Cabanatuan City, an ex-parte motion for the
issuance of a writ of possession not only over the
land and school buildings but also the residential
house constructed by petitioners. On 10 May 1985,
the lower court granted the motion and direct
issuance of the corresponding writ. The ex- officio
provincial sheriff, in implementing the writ, thereby
also sought the vacation of the premises by
petitioners. When the latter refused, private
respondent filed an ex-parte motion for a special
order directing the physical ouster of the occupants.
On 23 May 1986, petitioners formally entered their
appearance in the proceedings to oppose the ex-
parte motion. Petitioners averred that, being the
owners of the residential house which they
themselves had built on the foreclosed property
with the prior knowledge of the mortgagee, they
could not be ousted simply on the basis of a
petition for a writ of possession under Act No. 3135.
The court, nevertheless, issued an order granting
private respondent's motion, and it directed Atty.
Luis T. Castro representation of petitioners, to
deliver "all the keys to all the room premises" found
on the property foreclosed and authorized, in the
event petitioners would refuse to surrender the
keys, private respondent "to the premises in
question and do what is best for the preservation
properties belonging to the Cabanatuan City
Colleges."
Upon appeal, the CA affirmed.
ISSUE:
Whether a house subsequently built by a lessee on
mortgaged land with the knowledge of the
mortgagee can be included in the foreclosure
proceedings.
HELD: NO. REVERSED.
Art. 2127 NCC provides that 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
passes into the hands of a third person.
This article extends the effects of the real estate
mortgage to accessions and accessories found on
the hypothecated property when the secured
obligation becomes due. The law is predicated on
an assumption that the ownership of such
accessions and accessories also belongs to the
mortgagor as the owner of the principal. The
provision has thus been seen by the Court, in a
long line of cases beginning in 1909 with Bischoff
vs. Pomar, to mean that all improvements
subsequently introduced or owned by the
mortgagor on the encumbered property are
deemed to form part of the mortgage. That the
improvements are to be considered so incorporated
only if so owned by the mortgagor is a rule that can
hardly be debated since a contract of security,
whether real or personal, needs as an
indispensable element thereof the ownership by the
pledgor or mortgagor of the property pledged or
mortgaged. The rationale should be clear enough
— in the event of default on the secured obligation,
the foreclosure sale of the property would naturally
be the next step that can expectedly follow. A sale
would result in the transmission of title to the buyer
which is feasible only if the seller can be in a
position to convey ownership of the thing sold
(Article 1458, Civil Code). It is to say, in the instant
case, that a foreclosure would be ineffective unless
the mortgagor has title to the property to be
foreclosed.
It may not be amiss to state, in passing, that in
respect of the lease on the foreclosed property, the
buyer at the foreclosure sale merely succeeds to
the rights and obligations of the pledgor-mortgagor
subject, however, to the provisions of Article 1676
of the Civil Code, on its possible termination.
Litonjua v. L&R Corp., 320 SCRA 405
Sps. Reynaldo K. Litonjua & Erlinda P. Litonjua
& Phil. White House Auto Supply, Inc.
Vs.
L & R Corporation, Vicente M. Coloyan in his
capacity as Acting Registrar of the Register of
Deeds of Quezon City thru Deputy Sheriff
Roberto R. Garcia,
G.R. No. 130722, December 9, 1999 (320 SCRA
405)
FACTS:
The spouses Litonjua obtained loans from the L &
R Corp. in the aggregate sum of P400,000. The
loans were secured by a mortgage constituted by
the spouses upon their 2 parcels of land and the
improvements thereon located in Cubao, Quezon
City. The mortgage provided that the mortgagor
cannot sell the mortgaged property without getting
the consent of the mortgagee and that the
mortgagee shall have the right of first refusal.
The spouses Litonjua then sold the property to Phil.
White House Auto Supply, Inc. The sale was
annotated at the back of the certificate of title.
The spouses Litonjua defaulted on their loan, so L
& R Corp. started extrajudicial foreclosure of the
property. During the public auction, L & R Corp., as
the sole bidder, bought the land. When L & R Corp
attempted to have their Certificate of Sale recorded,
it discovered the prior sale of the land to PWHAS
for the first time. L & R Corp. wrote a letter to the
Register of Deeds requesting the cancellation of
the annotation of the sale on the ground that the
contract of mortgage prohibited such sale. 7
months after the foreclosure sale, PWHAS, for the
account of the spouses Litonjua, tendered payment
of the full redemption price to L & R Corp in the
form of a Chinabank manager’s check.
L & R Corp refused to accept the payment. Hence,
PWHAS was compelled to redeem the mortgaged
properties through the ex-officio sheriff who, in turn,
issued a Certificate of Redemption. Due to the
refusal of L & R Corp to return their owner’s
duplicate certificate of title, the spouses Litonjua
asked the Register of Deeds to annotate their
Certificate of Redemption as an adverse claim on
the titles. The Register of Deeds refused to do so,
hence the spouses Litonjua filed a petition against
L & R Corp for the surrender of the title.
While the case was pending, L & R Corp. executed
an Affidavit of Consolidation of Ownership. The
Register of Deeds then issued it a TCT, free of any
lien and encumbrance. L & R Corp then informed
all tenants of the property to pay the rentals to it.
Upon learning of this, the spouses Litonjua filed an
adverse claim and a notice of lis pendens with the
Register of Deeds. In the process, they learned that
the prior sale of the properties to PWHAS was not
annotated on the titles. A complaint for quieting of
title, annulment of title & damages was filed.
The lower court dismissed the complaint.
CA reversed at first, but set aside its decision in an
amended decision.
ISSUE:
1. Whether a mortgage contract may provide that
the mortgagor cannot sell the mortgaged property
without first obtaining the consent of the
mortgagee.
2. Whether a mortgage contract may provide for a
right of first refusal in favor of the mortgagee.
HELD:
In the case of Philippine Industrial Co. v. El Hogar
Filipino and Vallejo, a stipulation prohibiting the
mortgagor from entering into second or subsequent
mortgages was held valid. This is clearly not the
same as that contained in paragraph 8 of the
subject Deed of Real Estate Mortgage which also
forbids any subsequent sale without the written
consent of the mortgagee.
Yet, in Arancillo v. Rehabilitation Finance
Corporation, the case of Philippine Industrial Co.,
supra, was erroneously cited to have held a
mortgage contract against the encumbrance, sale
or disposal of the property mortgaged without the
consent of the mortgagee is valid. No similar
prohibition forbidding the owner of mortgaged
property from (subsequently) mortgaging the
immovable mortgaged is found in our laws, making
the ruling in Philippine Industrial Co., supra,
perfectly valid. On the other hand, to extend such a
ruling to include subsequent sales or alienation
runs counter not only to Philippine Industrial Co.,
itself, but also to Article 2130 of the New Civil
Code.
Meanwhile in De la Paz v. Macondray &; Co., Inc.,
it was held that while an agreement of such nature
does not nullify the subsequent sale made by the
mortgagor, the mortgagee is authorized to bring the
foreclosure suit against the mortgagor without the
necessity of either notifying the purchaser or
including him as a defendant. At the same time, the
purchaser of the mortgaged property was deemed
not to have lost his equitable right of redemption.
In Bonnevie v. Court of Appeals, where a similar
provision appeared in the subject contract of
mortgage, the petitioners therein, to whom the
mortgaged property were sold without the written
consent of the mortgagee, were held as without the
right to redeem the said property. No consent
having been secured from the mortgagee to the
sale with assumption of mortgage by petitioners
therein, the latter were not validly substituted as
debtors. It was further held that since their rights
were never recorded, the mortgagee was charged
with the obligation to recognize the right of
redemption only of the original mortgagors-vendors.
Without discussing the validity of the stipulation in
question, the same was, in effect, upheld.
On the other hand, in Tambunting v.
RehabilitationFinanceCorporation, the validity of a
similar provision was specifically raised and
discussed and found as invalid. It was there
ratiocinated that the provision can only be
construed as directed against subsequent
mortgages or encumbrance, not to an alienation of
the immovable itself. For while covenants
prohibiting the owner from constituting a later
mortgage over property registered under the
Torrens Act have been held to be legally
permissible (Phil. Industrial Co. v. El Hogar Filipino,
et al., 45 Phil. 336, 341-342; Bank of the
Philippines v. Ty Camco Sobrino, 57 Phil. 801),
stipulations "forbidding the owner from alienating
the immovable mortgaged" are expressly declared
void by law (Art. 2130, Civil Code).
Earlier, in PNB v. Mallorca, it was reiterated that a
real mortgage is merely an encumbrance; it does
not extinguish the title of the debtor, whose right to
dispose – a principal attribute of ownership – is not
thereby lost. Thus, a mortgagor had every right to
sell his mortgaged property, which right the
mortgagee cannot oppose.
Insofar as the validity of the questioned stipulation
prohibiting the mortgagor from selling his
mortgaged property without the consent of the
mortgagee is concerned, therefore, the ruling in the
Tambunting case is still the controlling law.
Indeed, we are fully in accord with the
pronouncement therein that such a stipulation
violates Article 2130 of the New Civil Code. Both
the lower court and the Court of Appeals in its
Amended Decision rationalize that since paragraph
8 of the subject Deed of Real Estate Mortgage
contains no absolute prohibition against the sale of
the property mortgaged but only requires the
mortgagor to obtain the prior written consent of the
mortgagee before any such sale, Article 2130 is not
violated thereby.
This observation takes a narrow and technical view
of the stipulation in question without taking into
consideration the end result of requiring such prior
written consent. True, the provision does not
absolutely prohibit the mortgagor from selling his
mortgaged property; but what it does not outrightly
prohibit, it nevertheless achieves. For all intents
and purposes, the stipulation practically gives the
mortgagee the sole prerogative to prevent any sale
of the mortgaged property to a third party. The
mortgagee can simply withhold its consent and
thereby, prevent the mortgagor from selling the
property. This creates an unconscionable
advantage for the mortgagee and amounts to a
virtual prohibition on the owner to sell his
mortgaged property.
In other words, stipulations like those covered by
paragraph 8 of the subject Deed of Real Estate
Mortgage circumvent the law, specifically, Article
2130 of the New Civil Code. Being contrary to law,
paragraph 8 of the subject Deed of Real Estate
Mortgage is not binding upon the parties.
Accordingly, the sale made by the spouses Litonjua
to PWHAS, notwithstanding the lack of prior written
consent of L & R Corporation, is valid.
While petitioners question the validity of paragraph
8 of their mortgage contract, they appear to be
silent insofar as paragraph 9 thereof is concerned.
Said paragraph 9 grants upon L & R Corporation
the right of first refusal over the mortgaged property
in the event the mortgagor decides to sell the
same. We see nothing wrong in this provision.
The right of first refusal has long been
recognized as valid in our jurisdiction. The
consideration for the loan-mortgage includes
the consideration for the right of first refusal. L
& R Corporation is, in effect, stating that it
consents to lend out money to the spouses
Litonjua provided that in case they decide to
sell the property mortgaged to it, then L & R
Corporation shall be given the right to match
the offered purchase price and to buy the
property at that price. Thus, while the spouses
Litonjua had every right to sell their mortgaged
property to PWHAS without securing the prior
written consent of L & R Corporation, they had the
obligation under paragraph 9, which is a perfectly
valid provision, to notify the latter of their intention
to sell the property and give it priority over other
buyers. It is only upon failure of L & R Corporation
to exercise its right of first refusal could the
spouses Litonjua validly sell the subject properties
to others, under the same terms and conditions
offered to L & R Corporation.
What then is the status of the sale made to PWHAS
in violation of L & R Corporation's contractual right
of first refusal? The Contract of Sale was not
voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise valid
may nonetheless be subsequently rescinded by
reason of injury to third persons, like creditors. The
status of creditors could be validly accorded by the
Bonnevies for they had substantial interest that
were prejudiced by the sale of the subject property
to the Contract of Lease. In the case at bar,
PWHAS cannot claim ignorance of the right of first
refusal granted to L & R Corporation over the
subject properties since the Deed of Real Estate
Mortgage containing such a provision was duly
registered with the Register of Deeds. As such,
PWHAS is presumed to have been notified thereof
by registration, which equates to notice to the
whole world.
We note that L & R Corporation had always
expressed its willingness to buy the mortgaged
properties on equal terms as PWHAS. Indeed, in
its Answer to the Complaint filed, L & R
Corporation expressed that it was ready, willing
and able to purchase the subject properties at
the same purchase price of P430,000.00, and
was agreeable to pay the difference between
such purchase price and the redemption price
of P249,918.77, computed as of August 13,
1981, the expiration of the one-year period to
redeem. That it did not duly exercise its right of
first refusal at the opportune time cannot be
taken against it, precisely because it was not
notified by the spouses Litonjua of their
intention to sell the subject property and
thereby, to give it priority over other buyers.
All things considered, what then are the relative
rights and obligations of the parties? To
recapitulate:, the sale between the spouses
Litonjua and PWHAS is valid, notwithstanding
the absence of L & R Corporation's prior written
consent thereto. Inasmuch as the sale to PWHAS
was valid, its offer to redeem and its tender of the
redemption price, as successor-in-interest of the
spouses Litonjua, within the one-year period
should have been accepted as valid by the L &
R Corporation. However, while the sale is,
indeed, valid, the same is rescissible because it
ignored L & R Corporation's right of first
refusal.
v. Equitable Mortgage
Lanuza v. De Leon, 20 SCRA 369
In Re: Petition for Consolidation of Title in the Vendees
of a House and the Rights to a Lot. Maria Bautista Vda.
de Reyes, et al., Rodolfo Lanuza
Vs.
Martin de Leon,
G.R. No. L-22331, June 6, 1967 (20 SCRA 369)
FACTS:
Rodolfo Lanuza and his wife Belen were the owners of a
two-story house built on a lot of the Maria Guizon
Subdivision in Tondo, Manila, which the spouses leased
from the Consolidated Asiatic Co. On January 12, 1961,
Lanuza executed a document entitled "Deed of Sale with
Right to Repurchase" whereby he conveyed to Maria
Bautista Vda. de Reyes and Aurelia R. Navarro the house,
together with the leasehold rights to the lot, a television set
and a refrigerator in consideration of the sum of P3,000.
When the original period of redemption expired, the parties
extended it to July 12, 1961 by an annotation to this effect
on the left margin of the instrument. Lanuza's wife, who did
not sign the deed, this time signed her name below the
annotation.
It appears that after the execution of this instrument,
Lanuza and his wife mortgaged the same house in favor of
Martin de Leon to secure the payment of P2,720 within one
year. This mortgage was executed on October 4, 1961 and
recorded in the Office of the Register of Deeds of Manila on
November 8, 1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed
a petition for the extrajudicial foreclosure of the mortgage.
On the other hand, Reyes and Navarro followed suit by
filing in the Court of First Instance of Manila a petition for
the consolidation of ownership of the house on the ground
that the period of redemption expired on July 12, 1961
without the vendees exercising their right of repurchase.
The petition for consolidation of ownership was filed on
October 19. On October 23, the house was sold to De Leon
as the only bidder at the sheriff's sale. De Leon immediately
took possession of the house, secured a discharge of the
mortgage on the house in favor of a rural bank by paying
P2,000 and, on October 29, intervened in court and asked
for the dismissal of the petition filed by Reyes and Navarro
on the ground that the unrecorded pacto de retro sale could
not affect his rights as a third party.
The court ruled for Reyes and Navarro.
ISSUE:
Whether an unrecorded prior sale of a property is preferred
over a recorded subsequent mortgage. (YES)
Whether a recorded subsequent mortgage is preferred over
a prior equitable mortgage. (YES)
HELD:
We are in accord with the trial court's ruling that a
conveyance of real property of the conjugal partnership
made by the husband without the consent of his wife is
merely voidable. This is clear from article 173 of the Civil
Code which gives the wife ten years within which to bring
an action for annulment. As such it can be ratified as
Lanuza's wife in effect did in this case when she gave her
conformity to the extension of the period of redemption by
signing the annotation on the margin of the deed. We may
add that actions for the annulment of voidable contracts can
be brought only by those who are bound under it, either
principally or subsidiarily (Art. 1397), so that if there was
anyone who could have questioned the sale on this ground
it was Lanuza's wife alone.
We also agree with the lower court that between an
unrecorded sale of a prior date and a recorded mortgage of
a later date the former is preferred to the latter for the
reason that if the original owner had parted with his
ownership of the thing sold then he no longer had the
ownership and free disposal of that thing so as to be able to
mortgage it again. Registration of the mortgage under Act
No. 3344 would, in such case, be of no moment since it is
understood to be without prejudice to the better right of third
parties. Nor would it avail the mortgagee any to assert that
he is in actual possession of the property for the execution
of the conveyance in a public instrument earlier was
equivalent to the delivery of the thing sold to the vendee.
But there is one aspect of this case which leads us to a
different conclusion. It is a point which neither the parties
nor the trial court appear to have sufficiently considered.
We refer to the nature of the so-called "Deed of Sale with
Right to Repurchase" and the claim that it is in reality an
equitable mortgage. Circumstances are clearly present that
indicate the existence of the equitable mortgage. The price
is grossly inadequate. There was no transmission of
ownership to the vendees. There was a delay in the filing of
a petition for consolidation. Under these circumstances we If the Dumaraogs fail to pay the P1,500 within the specified
cannot but conclude that the deed in question is in reality a 20 days, Guanzon would be entitled to have execution
mortgage. This conclusion is of far-reaching consequences issue to collect the said amount from the properties of the
because it means not only that this action for consolidation Dumaraogs whereupon the deed of reconveyance would be
of ownership is improper as De Leon claims, but, what is executed by Guanzon.
more, that between the unrecorded deed of Reyes and
Navarro which we hold to be an equitable mortgage, and In no way can the judgment be construed to mean that
the registered mortgage of De Leon, the latter must be should the Dumaraogs fail to pay the money within the
preferred. Preference of mortgage credits is determined by specified period then the property would be conveyed by
the priority of registration of the mortgages, following the the sheriff to Guanzon. Any interpretation in that sense
maxim "Prior tempore potior jure" would contradict the declaration made in the same
(Hewhoisfirstintimeispreferredinright."). Under Article 2125 judgment that the contract between the parties was in fact a
of the Civil Code the equitable mortgage, while valid mortgage and not a pacto de retro sale.
between Reyes and Navarro, on the one hand, and the
Lanuzas, on the other, as the immediate parties thereto, The only right of a mortgagee in case of non-payment of a
cannot prevail over the registered mortgage of De Leon. debt secured by mortgage would be to foreclose the
mortgage and have the encumbered property sold to satisfy
Guanzon v. Argel, 33 SCRA 474 the outstanding indebtedness. The mortgagor’s default
Maria T. Guanzon does not operate to vest in the mortgagee the ownership of
vs. the encumbered property, for any such effect is against
Hon. Manuel Argel, Presiding Judge of CFI of Antique, public policy.
Juan, Ernesto, Estrella, Bartolome, Honorato, all
surnamed Dumaraog,
Ramirez v CA, 409 SCRA 133
G.R. No. L-27706, June 16, 1970 (33 SCRA 474) Carolina P. Ramirez, Ferdinand P. Ramirez, Francis P.
Ramirez, Frederic P. Ramirez, & the Intestate Estate of
FACTS: Francisco Ramirez, Jr.
Ines Flores executed a document entitled pacto de retro vs.
over a parcel of rice land situated in Inabasan, San Jose, CA, Hon. Juan A. Bigornia, Jr., in his capacity as
Antique in favor of Maria Guanzon. When Ines Flores was Presiding Judge of the RTC of Iligan, Isabela, Br. 18 &
unable to pay, Maria Guanzon consolidated her title over Sps. Loreto Claravall & Victoria H. Claravall,
the property. The children of Ines Flores, the Dumaraogs,
filed an action for the redemption of the land claiming that G.R. No. 133841, August 15, 2003 (409 SCRA 133)
the purported pacto de retro sale was actually an equitable
mortgage. FACTS:
On Dec. 29, 1965, spouses Loreto Claravall and
After trial, the court declared the document involved to be Victoria Claravall executed a deed of sale in favor
one of equitable mortgage and ordered Guanzon to execute of the spouses Francisco Ramirez, Jr. and Carolina
an instrument of reconveyance in favor of the Dumaraogs Ramirez covering a parcel of land, including
upon the payment of P1,500. Guanzon then filed this improvements thereon, situated in Ilagan, Isabela.
petition. On even date, another instrument was executed
granting the spouses Claravall an option to
ISSUE: repurchase the property within a period of two
Whether an equitable mortgagee’s title over the mortgaged years from December 29, 1965 but not earlier nor
property will be consolidated if the debtor fails to pay the later than the month of December, 1967. At the
loan. expiration of the two-year period, the Claravalls
failed to redeem the property, prompting them to
HELD: NO. Affirmed. file a complaint against the spouses Francisco
Ramirez, Jr. and Carolina Ramirez to compel the
 latter to sell the property back to them. After trial, pactum commissorium, a forfeiture clause declared by this
judgment was rendered in favor of the spouses Court as contrary to good morals and public policy and,
Ramirez which was, on appeal, affirmed by the therefore, void.
Court of Appeals. On review, however, this Court,
finding that the Deed of Absolute Sale with option Before perfect title over a mortgaged property may thus be
to repurchase executed by private respondents in secured by the mortgagee, he must, in case of non-
favor of the spouses Ramirez was one of equitable payment of the debt, foreclose the mortgage first and
mortgage, reversed the decision of the appellate thereafter purchase the mortgaged property at the
court by Decision of October 15, 1990. The foreclosure sale.
decision of this Court having become final and
executory, possession of the property was turned In fine, the ownership of the property was not vested to the
over to private respondents after they settled their spouses Ramirez upon private respondents’ failure to pay
obligation to the spouses Ramirez. their indebtedness, the registration of the property in the
former’s names notwithstanding, absent any showing that
Following the death of Francisco Ramirez, Jr., the spouses they foreclosed the mortgage and purchased the property
Claravall filed a complaint for accounting and damages at a foreclosure sale.
against the intestate estate of Francisco Ramirez, his
widow and children. A motion to dismiss was filed alleging,
among other things, that the Ramirezes, as registered
owners of the lot prior to its redemption, were entitled to
collect rentals for the lot. The resolution of the motion to
dismiss was deferred. The Ramirezes filed a petition for
certiorari which was denied.

ISSUE:
Whether the mortgagees of an equitable mortgage who
have been registered as the owners of the mortgaged
property can collect rent and other fruits from the said
property.

HELD: NO. Affirmed.

The flaw in petitioners’ argument stems from their
submission that the spouses Ramirez, as “vendees,” were
the owners of the property after it was registered in their
names following the execution of the deed of sale in their
favor.

The declaration, however, by this Court in the first case that

the deed of sale with option to repurchase entered into by
the spouses Ramirez and private respondents was an
equitable mortgage necessarily takes the deed out of the
ambit of the law on sales and puts into operation the law on
mortgage.

It is a well-established doctrine that the mortgagor’s default

does not operate to vest the mortgagee the ownership of
the encumbered property and the act of the mortgagee in
registering the mortgaged property in his own name upon
the mortgagor’s failure to redeem the property amounts to