PEOPLES BANK AND TRUST CO.

AND
ATLANTIC GULF AND PACIFIC CO. VS
DAHICAN LUMBER COMPANY
FACTS:
On September 8, 1948, Atlantic Gulf & Pacific
Company of Manila(ATLANTIC), a West Virginia
corporation licensed to do business in the
Philippines sold and assigned all its rights in the
Dahican Lumber concession to Dahican Lumber
Company(DALCO) for the total sum of
$500,000.00, of which only the amount of
$50,000.00 was paid. to develop concession,
DALCO obtained various loans from the People's
Bank & Trust Company(BANK) amounting to
P200,000.00. In addition, DALCO obtained,
through the BANK, a loan of $250,000.00 from
the Export-Import Bank of Washington D.C.,
evidenced by five promissory notes of $50,000.00
each, executed by both DALCO and the Dahican
America Lumber Corporation, a foreign
corporation and a stockholder of DALCO,
hereinafter referred to as DAMCO, all payable to
the BANK or its order.
As security for the payment DALCO executed in
favor of the BANK the latter acting for itself
and as trustee for the Export-Import Bank of
Washington D.C. A deed of mortgage covering
five parcels of land situated in the province of
Camarines Norte. On the same date, DALCO
executed a second mortgage on the same
properties in favor of ATLANTIC to secure
payment of the unpaid balance of the sale price of
the lumber concession amounting to the sum of
$450,000.00. Both deeds contained the following
provision extending the mortgage lien to properties
to be subsequently acquired by the mortgagor.
Both mortgages were registered in the Office of
the Register of Deeds of Camarines Norte. Upon
DALCO's and DAMCO's failure to pay the fifth
promissory note upon its maturity, the BANK paid
the same to the Export-Import Bank of Washington
D.C., and the latter assigned to the former its credit
and the first mortgage securing it..
After July 13, 1950 the date of execution of the
mortgages mentioned above DALCO purchased
various machineries, equipment, spare parts and
supplies in addition to, or in replacement of some
of those already owned and used by it on the date
aforesaid. Pursuant to the provision of the
mortgage deeds quoted theretofore regarding "after
acquired properties," the BANK requested
DALCO to submit complete lists of said properties

but the latter failed to do so. In connection with

these purchases, there appeared in the books of
DALCO as due to Connell Bros. Company
(Philippines) a domestic corporation who was
acting as the general purchasing agent of DALCO
thereinafter called CONNELL the sum of
P452,860.55 and to DAMCO, the sum of
P2,151,678.34. On December 16, 1952, the Board
of Directors of DALCO, in a special meeting
called for the purpose, passed a resolution agreeing
to rescind the alleged sales of equipment, spare
parts and supplies by CONNELL and DAMCO to
it. Thereafter, the corresponding agreements of
rescission of sale were executed between DALCO
and DAMCO, on the one hand and between
DALCO and CONNELL, on the other.
On January 13, 1953, the BANK, in its own behalf
and that of ATLANTIC, demanded that said
agreements be cancelled but CONNELL and
DAMCO refused to do so. As a result, on February
12, 1953; ATLANTIC and the BANK, commenced
foreclosure proceedings in the Court of First
Instance of Camarines Norte against DALCO and
DAMCO. On the same date they filed an ex-parte
application for the appointment of a Receiver
and/or for the issuance of a writ of preliminary
injunction to restrain DALCO from removing its
properties. The court granted both remedies and
appointed George H. Evans as Receiver. Upon
defendants' motion, however, the court, in its order
of February 21, 1953, discharged the Receiver.
On March 2, 1953, defendants filed their answer
denying the material allegations of the complaint
and alleging several affirmative defenses and a
counterclaim.
On March 4 of the same year, CONNELL, filed a
motion for intervention alleging that it was the
owner and possessor of some of the equipments,
spare parts and supplies which DALCO had
acquired subsequent to the execution of the
mortgages sought to be foreclosed and which
plaintiffs claimed were covered by the lien. In its
order of March 18,1953 the Court granted the
motion, as well as plaintiffs' motion to set aside the
order discharging the Receiver. On August 30,
1958, upon motion of all the parties, the Court
ordered the sale of all the machineries, equipment
and supplies of DALCO, and the same were
subsequently sold for a total consideration of
P175,000.00 which was deposited in court pending
final determination of the action. By a similar
agreement one-half (P87,500.00) of this amount
was considered as representing the proceeds
obtained from the sale of the "undebated

properties" (those not claimed by DAMCO and

CONNELL), and the other half as representing
those obtained from the sale of the "after acquired
properties". all the parties appealed.
DIONISIO MOJICA VS CA AND RURAL
BANK
FACTS:
On February 1, 1971, plaintiff Leonardo Mojica
(now deceased) contracted a loan of P20,000.00
from defendant Rural Bank of Kawit, Inc. (now
respondent). This loan was secured by a real estate
mortgage executed on the same date by the
plaintiffs spouses Leonardo Mojica and Marina
Rufido. The spouses mortgaged to the Rural Bank
of Kawit, a parcel of land. The mortgage was
registered. The loan of P20,000.00 by the plaintiffs
spouses was fully and completely paid. On March
5, 1974, a new loan in the amount of P18,000.00
was obtained by plaintiffs spouses from the
defendant Rural Bank which loan matured on
March 5, 1975 this loan is secured with the same
real estate mortgage. Which was guaranteed the
already paid loan of P20,000.00 granted on
February 1, 1971. The spouses Leonardo Mojica
and Marina Rufido failed to pay their obligation
after its maturity on March 5, 1975. Respondent
rural bank extrajudicially foreclosed the real estate
mortgage on the justification that it was adopted as
a mortgage for the new loan of P18,000.00. The
subject property was set for auction sale by the
Provincial Sheriff of Cavite for June 27, 1979. In
that auction sale, defendant rural bank was the
highest bidder. Meanwhile, on July 19, 1980,
Dionisio Mojica, the son of petitioners-spouses, in
an apparent attempt to pay the debt of P18,000.00
made a partial payment in the amount of
P24,658.00 (P19,958.00 of this amount in check
bounced) which the defendant rural bank received
and accepted with the issuance of the defendant's
official receipt No. 101 269, ackowledging the
payment as partial payment of 'past due loan',
together with the "interest on past due lose (Rollo,
p. 33).
On August 11, 1980, another partial payment was
made by Dionisio Mojica in the amount of
P9,958.00 in payment also of 64 past due loan'
plus "interest on past due loan 7 which payment
was received by the defendant rural bank and
acknowledged with the issuance of official receipt
No. 101844. These payments were, however,
considered by the bank as deposit for the
repurchase of the foreclosed property (Ibid., p. 33).

On August 14, 1981, upon inquiry by Dionisio

Mojica on the unpaid balance of the loan, the
respondent rural bank issued a 'Computation Slip"
indicating therein, that as of August 14, 1981, the
outstanding balance plus interest computed from
March 5, 1975 was P21,272.50 (Ibid.).
On November 10, 1981, said bank executed an
affidavit of consolidation of ownership, which it
subsequently filed with the Register of Deeds of
Cavite. As a result, Transfer Certificate of Title No.
T-123964, covering the foreclosed piece of land,
was issued in its favor by the Register of Deeds on
January 19, 1982. After having consolidated its
ownership over the foreclosed property, defendant
bank scheduled the parcel of land to be sold at
public auction on February 26, 1982, pursuant to
the requirement of the law regarding the disposal
by a bank of its acquired assets. Dionisio Mojica
and one Teodorico Rufido, brother-in-law of
plaintiff Leonardo Mojica, were notified of such
auction sale However, no sale was consummated
during that scheduled sale and the property
concerned up to now still remains in the
possession of respondent bank (Ibid.).
The refusal of the same bank to allow Dionisio
Mojica to pay the unpaid balance of the loan as per
the "Computation Slip" amounting to P21,272.50,
resulted in the filing of a complaint (Rollo, p. 42).
On September 3, 1984, the trial court rendered
judgment dismissing the complaint.
ISSUE:
WON the foreclosure sale by the Sheriff on June
27, 1979, had for its basis, a valid and subsisting
mortgage contract.
HELD:
It has long been settled by a long line of decisions
that mortgages given to secure future
advancements are valid and legal contracts;
that the amounts named as consideration in
said contract do not limit the amount for which
the mortgage may stand as security if from the
four corners of the instrument the intent to
secure future and other indebtedness can be
gathered. A mortgage given to secure
advancements is a continuing security and is not
discharged by repayment of the amount named in
the mortgage, until the full amount of the
advancements are paid (Lim Julian v. Lutero, 49

Phil. 704-705 [1926]). In fact, it has also been held

that where the annotation on the back of a
certificate of title about a first mortgage states "that
the mortgage secured the payment of a certain
amount of money plus interest plus other
obligations arising there under' there was no
necessity for any notation of the later loans on the
mortgagors' title. It was incumbent upon any
subsequent mortgagee or encumbrances of the
property in question to e e the books and records of
the bank, as first mortgagee, regarding the credit
standing of the debtors Tady-Y v. PNB, 12 SCRA
19-20 [1964]).
The evidence on record shows that the amounts of
P4,700.00 and P9,958.00 were accepted by the
bank on July 19 and August 11, 1980 as deposits
for conventional redemption after the property
covered by real estate mortgage became the
acquired asset of the bank and priced at
P85,000.00 and after petitioner had lost all rights
of legal redemption because more than one year
had already elapsed from June 29, 1979, the date
the certificate of sale was registered in the office of
the Registry of Deeds of Cavite. Indeed, the
conventional redemption was subject to be
exercised up to March 3, 1982 and was extended
up to April 19, 1982 for a fixed amount of
P85,000.00. The respondent bank even favored the
petitioner by giving them the first preference to
repurchase the property but they failed to avail of
this opportunity, although the bank "is certainly
disposed to release at anytime" the deposits.
Further, the evidence on record also shows that the
mortgage property was auctioned on June 27,
1979. The only bidder was the respondent bank
which bid for P26,387.04. As the highest bidder,
the respondent bank can rightfully consolidate its
title over the property.

specifically provided that in the event of default in

payment, the mortgagee may immediately
foreclose the mortgage judicially or extrajudicially.
The promissory note evidencing the indebtedness
was dated 4 March 1983. On 29 July 1983,
FINASIA executed in favor of defendant-appellee,
Pioneer Savings & Loan Bank, Inc. (Defendant
Bank, for brevity), an "Outright Sale of
Receivables without Recourse" including the
receivable of P610,752.59 from CRCP.
On 21 May 1984, FINASIA executed a
"Supplemental Deed of Assignment" in favor of
Defendant Bank confirming and ratifying the
assignment in the latter's favor of the receivable of
P610,752.59 from CRCP and of the mortgage
constituted by CRCP over the disputed property.
CRCP failed to settle its obligation and Defendant
Bank opted for extrajudicial foreclosure of the
mortgage. The notice of auction sale was
scheduled on 16 May 1985. on learning of the
intended sale, plaintiff-appellant filed before the
Regional Trial Court of Valenzuela, Metro Manila,
Branch CLXXII, an action for declaration of
nullity of the real estate mortgage with an
application for a Writ of Preliminary Injunction.
On 30 May 1985, the Trial Court granted the
Petition for Preliminary Injunction enjoining the
public auction sale of the mortgaged property upon
plaintiff-appellant's posting of a bond in the
amount of P100,000.00. On 30 August 1985, the
Trial Court reconsidered its Order of 30 May 1985,
dissolved the Writ of Preliminary Injunction, and
ordered the dismissal of the case for lack of cause
of action.
Plaintiff-appellant appealed to the Court of
Appeals, which, as stated at the outset, certified the
case to us on a pure question of law.
ISSUE:

SANTIAGO VS PIONEER SAVINGS AND

LOAN BANK

WON plaintiff appellants are entitled for relief

from extrajudicial foreclosure.

FACTS:
HELD:
Plaintiff-appellant, Emilia P. Santiago, is the
registered owner of a parcel of land situated at
Polo, Valenzuela, Metro Manila. On 7 April 1983,
plaintiff-appellant executed a Special Power of
Attorney in favor of Construction Resources
Corporation of the Philippines (CRCP). On 8 April
1983, CRCP executed a Real Estate Mortgage over
the Disputed Property in favor of FINASIA
Investment and Finance Corporation to secure a
loan of P1 million. The mortgage contract

The evidence on record sufficiently defeats

plaintiff-appellant's claim for relief from
extrajudicial foreclosure. Her Special Power of
Attorney in favor of CRCP specifically included
the authority to mortgage the Disputed
Property. The Real Estate Mortgage in favor of
FINASIA explicitly authorized foreclosure in
the event of default. Indeed, foreclosure is but a
necessary consequence of non-payment of a

mortgage indebtedness. Plaintiff-appellant,

therefore, cannot rightfully claim that
FINASIA, as the assignee of the mortgagee,
cannot extrajudicially foreclose the mortgaged
property. A mortgage directly and immediately
subjects the property upon which it is imposed
to the fulfillment of the obligation for whose
security it was constituted. 6
The assignment of receivables made by the
original mortgagee, FINASIA, to Defendant Bank
was valid, since a mortgage credit may be
alienated or assigned to a third person, in whole
or in part, with the formalities required by law.
7 Said formalities were complied with in this
case. The assignment was made in a public
instrument and proper recording in the
Registry of Property was made. 8 While notice
may not have been given to plaintiff-appellant
personally, the publication of the Notice of
Sheriff's Sale, as required by law, is notice to
the whole world.
The full-dress hearing that plaintiff-appellant prays
for wherein she intends to prove that she tried to
contact the President of CRCP to urge him to pay
the mortgage loan, that she had failed to do so
despite several attempts; that she did not know that
FINASIA had sold its receivables including that of
CRCP to Defendant Bank; and that she was not
informed by CRCP of the scheduled foreclosure
sale will not tilt the scales of justice in her favor in
the face of incontrovertible documentary evidence
before the Court.
Plaintiff-appellant's recourse is against CRCP,
specially considering her allegation that the latter
had failed to observe their agreement.
PRUDENTIAL BANK VS SPOUSES ALVIAR
FACTS:
Respondents, spouses Don A. Alviar and Georgia
B. Alviar, are the registered owners of a parcel of
land in San Juan, Metro Manila. they executed a
deed of real estate mortgage in favor of petitioner
Prudential Bank to secure the payment of a loan
worth P250,000.00. On 4 August 1975,
respondents executed the corresponding
promissory note, PN BD#75/C-252, covering the
said loan, which provides that the loan matured on
4 August 1976 at an interest rate of 12% per
annum with a 2% service charge, and that the note
is secured by a real estate mortgage as
aforementioned. On 22 October 1976, Don Alviar

executed another promissory note, PN BD#76/C345 for P2,640,000.00, secured by D/A SFDX
#129, signifying that the loan was secured by a
"hold-out" on the mortgagors foreign currency
savings account with the bank under Account No.
129, and that the mortgagors passbook is to be
surrendered to the bank until the amount secured
by the "hold-out" is settled. On 27 December 1976,
respondent spouses executed for Donalco Trading,
Inc., of which the husband and wife were President
and Chairman of the Board and Vice President,6
respectively, PN BD#76/C-430 covering
P545,000.000. As provided in the note, the loan is
secured by "Clean-Phase out TOD CA 3923,"
which means that the temporary overdraft incurred
by Donalco Trading, Inc. with petitioner is to be
converted into an ordinary loan in compliance with
a Central Bank circular directing the
discontinuance of overdrafts.7
On 16 March 1977, petitioner wrote Donalco
Trading, Inc., informing the latter of its approval
of a straight loan of P545,000.00, the proceeds of
which shall be used to liquidate the outstanding
loan of P545,000.00 TOD. The letter likewise
mentioned that the securities for the loan were the
deed of assignment on two promissory notes
executed by Bancom Realty Corporation with
Deed of Guarantee in favor of A.U. Valencia and
Co. and the chattel mortgage on various heavy and
transportation equipment. On 06 March 1979,
respondents paid petitioner P2,000,000.00, to be
applied to the obligations of G.B. Alviar Realty
and Development, Inc. and for the release of the
real estate mortgage for the P450,000.00 loan
covering the two (2) lots located at Vam Buren and
Madison Streets, North Greenhills, San Juan,
Metro Manila. The payment was acknowledged by
petitioner who accordingly released the mortgage
over the two properties.9
On 15 January 1980, petitioner moved for the
extrajudicial foreclosure of the mortgage on the
property covered by TCT No. 438157. Per
petitioners computation, respondents had the total
obligation of P1,608,256.68, covering the three (3)
promissory notes, to wit: PN BD#75/C-252 for
P250,000.00, PN BD#76/C-345 for P382,680.83,
and PN BD#76/C-340 for P545,000.00, plus
assessed past due interests and penalty charges.
The public auction sale of the mortgaged property
was set on 15 January 1980.10
Respondents filed a complaint for damages with a
prayer for the issuance of a writ of preliminary
injunction with the RTC of Pasig. the trial court

dismissed the complaint

ISSUE:
The instant case thus poses the following issues
pertaining to: (i) the validity of the "blanket
mortgage clause" or the "dragnet clause"; (ii) the
coverage of the "blanket mortgage clause"; and
consequently, (iii) the propriety of seeking
foreclosure of the mortgaged property for the nonpayment of the three loans.
HELD:
Now on the main issues.
A "blanket mortgage clause," also known as a
"dragnet clause" in American jurisprudence, is
one which is specifically phrased to subsume all
debts of past or future origins. Such clauses are
"carefully scrutinized and strictly
construed."38 Mortgages of this character
enable the parties to provide continuous
dealings, the nature or extent of which may not
be known or anticipated at the time, and they
avoid the expense and inconvenience of
executing a new security on each new
transaction.39 A "dragnet clause" operates as a
convenience and accommodation to the
borrowers as it makes available additional
funds without their having to execute additional
security documents, thereby saving time, travel,
loan closing costs, costs of extra legal services,
recording fees, et cetera.40 Indeed, it has been
settled in a long line of decisions that mortgages
given to secure future advancements are valid
and legal contracts,41 and the amounts named
as consideration in said contracts do not limit
the amount for which the mortgage may stand
as security if from the four corners of the
instrument the intent to secure future and other
indebtedness can be gathered
It was therefore improper for petitioner in this
case to seek foreclosure of the mortgaged
property because of non-payment of all the
three promissory notes. While the existence and
validity of the "dragnet clause" cannot be
denied, there is a need to respect the existence
of the other security given for PN BD#76/C-345.
The foreclosure of the mortgaged property
should only be for the P250,000.00 loan covered
by PN BD#75/C-252, and for any amount not
covered by the security for the second
promissory note. As held in one case, where
deeds absolute in form were executed to secure

any and all kinds of indebtedness that might

subsequently become due, a balance due on a note,
after exhausting the special security given for the
payment of such note, was in the absence of a
special agreement to the contrary, within the
protection of the mortgage, notwithstanding the
giving of the special security.50 This is
recognition that while the "dragnet clause"
subsists, the security specifically executed for
subsequent loans must first be exhausted before
the mortgaged property can be resorted to.
One other crucial point. The mortgage contract,
as well as the promissory notes subject of this
case, is a contract of adhesion, to which
respondents only participation was the affixing
of their signatures or "adhesion" thereto.51 A
contract of adhesion is one in which a party
imposes a ready-made form of contract which
the other party may accept or reject, but which
the latter cannot modify.52
The real estate mortgage in issue appears in a
standard form, drafted and prepared solely by
petitioner, and which, according to
jurisprudence must be strictly construed
against the party responsible for its
preparation.53 If the parties intended that the
"blanket mortgage clause" shall cover
subsequent advancement secured by separate
securities, then the same should have been
indicated in the mortgage contract.
Consequently, any ambiguity is to be taken
contra proferentum, that is, construed against
the party who caused the ambiguity which
could have avoided it by the exercise of a little
more care.54 To be more emphatic, any ambiguity
in a contract whose terms are susceptible of
different interpretations must be read against the
party who drafted it,55 which is the petitioner in
this case.
Even the promissory notes in issue were made on
standard forms prepared by petitioner, and as such
are likewise contracts of adhesion. Being of such
nature, the same should be interpreted strictly
against petitioner and with even more reason since
having been accomplished by respondents in the
presence of petitioners personnel and approved by
its manager, they could not have been unaware of
the import and extent of such contracts.
Petitioner, however, is not without recourse. Both
the Court of Appeals and the trial court found that
respondents have not yet paid the P250,000.00,
and gave no credence to their claim that they paid

the said amount when they paid petitioner

P2,000,000.00. Thus, the mortgaged property
could still be properly subjected to foreclosure
proceedings for the unpaid P250,000.00 loan, and
as mentioned earlier, for any deficiency after D/A
SFDX#129, security for PN BD#76/C-345, has
been exhausted, subject of course to defenses
which are available to respondents.
PNB VS CABATINGAN
FACTS:
Respondent spouses Tomas Cabatingan and
Agapita Edullantes obtained two loans, secured by
a real estate mortgage,1 in the total amount of
P421,2002 from petitioner Philippine National
Bank. However, they were unable to fully pay their
obligation despite having been granted more than
enough time to do so.3 Thus, on September 25,
1991, petitioner extrajudicially foreclosed on the
mortgage.
Thereafter, a notice of extrajudicial sale5 was
issued stating that the foreclosed properties would
be sold at public auction. The properties were sold
to petitioner as highest bidder. respondent spouses
filed in the RTC of Ormoc City, A complaint for
annulment of extrajudicial foreclosure of real
estate mortgage. They invoked Section 4 of Act
3135. Petitioners claimed that the provision quoted
above must be observed strictly. Thus, because the
public auction of the foreclosed properties was
held for only 20 minutes (instead of seven hours as
required by law), the consequent sale was void.
RTC annulled the sale. On the ground that [T]he
rationale behind the holding of auction sale
between the hours of 9:00 in the morning and 4:00
in the afternoon of a particular day as mandated in
Section 4 of Act 3135 is to give opportunity to
more would-be bidders to participate in the auction
sale thus giving the judgment-debtor more
opportunity to recover the value of his or her
property subject of the auction sale.

provision, Section 5 of Circular No. 7-2002 states:

Section 5. Conduct of extrajudicial foreclosure
sale-a. The bidding shall be made through sealed
bids which must be submitted to the Sheriff
who shall conduct the sale between the hours of
9 a.m. and 4 p.m. of the date of the auction (Act
3135, Sec. 4).14 The property mortgaged shall
be awarded to the party submitting the highest
bid and, in case of a tie, an open bidding shall
be conducted between the highest bidders.
Payment of the winning bid shall be made in
either cash or in manager's check, in Philippine
Currency, within five (5) days from notice.
(emphasis supplied)
xxx

xxx

xxx

A creditor may foreclose on a real estate

mortgage only if the debtor fails to pay the
principal obligation when it falls due.15
Nonetheless, the foreclosure of a mortgage does
not ipso facto extinguish a debtors obligation to
his creditor. The proceeds of a sale at public
auction may not be sufficient to extinguish the
liability of the former to the latter.16 For this
reason, we favor a construction of Section 4 of
Act 3135 that affords the creditor greater
opportunity to satisfy his claim without unduly
rewarding the debtor for not paying his just
debt.
The word "between" ordinarily means "in the
time interval that separates."17 Thus, "between
the hours of nine in the morning and four in the
afternoon" merely provides a time frame within
which an auction sale may be conducted.
Therefore, a sale at public auction held within
the intervening period provided by law (i.e., at
any time from 9:00 a.m. until 4:00 p.m.) is valid,
without regard to the duration or length of time
it took the auctioneer to conduct the
proceedings.1avvphi1

ISSUE:
WON a sale at public auction, to be valid, must be
conducted the whole day from 9:00 a.m. until 4:00
p.m. of the scheduled auction day.

In this case, the November 5, 1991 sale at public

auction took place from 9:00 a.m. to 9:20 a.m.
Since it was conducted within the time frame
provided by law, the sale was valid.
SPOUSES RABAT VS PNB

HELD:
FACTS:
Section 4 of Act 3135 provides that the sale must
take place between the hours of nine in the
morning and four in the afternoon. Pursuant to this

On 25 August 1979, respondent spouses Francisco

and Merced Rabat (hereafter RABATs) applied for

a loan with PNB. Subsequently, the RABATs were

granted on 14 January 1980 a medium-term loan of
P4.0 Million to mature three years from the date of
implementation.

SALE ON THE GROUND THAT THE PNBS

WINNING BID IS VERY LOW.

the RABATs signed a Credit Agreement and

executed a Real Estate Mortgage over twelve (12)
parcels of land which stipulated that the loan
would be subject to interest at the rate of 17% per
annum, plus the appropriate service charge and
penalty charge of 3% per annum on any amount
remaining unpaid or not renewed when due. the
RABATs executed another document denominated
as "Amendment to the Credit Agreement"
purposely to increase the interest rate from 17% to
21% per annum, inclusive of service charge and a
penalty charge of 3% per annum to be imposed on
any amount remaining unpaid or not renewed
when due. They also executed another Real Estate
Mortgage over nine (9) parcels of land as
additional security for their medium-term loan of
Four Million (P4.0 M). The several availments of
the loan accommodation on various dates by the
RABATs reached the aggregate amount of THREE
MILLION FIVE HUNDRED SEVENTEEN
THOUSAND THREE HUNDRED EIGHTY
(P3,517,380), as evidenced by the several
promissory notes, all of which were due on 14
March 1983.The RABATs failed to pay their
outstanding balance on due date. in response to the
letter of the RABATs of 16 June 1986 requesting
for more time within which to arrive at a viable
proposal for the settlement of their account, PNB
informed the RABATs that their request has been
denied and gave the RABATs until 30 August 1986
to settle their account. For failure of the RABATs
to pay their obligation, the PNB filed a petition for
the extrajudicial foreclosure of the real estate
mortgage executed by the RABATs. After due
notice and publication, the mortgaged parcels of
land were sold at a public auction. Highest bidder
is PNB. As the proceeds of the public auction were
not enough to satisfy the entire obligation of the
RABATs, the PNB sent anew demand letters. Upon
failure of the RABATs to comply with the demand
to settle their remaining outstanding obligation
which then stood at P14,745,398.25, including
interest, penalties and other charges, PNB
eventually filed on 5 May 1992 a complaint for a
sum of money before the Regional Trial Court of
Manila. Complaint was dismissed. PNB appealed.

There is no dispute that mere inadequacy of

price per se will not set aside a judicial sale of
real property. Nevertheless, where the
inadequacy of the price is purely shocking to
the conscience such that the mind revolts at it
and such that a reasonable man would neither
directly nor indirectly be likely to consent to it,
the sale shall be declared null and void. Said
rule, however, does not strictly apply in the case
of extrajudicial foreclosure sales so that when a
supposed "unconscionably low price" paid by
the bank-mortgagee for the mortgaged
properties at the public auction sale is assailed,
the sale is not thereby readily set aside on
account of such low purchase price. It is wellsettled that alleged gross inadequacy of price is
not material "when the law gives the owner the
right to redeem as when a sale is made at a
public auction, upon the theory that the lesser
the price the easier it is for the owner to effect
the redemption." In fact, the property may be
sold for less than its fair market value.

HELD:

Here, it may be that after the lapse of seven (7)

years, the mortgaged properties may have indeed
appreciated in value but under the general rule
cited above which had been consistently applied to
extrajudicial foreclosure sales. We are not inclined
to invalidate the auction sale of appellees
mortgaged properties solely on the alleged gross
inadequacy of purchase price of P 3,874,800.00
which is actually almost the equivalent of the loan
value of appellees twenty-one (21) parcels of land
under the "Real Estate Mortgage" executed in
favor of appellant PNB in 1980. It has been held
that no such disadvantage is suffered by the
mortgagor as he stands to gain with a reduced
price because he possesses the right of redemption.
Thus, the re-appraisal of the mortgaged properties
resulting in the appellant PNBs bid price of
approximately the original loan value of their
mortgaged properties is beneficial rather than
harmful considering the right of redemption
granted to appellees under the law. The claim of
financial hardship or losses in their business is not
an excuse for appellees-mortgagors to evade their
clear obligation to the bank-mortgagee.

ISSUE:
WON THE TRIAL COURT ERRED IN
NULLIFYING THE SHERIFF'S AUCTION

Further, the fact that the mortgaged property is

sold at an amount less than its actual market
value should not militate against the right of

appellant PNB to the recovery of the deficiency

in the loan obligation of appellees. Our Supreme
Court had ruled in several cases that in
extrajudicial foreclosure of mortgage, where the
proceeds of the sale are insufficient to pay the
debt, the mortgagee has the right to recover the
deficiency from the debtor. A claim of deficiency
arising from the extrajudicial foreclosure sale is
allowed. As to appellees claim of allegedly
excessive penalty interest charges, the same is
without merit. We note that the promissory
notes expressly provide for a penalty charge of
3% per annum to be imposed on any unpaid
amount on due date.

foreclosed properties from the time it received the

letter of demand and the notice of sale before the
registration of the certificate of sale. The court
dismissed the complaint. CA affirmed.

GOLDENWAY MERCHANDISING CORP VS

EQUITABLE PCI BANK

HELD:

FACTS:
On November 29, 1985, Goldenway
Merchandising Corporation (petitioner) executed a
Real Estate Mortgage in favor of Equitable PCI
Bank (respondent) over its real properties situated
in Valenzuela, Bulacan. The mortgage secured the
Two Million Pesos (P2,000,000.00) loan granted
by respondent to petitioner and was duly
registered.As petitioner failed to settle its loan
obligation, respondent extrajudicially foreclosed
the mortgage on December 13, 2000. During the
public auction, the mortgaged properties were sold
for P3,500,000.00 to respondent. In a letter dated
March 8, 2001, petitioners counsel offered to
redeem the foreclosed properties by tendering a
check in the amount of P3,500,000.00. On March
12, 2001, petitioners counsel met with
respondents counsel reiterating petitioners
intention to exercise the right of redemption.6
However, petitioner was told that such redemption
is no longer possible because the certificate of sale
had already been registered. Petitioner also
verified with the Registry of Deeds that title to the
foreclosed properties had already been
consolidated in favor of respondent and that new
certificates of title were issued in the name of
respondent on March 9, 2001. petitioner filed a
complaint7 for specific performance and damages
against the respondent, asserting that it is the oneyear period of redemption under Act No. 3135
which should apply and not the shorter redemption
period provided in Republic Act (R.A.) No. 8791.
In its Answer with Counterclaim,8 respondent
pointed out that petitioner cannot claim that it was
unaware of the redemption price which is clearly
provided in Section 47 of R.A. No. 8791, and that
petitioner had all the opportune time to redeem the

ISSUE:
WON Section 47 of R.A. No. 8791 otherwise
known as "The General Banking Law of 2000"
which took effect on June 13, 2000 be validly
applied in this case when the real estate mortgage
contract was executed in 1985 and the mortgage
foreclosed when R.A. No. 8791 was already in
effect

We agree with the CA that the legislature

clearly intended to shorten the period of
redemption for juridical persons whose
properties were foreclosed and sold in
accordance with the provisions of Act No.
3135.27
The difference in the treatment of juridical
persons and natural persons was based on the
nature of the properties foreclosed whether
these are used as residence, for which the more
liberal one-year redemption period is retained,
or used for industrial or commercial purposes,
in which case a shorter term is deemed
necessary to reduce the period of uncertainty in
the ownership of property and enable
mortgagee-banks to dispose sooner of these
acquired assets. It must be underscored that the
General Banking Law of 2000, crafted in the
aftermath of the 1997 Southeast Asian financial
crisis, sought to reform the General Banking
Act of 1949 by fashioning a legal framework for
maintaining a safe and sound banking
system.28 In this context, the amendment
introduced by Section 47 embodied one of such
safe and sound practices aimed at ensuring the
solvency and liquidity of our banks.1wphi1 It
cannot therefore be disputed that the said
provision amending the redemption period in
Act 3135 was based on a reasonable
classification and germane to the purpose of the
law.
This legitimate public interest pursued by the
legislature further enfeebles petitioners
impairment of contract theory.
The right of redemption being statutory, it must be
exercised in the manner prescribed by the

statute,29 and within the prescribed time limit, to

make it effective. Furthermore, as with other
individual rights to contract and to property, it has
to give way to police power exercised for public
welfare.30 The concept of police power is wellestablished in this jurisdiction. It has been defined
as the "state authority to enact legislation that may
interfere with personal liberty or property in order
to promote the general welfare." Its scope, everexpanding to meet the exigencies of the times,
even to anticipate the future where it could be
done, provides enough room for an efficient and
flexible response to conditions and circumstances
thus assuming the greatest benefits.31
The freedom to contract is not absolute; all
contracts and all rights are subject to the police
power of the State and not only may regulations
which affect them be established by the State, but
all such regulations must be subject to change from
time to time, as the general well-being of the
community may require, or as the circumstances
may change, or as experience may demonstrate the
necessity.32 Settled is the rule that the nonimpairment clause of the Constitution must yield
to the loftier purposes targeted by the Government.
The right granted by this provision must submit to
the demands and necessities of the States power of
regulation.33 Such authority to regulate businesses
extends to the banking industry which, as this
Court has time and again emphasized, is
undeniably imbued with public interest.34
Having ruled that the assailed Section 47 of R.A.
No. 8791 is constitutional, we find no reversible
error committed by the CA in holding that
petitioner can no longer exercise the right of
redemption over its foreclosed properties after the
certificate of sale in favor of respondent had been
registered.