PLEDGE

G.R. No. L-18452

May 31, 1965

AUGUSTO COSIO and BEATRIZ COSIO DE RAMA, petitioners,

vs.
CHERIE PALILEO, respondent.
Recto Law Office for petitioners.
Bengzon, Villegas, Bengzon and Zarraga for respondent.
REGALA, J.:
This is an action to recover the possession of a house. It was filed following our decision in Palileo v. Cosio, 51
O.G. 6181, in which We ruled that the house in question had not been sold out but had merely been given as
security for a debt, the pacto de retro sale between the parties being in reality a loan with an equitable mortgage.
In a sense, therefore, this case is a sequel to Palileo v. Cosio. The parties are here this time to litigate on the
issue of possession and its effects.
The house in this case, a two-story building, was formerly owned by Felicisima Vda. de Barza. It is located at 25
(formerly 6) Antipolo Street, Pasay City, on a lot belonging to the Hospicio de San Juan de Dios. On October 4,
1950, this house and the leasehold right to the lot were bought by respondent Cherie Palileo who paid part of
the purchase price and mortgaged the house to secure the payment of the balance.
It appears that respondent Palileo defaulted in her obligation, because of which the mortgage was foreclosed
and the house was advertised for sale. Fortunately for her, however, respondent Palileo was able to raise money
on December 18, 1951 before the house could be sold at public auction. On this date, respondent Palileo
received from petitioner Beatriz Cosio de Rama the sum of P12,000 in consideration of which she signed a
document entitled "Conditional Sale of Residential Building," purporting to convey to petitioner Cosio de Rama
the house in question. Under this document, the right to repurchase the house within one year was reserved to
respondent Palileo. On the same day, the parties entered into an agreement whereby respondent Palileo
remained in possession of the house as tenant, paying petitioner Cosio de Rama a monthly rental of P250.
Petitioner Cosio de Rama subsequently insured the house against fire with the Associated Insurance & Surety
Co., Inc. On October 25, 1952, fire broke out in the house and partly destroyed the same. For the loss, petitioner
Cosio de Rama was paid P13,107 by the insurance company.
At the instance of his sister, petitioner Cosio de Rama, the other petitioner Augusto Cosio entered the premises
and began the repair of the house. Soon after an action was filed by respondent Palileo against Cosio de Rama
for the reformation of the deed of pacto de retro sale into a loan with an equitable mortgage. This case was filed
in the Court of First Instance of Rizal on December 4, 1952. One week after (December 11), respondent Palileo
filed another action in the Municipal Court of Pasay City, this time seeking the ejectment of petitioner Cosio who,
it was alleged, had entered and occupied the house without the knowledge and consent of respondent Palileo.
Just the same, however, repair work went on and although at times interrupted it was finally completed in 1953
at a cost of P12,000.
Meanwhile the ejectment suit was dismissed by the Municipal Court. Respondent Palileo appealed to the Court
of First Instance of Pasig, but the case was again dismissed, this time for failure of respondent Palileo to
prosecute. The dismissal of the case was subsequently made "without prejudice."

In the other case, respondent Palileo was successful. Both the lower court and this Court declared the
transaction of the parties to be a loan with an equitable mortgage and not a conditional sale. It was found that
the amount of P12,000, which purported to be the price, was in fact a loan; that the amount of P250 paid every
month as rent was in reality interest; and that the house allegedly sold was intended to be a security for the loan.
Accordingly, this Court directed petitioner Cosio de Rama to return to respondent Palileo the sum of P810 which
she had collected as interest in excess of that allowed by law. This Court likewise ruled that petitioner Cosio de
Rama could keep the proceeds of the fire insurance but that her claim against respondent Palileo under the loan
was to be deemed assigned to the insurance company.
As earlier stated, this suit was instituted to recover the possession of the house as a consequence of our
decision that it had not really been sold but had merely been given as security for a loan. It was originally
brought against petitioner Cosio who asked that the action be dismissed on the ground that it was barred by the
judgment of the Municipal Court which dismissed the ejectment case against him. The court denied the motion
to dismiss. And so petitioner Cosio filed his answer. He was later joined by petitioner Cosio de Rama who was
allowed to intervene in the action.
Thereafter, the lower court rendered judgment finding petitioner Cosio de Rama to be a possessor in good faith
with a right to retain possession until reimbursed for her expenses in repairing the house. The dispositive portion
of its decision reads:
IN VIEW OF THE FOREGOING, the Court hereby renders judgment declaring plaintiff Palileo as the
lawful owner of the house No. 25 Antipolo Street, Pasay City and entitled to the possession thereof upon
her paying to intervenor defendant Beatriz Cosio de Rama the sum of TWELVE THOUSAND
(P12,000.00) PESOS with interest at the legal rate from December 22, 1946 which is the date of the
filing of intervenor-defendant's counterclaim until paid. There is no judgment for costs.
Not satisfied, respondent Palileo appealed to the Court of Appeals and succeeded in having the lower court
decision modified. The appellate court ruled that
by virtue of the pacto de retro sale intervenor-appellee (Beatriz Cosio de Rama) became the temporary
owner of the house and as such she was entitled to the possession thereof from the date of such
conditional sale although appellant (Cherie Palileo) was its actually occupant as intervenor appellee's
tenant. ... However, when appellant instituted the ejectment case against appellee (Augusto Cosio) and
intervenor-appellee (Cosio de Rama) as early as December 1952, when the latter had just started to
reconstruct the house, and she likewise commenced the action against intervenor-appellee in the same
month of December, 1952, to have the deed of pacto de retro sale declared as one of loan with
equitable mortgage, said appellee and intervenor-appellee's title to the house suffered from a flaw. From
that time both appellee and intervenor-appellee ceased to be considered possessors in good faith. (Art.
528, new Civil Code; Tacas v. Tobon 53 Phil. 356; Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 52 Off.
Gaz. 1452) And if they chose to continue reconstructing the house even after they were appraised of a
flaw on their title they did so as builders in bad faith.
Accordingly, it rendered judgment as follows:
WHEREFORE, with the modification that appellant (Cherie Palileo) is hereby declared the lawful owner
of the house known as No. 25 Antipolo Street, Pasay City, and entitled to the possession thereof,
without reimbursing intervenor-appellee (Beatriz Cosio de Rama) the sum of P12,000 allegedly spent for
the reconstruction of the same, and appellee (Augusto Cosio) and intervenor-appellee (Cosio de Rama)
are hereby ordered to pay appellant a monthly rental of P300 during the time they actually occupied the
house just mentioned as possessors in bad faith, the decision appealed from is hereby affirmed in all
other respects. Without any pronouncement as to costs.1wph1.t

Petitioners Cosio and Cosio de Rama have appealed to this Court by certiorari, citing Article 526 of the Civil
Code which states as follows:
He is deemed a possessor in good faith who is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.
Mistake upon a doubtful or difficult question of law may be the basis of good faith.
They contend that they were not only possessors in good faith from the beginning but that they continue to be
such even after this Court's declaration that their transaction was a loan with a mortgage and not a sale with a
right of repurchase, because, as a matter of fact, this Court did not invalidate, but merely reformed, the
supposed deed of sale. Petitioners likewise aver that neither can the ejectment suit be considered to be notice of
any defect or flaw in their mode of acquisition because that case after all was dismissed.
We believe that both the petitioners and the Court of Appeals are in error in saying that the former had a right to
the possession of the house under the deed of pacto de retro sale. Petitioners did not have such a right at any
time and they knew this.
In reforming instruments, courts do not make another contract for the parties (See Civil Code, Arts. 1359-1369
and the Report of the Code Commission, p. 56). They merely inquire into the intention of the parties and, having
found it, reform the written instrument (not the contract) in order that it may express the real intention of the
parties (See Id., Arts. 1365 and 1602). This is what was done in the earlier case between the parties. In holding
that the document entitled "Conditional Sale of Residential Building" was in fact a mortgage, this Court said:
"This document did not express the true intention of the parties which was merely to place said property (the
house) as security for the payment of the loan." (Palileo v. Cosio, 51 O.G. 6181 at 6184)
If that was the intention of the parties (to conform to which their written instrument was reformed) then petitioner
Cosio de Rama knew from the beginning that she was not entitled to the possession of the house because she
was a mere mortgagee. For the same reason, she could not have been mistaken as to the true nature of their
agreement. Hence, in bidding her brother, petitioner Cosio, to enter the premises and make repairs and in later
occupying the house herself, petitioner Cosio de Rama did so with this knowledge.
As possessors in bad faith, petitioners are jointly liable for the payment of rental, the reasonable value of which,
as found by the appellate court is P300 a month. (Art. 549. See Lerma v. De la Cruz, 7 Phil. 581) This finding is
supported by the evidence and we find no reason to disturb it.
But even as we hold petitioner Cosio de Rama to be a possessor in bad faith we nevertheless believe that she is
entitled to be reimbursed for her expenses in restoring the house to its original condition after it had been partly
damaged by fire, because such expenses are necessary (Angeles v. Lozada, 54 Phil. 184) and, under Article
546, are to be refunded even to possessors in bad faith. As already stated, petitioner Cosio de Rama spent
P12,000 for the repair work.
The error of the appellate court lies in its failure to appreciate the distinction that while petitioner Cosio de Rama
is a possessor in bad faith, she is not a builder in bad faith. Thus in describing petitioners as "builders in bad
faith" and, consequently, in holding that they have no right to be reimbursed, the court obviously applied Article
449 which states that "he who builds, plants or sows in bad faith on the land of another loses what is built,
planted or sown without right to indemnity." But article 449 is a rule of accession and we are not here concerned
with accession. There is here no reason for the application of the principle accesio cedit principali, such as is

contemplated in cases of accession continua of which article 449 is a rule. For what petitioners did in this case
was not to build a new house on the land of another. Rather, what they did was merely to make repairs on a
house that had been partly destroyed by fire and we are asked whether they have a right to be refunded for what
they spent in repairs. The land on which the house is built is not even owned by respondent Palileo, that land
being the property of the Hospicio de San Juan de Dios. This case comes under article 546 which, as we have
already indicated, provides for the refund of necessary expenses "to every possessor."
And now we come to the last point in petitioners' assignment of errors. It is contended that the present action is
barred by the judgment of the Municipal Court which dismissed the ejectment case filed by respondent Palileo
against petitioner Cosio. It is said that although that ejectment was vacated when it was appealed to the Court of
First Instance, the subsequent dismissal of the case was equivalent to the withdrawal of the appeal and
therefore to a revival of the judgment of the Municipal Court. That judgment, to repeat, dismissed the ejectment
case against petitioner Cosio.
We note that this point, though raised in the Court of First Instance, was not properly assigned as error in the
Court of Appeals. It was there taken up only in the "preliminary remarks" in the brief. Although petitioners were
appellees in the Court of Appeals, they should have assigned this alleged error if only to maintain the decision of
the lower court.
Apart from this consideration, we believe that this action is not barred by the prior judgment in the ejectment
case. The pertinent provisions of the Rules of Court state:
Effect of appeals. A perfected appeal shall operate to vacate the judgment of the justice of the peace
or the municipal court, and the action when duly docketed in the Court of First Instance, shall stand for
trial de novo upon its merits in accordance with the regular procedure in that court, as though the same
had never been tried before and had been originally there commenced. If the appeal is withdrawn, or
dismissed for failure to prosecute, the judgment shall be deemed revived and shall forthwith be
remanded to the justice of the peace or municipal court for execution. (Rule 40, see. 9, Rules of Court.)
The following comment answers squarely petitioners' arguments:
The case shall stand in the Court of First Instance as though the same "had been originally there
commenced." Thus, if an action is filed in an inferior court, and the plaintiff fails to appear and the case
is dismissed, may the plaintiff file another complaint for the same cause? The Supreme Court held that,
since the appeal had the effect of vacating the judgment of the inferior court and, therefore, the case,
when dismissed, was in the Court of First Instance as if the same "had been originally there
commenced" and since dismissals, on the ground aforementioned, of cases coming within the original
jurisdiction of the Court of First Instance, are without prejudice, the conclusion is that plaintiff may file a
new complaint for the same cause. (Marco v. Hashim 40 Phil. 592) This ruling, however, is affected to a
certain extent by Rule 17, section 3, which provides that the dismissal of a case on the ground of
plaintiff's failure to appear at the trial, is a final adjudication upon the merits unless the court otherwise
provides." (2 Moran, Comments on the Rules of Court, 344-345 [1963 ed.])
Here the dismissal of the ejectment case for failure of respondent Palileo to prosecute was expressly made to
be without prejudice. That judgment, therefore, cannot be a bar to the filing of another action like the present.
WHEREFORE, with the modification that petitioner Cosio de Rama should be reimbursed her necessary
expenses in the amount of P12,000 by respondent Palileo, the judgment of the Court of Appeals is affirmed in all
other respects, without pronouncements as to, cost.

NORTHERN MOTORS, INC., petitioner,

vs.
HON. JORGE R. COQUIA, etc., et al., respondents, FILINVEST CREDIT CORPORATION, intervenor.
G.R. No. L-40018 December 15, 1975
Facts:
Manila Yellow Taxicab, executed a chattel mortgage over several taxicabs in favor of Northern
Motors. TROPICAL is a judgment creditor of Yellow Taxicab who assigned the judgment to ONG. On
December 12 1974, Sheriff then levied upon 20 taxicabs, 8 of which are security for the chattel
mortgage. Northern Motors filed an intervention on December 18, 1974; however, the levied
taxicabs were sold the same day at 2pm although agreement shows that it should have happened
at 4pm. Indemnity bond was posted by TROPICAL, but the bond was cancelled after the sale
without notice to Northern Motors. The petitioner now seek reconsideration also on the
reinstatement of the bond.
A second levy was made upon 35 taxicabs, 7 of which are mortgaged to Northern Motors.
This is a motion for reconsideration in the SC decision pronouncing that the Mortgagee has a
better right than the judgment debtor over the taxicabs.
The taxies were levied and sold at an auction sale. Ong argues admits that the mortgagee has a
better right that the judgment creditor, but argues that the purchaser from the auction sale must
have a right superior to that of the mortgagee. The auction sale proceeded and the purchasers
were of unknown addresses, hence the 8 taxicabs cannot be recovered. The proceeds of the
auction were in contest and the sheriff is deducting the expenses of the execution sale from the
proceeds.
Issue/s:
Whether the expenses for the execution sale should be deducted from the proceeds thereof?
Whether the purchaser has a better right than the creditor?
Whether the bond should be reinstated?
Held:
1st:
No, it was already established that the levy on the property was illegal, it is therefore
improper to deduct the expenses of an illegal auction from the proceeds thereof. The mortgagee
can only able to collect the proceeds from the auction sale because the purchasers are of
unknown addresses. The full proceeds of the sale are due to the mortgagee without any
unreasonable and illegal deductions.
2nd:
No, the purchaser of the auction sale merely steps in the shoes of the judgment creditor as
they have been aware of the claim of the mortgagee. The mortgagee has a better right to the
possession of the taxicabs, however, since the addresses of the purchasers are unknown, the
proceeds of the sale must be delivered to the mortgagee.
3rd:
Yes, the bond should be reinstated, as it is to serve as indemnity for damages in cases that
the sold taxicabs cannot be recovered. Proceedings in the lower court would be an exercise in
futility if the bond will not be reinstated.

PAULA DE LA CERNA, ET AL., petitioners,

vs.
MANUELA REBACA POTOT, ET AL., and THE HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-20234 December 23, 1964

A chattel mortgage may be an accessory contract to a contract of loan, but that fact
alone does not make a third-party mortgagor solidarily bound with the principal debtor
in fulfilling the principal obligation that is, to pay the loan. The signatory to the
principal contract loan remains to be primarily bound. It is only upon the default of the
latter that the creditor may have been recourse on the mortgagors by foreclosing the
mortgaged properties in lieu of an action for the recovery of the amount of the loan.
And the liability of the third-party mortgagors extends only to the property mortgaged.
Facts: Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement
which was evidenced by a promissory note. On the same date, Delgado executed a chattel
mortgage over a Willys jeep owned by him. And acting as the attorney-in-fact, Manolo P. Cerna, he
also mortgage a Taunus car owned by the latter. The period lapsed without Delgado paying the
loan. This prompted Leviste to a file a collection suit against Delgado and Cerna as solidary
debtors. Cerna filed a Motion to Dismiss on the ground of lack of cause of action against Cerna and
the death of Delgado. Anent the latter, Cerna claimed that the claim should be filed in the
proceedings for the settlement of Delgados estate as the action did not survive Delgados death.
Moreover, he also stated that since Leviste already opted to collect on the note, he could no
longer foreclose the mortgage.
Issue
1) Whether or not a third party, who is not a debtor under the note but mortgaged his property to
secure the payment of the loan of another is solidarily liable with the principal debtor.
2) Whether or not a mortgagee who opted to collect may still foreclose the mortgage.
Held:
1) Whether or not a third party, who is not a debtor under the note but mortgaged his property to
secure the payment of the loan of another is solidarily liable with the principal debtor.
A chattel mortgage may be an accessory contract to a contract of loan, but that fact alone does
not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the
principal obligation that is, to pay the loan. The signatory to the principal contract loan remains to
be primarily bound. It is only upon the default of the latter that the creditor may have been
recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the
recovery of the amount of the loan. And the liability of the third-party mortgagors extends only to
the property mortgaged.
2) Whether or not a mortgagee who opted to collect may still foreclose the mortgage.
Should there be any deficiency, the creditors has recourse on the principal debtor. The Special
Power of Attorney did not make petitioner a mortgagor. All it did was to authorized Delgado to
mortgage certain properties belonging to petitioner. Hence, Leviste, having chosen to file the
collection suit, could not now run after petitioner for the satisfaction of the debt. This is even more
true in this case because of the death of the principal debtor, Delgado. Leviste was pursuing a
money claim against a deceased person. There is also no legal provision nor jurisprudence in our
jurisdiction which makes a third person who secures the fulfillment of anothers obligation by
mortgaging his own property to be solidarily bound with the principal obligor.

Delgado borrowed money from Leviste. As payment, he made a promissory note in favor of Leviste. To secure
the note, Delgado executed a chattel mortgage over a jeep owned by him and a car owned by the Cerna (under
a special power of Attorney).
Delgado defaulted. Leviste filed a collection suit against Delgado and Cerna as solidarily debtors. Cerna filed a
motion against him. The motion was denied and the CA held that Delgado and Leviste are solidarily debtors.
ISSUES:
1. Is Cerna solidarily bound with the principal debtor?
2. What is the extent of the mortgagor's liability?
3. Is Cerna a co-mortgagor?
4. If Cerna as co-mortgagor, would he be liable in an action for recovery of money?
HELD:
1. NO. There is no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures
the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal
obligor. A chattel mortgagor may be an "accessory contract" to a contract of loan, but that fact alone does not
make a third party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation of
paying the loan. Moreover, it is a basic precept that there is solidarily liability only when the obligation expressly
so states or when the law or nature of the obligation requires solidarity.
2. A third party mortgagor becomes liable only to the extent of the property mortgaged. It is only upon default of
the principal debtor that the creditor may have recourse on the mortgagor by foreclosing the mortgage properties
in lieu of an action for the recovery of the amount of the loan. And the liability of the third party mortgagor
extends only to the property mortgaged. Should there be any deficiency, the creditor has recourse on the
principal debtor.
3. NO. The special power of attorney authorizing Delgagdo to mortgage Cerna's property as security for
Delgado's obligation does not itself make Cerna a co-mortgagor, especially so since only Delgagdo signed the
chattel mortgage as mortgagor. The special power of attorney did not make Cerna as mortgagor, all it did was to
authorize Delgado to mortgage certain properties belonging to Cerna. And this is in compliance with the
requirement in Article 2085 of the New Civil Code, It is essential in mortgage xxx (3) That the person constituting
the pledge or mortgage have the free disposal of their property, and IN ABSENCE THEREOF, THAT THEY BE
LEGALLY AUTHORIZED FOR THE PURPOSE. Thus, it is clear that only Delgado was the sole mortgagor
regardless of the fact that he used properties belonging to a third person to secure the debt.
4. And even if Cerna was a co-mortgagor, Cerna could not be held liable because the complaint was for
recovery of a sum of money and not for the foreclosure, thereby abandoning the chattel mortgage as basis for
relief, he clearly manifests his lack of desire and interest to go after the mortgaged property as security for the
promissory note.

REAL ESTATE MORTGAGES

[G.R. No. 137471. January 16, 2002]
GUILLERMO ADRIANO, petitioner, vs. ROMULO PANGILINAN, respondent.

FACTS: Adriano is the registered owner of a parcel of land. Sometime on 1990, petitioner entrusted
the original owner's copy of the TCT to Salvador, a distant relative, for the purpose of securing a
mortgage loan. Thereafter without the knowledge and consent of Adriano, Salvador mortgaged the
property to Pangilinan. Subsequently when Adriano verified the status of his title with the Register
of Deeds of Marikina, he was surprised to discover that there was already annotation for Real
Estate Mortgage in the title, purportedly executed by one Adriano, in favor of Pangilinan, in
consideration of P60,000.00. Adriano then denied that he executed deed and repeatedly
demanded Pangilinan to return or reconvey to him his title to the said property and when these
demands were ignored or disregarded, he instituted the present suit.
Pangilinan, in his defense, claimed that petitioner voluntarily entrusted his title Salvador for the
purpose of securing a loan, thereby creating a principal-agent relationship between the plaintiff
and Salvador for the aforesaid purpose. Thus, according to respondent, the execution of the REM
was within the scope of the authority granted to Salvador; that in any event that since the said
TCT has remained with petitioner, the latter has no cause of action for reconveyance against him."
The trial court ruled in favor of Adriano, but the CA reversed the said decision.
ISSUE: Whether or not consent is an issue in determining who must bear the loss if a mortgage
contract is sought to be declared a nullity.
RULING: The court ruled in favor of the petitioner, setting aside the decision of the CA, and
reinstating the Ruling of the RTC. The court ruled that the mortgage is null and void, for being
entered into by a person who is not the absolute owner of the thing. The court also found that the
petitioner is a not a purchaser for value, that his negligence is the proximate cause to the property
being registered REM. According to the court the respondent is a businessman and that while it is
true that when dealing with Torrens title one may rely on the face of the title, the court held that
the negligence of the respondent to ascertain the identity of the imposter is critical that it is due
to this mistake that the property is now encumbered by a REM. The court in granting that the
respondent is negligent finds that if there was any negligence eon the party of Salvador, then such
is inconsequential. The court therefore ruled in favor of the petitioner due to the negligence of the
respondent.
Supplemental Notes:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for that purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging
or mortgaging their own property. (1857)

A Torrens certificate serves as evidence of an indefeasible title to the property in favor of the
person whose name appears therein. Moreover, the Torrens system does not create or vest title.
It only confirms and records title already existing and vested. It does not protect a usurper from
the true owner. It cannot be a shield for the commission of fraud. It does not permit one to
enrich himself at the expense of another.

Source: 1
One who purchases real property which is in the actual possession of another should, at least make some
inquiry concerning the right of those in possession. The actual possession by a person other than the vendor
should, at least put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as
a bona fide purchaser as against such possessors. (Lucena vs. CA, G.R. No. 77468, August 25, 1999).
Source 2:
Mirror Doctrine: A purchaser CANNOT close his eyes to facts which should put a reasonable

man upon his guard and then claim that he acted in GF under the belief that there was no
defect in the title of the vendor (Lucena v. CA)

REQUISITE FOR A VALID FORECLOSURE OF MORTGAGE

LUCENA vs. COURT OF APPEALS
G.R. No. 77468, August 25, 1999
Facts:
Petitioners obtained a loan from private respondent Rural Bank of Najuan, Inc. in the amount of
P3,000 secured by a real estate mortgage constituted on their parcel of land. After the loan had matured, they
were able to pay the Bank the sum of P2,000, thereby leaving a balance of P1,000.
After previous demand by the rural bank for the petitioners to settle the balance of their matured loan
went unheeded, the subject property was extrajudicially foreclosed and sold at public auction where the rural
bank as the highest bidder acquired the property. Prior to the auction sale, notice of foreclosure were post in at
least 3 conspicuous public places in the municipality where the subject property was located. No notices were
posted in the barrio where the property was located, nor were any published in a newspaper of general
circulation. The Certificate of Sale was subsequently issued and registered.
Issue:
Held:

Was there a valid foreclosure sale of the subject property?

No. Failure to comply with statutory requirements as to publication of notice of auction sale constitutes

a jurisdictional error which invalidates the sale. Even the slight deviations therefrom are not allowed. RA 5939,
Sec. 5 provides:
The foreclosure of mortgages covering loans granted by rural banks shall be exempt from the
publication in newspapers were the total amount of the loan, including interests due and unpaid, does not
exceed three thousand pesos. It shall be sufficient publication in such cases if the notices of foreclosure are
posted in at least three of the most conspicuous places in the municipality and barrio where the land mortgaged
is situated during the period of sixty days immediately preceding the public auction.
In the case at bar, the affidavit of posting executed by the sheriff states that notices of public auction
sale were posted in three conspicuous public places in the municipality such as 1) the bulletin board of the
Municipal Building; 2)the Public Market; 3) the Bus Station. There is no indication that notices were posted in

the barrio where the subject property lies. Clearly, there was a failure to publish the notice of auction sale as
required by law.
Further, there was a failure on the part of the private respondents to publish notices of foreclosure sale
in a newspaper of general circulation. Sec. 5 provides that such foreclosure are exempt from the publication
requirement when the total amount of the loan including interests due and unpaid does not exceed three
thousand pesos. The law clearly refers to the total amount of the loan along with interests and not merely the
balance thereof, as stressed by the word total.
[G.R. No. 124372. March 16, 2000]
RENATO CRISTOBAL and MARCELINA CRISTOBAL, petitioners, vs. THE COURT OF APPEALS, RURAL
BANK OF MALOLOS and ATTY. VICTORINO EVANGELISTA, respondents. Mi sedp
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks to reverse and set aside the Decision dated September 16, 1994, and
the Resolution dated May 18, 1995, of the Court of Appeals in CA G.R. CV No. 39477. That decision set aside
the Judgment of the Regional Trial Court of Malolos, Branch 72, in Civil Case No. 7887-M, (1) annulling the
extrajudicial foreclosure of mortgage, the sale of the properties at public auction, and the issuance of titles to the
properties in the name of respondent bank, and (2) ordering the reconveyance of the same properties to
petitioners.
The facts of the case on record[1] are as follows:
Petitioners are engaged in the buying and selling of palay. To augment their capital, they applied and were
granted a loan by the respondent bank in the amount of P30,000.00 payable in 270 days. The loan was secured
by a mortgage over a parcel of land situated in Barrio Concepcion, Baliwag, Bulacan and covered by TCT No. T64721. Because petitioners failed to pay their obligation on the date the loan fell due, the bank caused the
mortgaged property, to be foreclosed extrajudicially. At the foreclosure sale on November 16, 1981, the bank
was the sole and highest bidder. The sheriff of Bulacan, who conducted the sale, then executed a certificate of
sale in the name of the bank. In turn the bank caused the registration of the sale in the Office of the Registry of
Deeds of Bulacan (Exh. "17-a"). Petitioners failed to redeem the property, hence, the title was consolidated in
the name of the bank. Thereafter, a new transfer certificate of title (TCT No. T-275695) was issued in the name
of the bank. Misoedp
Through their attorney-in-fact Pacita Cristobal, petitioners were granted another loan by the bank in the amount
of P70,000.00, secured by another real estate mortgage over four (4) parcels of land covered by TCT Nos. T235811, T-174185, T-146185 and T-174186 payable in 180 days. When the obligation fell due without plaintiffs
paying their indebtedness, the bank extrajudicially foreclosed the mortgage. As the highest bidder in the auction
sale of subject parcels, titles were consolidated in its favor when petitioners failed to redeem the land.
Consequently, new transfer certificates of title were issued in the bank's name.
On November 29, 1984, petitioners filed an action for annulment of extrajudicial foreclosure of mortgage and
sale of property and for reconveyance with damages.

Petitioners, as plaintiffs below, impugned the validity of the extrajudicial foreclosure sales on the grounds that
they were not furnished a copy of the application for foreclosure by the bank and a notice of the foreclosure sale;
that the bank did not comply with the requirements of Act No. 3135 with respect to posting of the notice of sale
and the publication of the sale in a newspaper of general circulation; that they were not notified of the expiration
of the period of redemption; and that the interest due on the principal obligation was bloated. Edp mis
The bank, as defendant below, claimed in its answer that it complied with the requirements of posting and
publication required under Act 3135 and that it had not charged nor increased the interest rate of the principal
obligations. It contended that the computation attached to the complaint was not the amount of redemption but
the amount at which the bank may sell back, the property to the petitioners.
On January 24, 1985, the trial court issued a writ of preliminary injunction enjoining the bank from taking the
possession of the property covered by TCT No. 64721.
After trial on the merits, the trial court rendered its decision on April 21, 1992, disposing as follows:
"WHEREFORE, in view of the foregoing, judgment is rendered by the Court as follows:
a) Declaring the annulment of the extrajudicial foreclosure of mortgages, the sale of the
properties at public auction, the issuance of titles to the properties in the name of the defendant
bank and the reconveyance of the same to the plaintiffs.
The following certificates of titles issued in the name of the defendant bank by the Registry of
Deed, Malolos, Bulacan, is ordered cancelled by the Court:
Exhibit 19 - TCT No. T-275695
Exhibit 34 - TCT No. T-281827
Exhibit 34-A - TCT No. T-281825
Exhibit 34-B - TCT No. T-281828LEX
Exhibit 34-C - TCT No. T -281926
The Register of Deeds is hereby ordered to issue new certificates of titles to the subject
properties in the name of the plaintiffs.
b) The Writ of Preliminary Injunction previously issued by the Court on January 7, 1985 in favor
of the plaintiffs is hereby made permanent.
c) Ordering the defendant bank to pay the plaintiffs the following amounts:
P10,000.00 attorney's fees
costs of the suit
with 6% interest on all amounts due from the filing of this action on November 29, 1984 until
said amounts have been fully paid.

d) Plaintiffs, in turn, are required to pay the following amounts to the defendant bank: Jj sc
based on computation No. 1 P 73,431.162
based on computation No. 2 P171,930.066
P245,361.228
SO ORDERED."[2]
Finding the decision unacceptable, the bank timely appealed to respondent Court of Appeals. It
subsequently reversed and set aside the judgment of the trial court. Petitioners filed a motion for reconsideration
but it was denied in a Resolution dated May 18, 1995. Hence, this petition.
Petitioners now assign the following errors:
1. The public respondent erred when it held that private respondent has substantially complied
with the publication requirement under the law.
2. Public respondent Court of Appeals erred when it relied only on the testimony of private
respondent's witness. Sc jj
3. Public respondent Court of Appeals erred when it held that publication in the Mabuhay
newspaper substantially complies with the law.
At issue is whether respondent Court of Appeals erred in finding that private respondents had complied
substantially with Section 3 of Act 3135, which provides that:
"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at
least three public places of the municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of general circulation in the
municipality or city."
Non-compliance with the requirements of notice and publication in an extrajudicial foreclosure sale is a factual
issue. The resolution thereof by the lower courts is binding and conclusive upon this Court. [3] However, this rule
is subject to exceptions, as when the findings of trial court and the Court of Appeals are in conflict. [4] Also, it must
be noted that non-compliance with the statutory requisites could constitute a jurisdictional defect that would
invalidate the sale. Sj cj
Petitioners claim that respondent Court of Appeals erred when it admitted the testimony of one Pedro Agustin,
who evidently had no personal knowledge of the actual postings of the notice of sale. Following Section 36, Rule
130 of the Revised Rules of Court, such testimony could be hearsay. According to petitioners, it is not based on
the personal knowledge of the witness but on the knowledge of some other person. Hearsay evidence, whether
objected to or not, has no probative value unless the proponent can show that the evidence falls within the
exceptions to the hearsay evidence rule. Petitioners argue that respondent bank not only failed to submit the
certificate of posting but also failed to present before the court the Deputy Sheriff who allegedly did the postings.
The bank merely presented its own employee, Pedro Agustin, who testified [5] that he was merely verbally notified
by the Sheriff that a notice of sale was posted. Respondent bank responded that the Sheriff then in-charge of

the matter was no longer available, and the records of the foreclosure proceedings were no longer available
also, because of the length of time that had already elapsed. [6]
Moreover, in Bohanan vs. Court of Appeals, 256 SCRA 355, 360-61, (1996), we have ruled that nonpresentation of a certificate of posting does not affect the intrinsic validity of the questioned foreclosure sale. As
therein held, "a certificate of posting is not required, much less considered indispensable, for the validity of a
foreclosure sale" under Act 3135. Supreme
Further, as respondent bank asserts, a mortgagor who alleges absence of a requisite has the burden of
establishing that fact. Petitioners failed in this regard. Foreclosure proceedings have in their favor the
presumption of regularity and the burden of evidence to rebut the same is on the petitioners. [7] As well said by
the respondent appellate court:
"...Under the circumstances, there is a basis for presuming that official duty has been regularly
performed by the sheriff. Being a disputable presumption, the same is valid unless controverted
by evidence. The presumption has not been rebutted by any convincing and substantial
evidence by the appellee who has the onus to present evidence that appellant has not complied
with the posting requirement of the law. In the absence therefore of any proof to the contrary, the
presumption that official duty has been regularly performed stays." [8]
Petitioners also claim that the Court of Appeals erred when it held that publication in the Mabuhay newspaper is
a substantial compliance with the requirement of the law. However, the records show that the sheriff's notice of
sale was published in the Mabuhay newspaper generally circulated in the Province of Bulacan. Petitioners do
not dispute this fact. Affidavits of publication by Jose Pavia, Publisher/Editor of the Mabuhay Weekly newspaper,
and newspaper clippings of Mabuhay containing the notice of sheriffs sale in its October 12, 1981, November 1
& 8, 1981, September 26, 1982 and October 3 & 10, 1982 issues, were submitted by respondent bank. In our
view, these pieces of evidence prove substantial compliance. Court
In Olizon vs. Court of Appeals, 236 SCRA 148, 156 (1994), we held that, the publication of the notice of sale in a
newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirements
of the law. Clearly, the respondent appellate court did not err in finding that respondent bank had substantially
complied with those requirements.
ACCORDINGLY, the instant petition is DISMISSED. The decision of the Court of Appeals in CA-G.R. CV No.
39477 is AFFIRMED. No pronouncement as to costs.
SO ORDERED. J l
[G.R. No. 111654. April 18, 1996]
GODFREY BOHANAN, petitioner, vs. COURT OF APPEALS, L & R CORPORATION and Spouses
ROSARIO & DIONISIO CABRERA, JR., respondents.
SYLLABUS
CIVIL LAW; SPECIAL CONTRACTS; REAL ESTATE MORTGAGE; PERSONAL NOTICE ON THE
MORTGAGOR AND CERTIFICATE OF POSTING, TO PROVE POSTING IN THREE (3) PUBLIC
PLACES, NOT REQUIRED FOR THE VALIDITY OF THE FORECLOSURE SALE. - We agree with
respondent Court of Appeals that the records show no irregularity in the foreclosure sale held on 14
September 1984. First, personal notice on the mortgagor is not required under Act No. 3135 as amended.

All that is required is that notice be given by posting notices of the sale for not less than twenty (20) days in
at least three (3) public places of the municipality or city where the property is situated, and publication
once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the
municipality or city, if the property is worth more than four hundred pesos. Therefore, any discussion into
the factual issue of whether petitioner received a notice of foreclosure sale would be an exercise in futility
since it would not have any bearing at all on the alleged validity or invalidity of the foreclosure sale in
question. Second, a certificate of posting is not required, much less considered indispensable, for the
validity of a foreclosure sale either under Act 3135 or under the ruling in Tambunting v. Court of
Appeals (No. L-48278, 8 November 1988, 167 SCRA 16) cited by petitioner. A certificate of posting is not a
statutory requirement. Rather, it is significant only in the matter of proving compliance with the required
posting of notice. And although we said in Tambunting that [t]he presumption of compliance with official
duty has been rebutted by the failure to present proof of posting and publication of the notice of sale, this
cannot be construed to mean that a certificate of posting is indispensable without which a questioned
foreclosure sale is automatically deemed as invalid. For the fact alone that there is no certificate of posting
attached to the sheriffs records is not sufficient to prove the lack of posting. In Tambunting the absence of
the affidavit of publication was considered fatal because no equally convincing and competent proof of
compliance was offered to compensate for its non-presentation. In the case at bench, however, although
Deputy Sheriff Oscar Domingo failed to present a certificate of posting because some records were lost
when the sheriffs office was transferred to the fifth floor of the City Hall building, he did declare under oath
(when presented as petitioners own witness) that he posted notices of the questioned sale on the bulletin
boards of the City Hall, the Post Office and Finance Buildings. We agree with respondent Court of Appeals
that such testimony suffices in lieu of the customary certificate of posting and can properly be
accorded the presumption of regularity of performance having come from a public officer to whom no
improper motive to testify has been attributed.
APPEARANCES OF COUNSEL
C.A. Montano Law Office for petitioner.
Ablaza Law Offices for respondent L & R Corp.
Feliciano & Cabrera Law Office for respondents Sps. Cabrera.
DECISION
BELLOSILLO, J.:
Petitioner questions the Decision of the Court of Appeals 1 which reversed the Regional Trial Court of
Manila2 declaring the foreclosure sale dated 14 September 1984 null and void. He also assails the Resolution
denying his motion for reconsideration.3
On 7 September 1983 petitioner Godfrey Bohanan obtained a loan of P200,000.00 from private respondent
L & R Corporation (hereinafter referred to as L & R) payable in sixty (60) equal monthly installments. To secure
payment petitioner executed a deed mortgaging his two lots with the four-unit apartment building thereon
situated in Sta. Ana, Manila, and covered by Transfer Certificates of Title Nos. 92334 and 92335 of the Registry
of Deeds of Manila. The deed further provided that in case petitioner failed to pay any monthly amortization the
overdue amortization or amortizations would draw monthly interest at 1-3/4% without prejudice to the right of L &
R to declare the whole indebtedness or the entire unpaid balance, as the case may be, due and demandable. In
addition, petitioner would have to pay collection charges including attorneys fees and other incidental expenses

equivalent to 2% of the total outstanding obligation in case the matter was placed in the hands of a lawyer for
collection.
Petitioner was remiss in his fourth amortization. Consequently, the remaining unpaid obligation (then
supposedly amounting to P194,169.15) became due and demandable and petitioner was given a grace period of
ten (10) days within which to pay but the latter failed. Thus L & R sent a notice of foreclosure and filed a petition
in the Manila Sheriffs Office to commence extrajudicial foreclosure proceedings against him. Accordingly, a
notice of extrajudicial foreclosure sale under Act 3135, 4 as amended, was made and copies thereof sent to L & R
and petitioner Godfrey Bohanan by the Deputy Sheriff acting for the Sheriff of Manila. The notice was published
in the 20 and 27 August and 3 September 1984 issues of The Metropolitan Mail per affidavit of its editorpublisher.
At the scheduled sale on 14 September 1984 L & R became the successful bidder with its bid of
P327,615.54 and was issued a certificate of sale. However, upon failure of petitioner to redeem his property
within the one-year redemption period provided by law, L & R executed an Affidavit of Consolidation of
Ownership leading to the issuance on 1 October 1985 of TCT Nos. 167051 and 167052 in its name and the
cancellation of petitioners TCT Nos. 92334 and 92335. On 17 February 1987 L & Rs titles were in turn cancelled
to give way to TCT Nos. 172718 and 172719 in the name of Rosario Guanzon, married to Dionisio Cabrera Jr.,
who bought the property from L & R for P200,000.00.
On 23 February 1987 petitioner filed a complaint against L & R Corporation and its vendees, the spouses
Cabrera Jr., for recovery of property with preliminary injunction 5contending that the sale between the Cabreras
on one hand and L & R on the other, was undertaken in fraud of a contractual commitment to him. Subsequently
the complaint was amended to be one for annulment of sale with injunction and damages, with petitioner asking
that the sheriffs foreclosure sale held on 14 September 1984 be declared void and that the foreclosed properties
be returned to him upon his payment of the mortgage obligation.
The trial court rendered judgment in favor of petitioner declaring null and void the Sheriffs foreclosure
sale without prejudice to the foreclosure of the mortgage on said properties strictly in accordance with
law; annulling the Deed of Sale of 13 February 1987 executed by private respondent L & R in favor) of Rosario
Guanzon as well as the TCTs issued pursuant thereto; and, ordering payment of damages in favor of petitioner.
On 19 April 1993 the Court of Appeals reversed the trial court. 6 The appellate court concluded that there
was no irregularity in the conduct of the foreclosure sale and that the spouses Cabrera could not be considered
buyers in bad faith since their act of buying the properties direct from L & R, instead of through petitioner, did not
automatically make them so. Hence, this recourse by Godfrey Bohanan.
Petitioner contends that respondent Court of Appeals erred in concluding that there was a valid foreclosure
sale despite the fact that (a) he was not notified of the sale; (b) the deputy sheriff who conducted the sale did not
submit a certificate of posting to prove the alleged posting in three (3) public places required under Act No. 3135;
and, (c) the Post Office and Finance buildings where the notice of sale was allegedly posted (in addition to the
City Hall) were not public places.
The petition must be denied. We agree with respondent Court of Appeals that the records show no
irregularity in the foreclosure sale held on 14 September 1984. First,personal notice on the mortgagor is not
required under Act No. 3135 as amended. 7 All that is required is that notice be given by posting notices of the
sale for not less than twenty (20) days in at least three (3) public places of the municipality or city where the
property is situated, and publication once a week for at least three (3) consecutive weeks in a newspaper of
general circulation in the municipality or city, if the property is worth more than four hundred pesos. 8 Therefore,
any discussion into the factual issue of whether petitioner received a notice of foreclosure sale would be an
exercise in futility since it would not have any bearing at all on the alleged validity or invalidity of the foreclosure

sale in question. Second, a certificate of posting is not required, much less considered indispensable, for the
validity of a foreclosure sale either under Act 3135 or under the ruling in Tambunting v. Court of Appeals9 cited
by petitioner.
Petitioner argues that the principal defect which invalidates the questioned foreclosure sale is the nonpresentation of a certificate of posting by the deputy sheriff despite the statement in Tambunting that the
published notices and certificate of posting by the Sheriff xxx should have been presented10 to show compliance.
Petitioner then goes on to insist that since the certificate of posting is an indispensable proof of compliance with
the law, the mere testimony of Deputy Sheriff Oscar Domingo (presented as petitioners own witness) that he
posted the notice of sale in three (3) public places does not suffice. Hence, reliance by respondent Court of
Appeals on the presumption of regularity in the performance of official duty to conclude that the legal
requirements for a valid foreclosure has been complied with is misplaced.
We find the argument to be without merit. The non-presentation of a certificate of posting does not affect
the intrinsic validity of the questioned foreclosure sale. As already stated, all that is required by Sec. 3 of Act No.
3135 is that public notice of the place and time of the sale be posted in three (3) public places and, where the
property is worth more than P400.00, published in a newspaper of general circulation. Non-compliance
constitutes a jurisdictional defect sufficient to invalidate the sale.
However, a certificate of posting is not a statutory requirement. Rather, it is significant only in the matter of
proving compliance with the required posting of notice. And although we said in Tambunting that [t]he
presumption of compliance with official duty has been rebutted by the failure to present proof of posting and
publication of the notice of sale, this cannot be construed to mean that a certificate of posting is indispensable
without which a questioned foreclosure sale is automatically doomed as invalid. For the fact alone that there is
no certificate of posting attached to the sheriffs records is not sufficient to prove the lack of
posting.11 In Tambunting the absence of the affidavit of publication was considered fatal because no equally
convincing and competent proof of compliance was offered to compensate for its non-presentation.
In the case at bench, however, although Deputy Sheriff Oscar Domingo failed to present a certificate of
posting because some records were lost when the sheriffs office was transferred to the fifth floor of the City Hall
building, he did declare under oath (when presented as petitioners own witness) that he posted notices of the
questioned sale on the bulletin boards of the City Hall, the Post Office and Finance Buildings. We agree with
respondent Court of Appeals that such testimony suffices in lieu of the customary certificate of posting and can
properly be accorded the presumption of regularity of performance having come from a public officer to whom no
improper motive to testify has been attributed.
As to the contention that the Post Office and Finance Buildings were not public places, besides merely
alleging the same (we do not even know which post office and what finance building petitioner was referring to),
petitioner did not question the validity of the foreclosure sale on any ground whatsoever after its termination. On
the contrary, his conduct afterwards even seems to indicate that he has no objection whatsoever as to its
validity. For petitioner even contends that he negotiated with private respondent L & R Corporation for the return
of the property by appealing to the latters benevolence. When he could not raise the winning bid made by L & R
in the foreclosure sale, petitioner agreed to look for a buyer who could afford the amount, with the difference in
price to be retained by him. However, upon learning who the legal owner of the property was, respondent
spouses chose to negotiate directly with the latter to save them the difference in price. As respondent court
concluded, such act did not make the spouses in bad faith, more so when there is no indication that they were
privy to the agreement between petitioner and L & R Corporation, even assuming there was any.
WHEREFORE, the questioned Decision and Resolution of respondent Court of Appeals are AFFIRMED in
toto. Costs against petitioner.

SO ORDERED.