Case Digests_Art 2124-2131 Redemption 1 MHH_2.
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Banco Filipino vs CA and Santiago (Isabela) Memorial Park Inc.
Facts: Santiago Memorial Park Inc. (SMPI) mortgaged a land to secure a P500,000 loan from
Banco Filipino. Due to failure to pay, mortgage was foreclosed. Sheriffs Certificate of Sale.
Registered on Jan. 21, 1991. On Aug 6, 1991 SMPI offered to pay P1 million to redeem the
property. SMPI deposited P50,000. Banco Filipino demanded P5.83 million. SPMI filed a
complaint for redemption and specific performance against Banco Filipino.
Held: Complaint dismissed. Private respondent has no cause of action for redemption
against petitioner. There was only an offer to redeem (no tender of pmt). The P50,000 was
only to postpone the consolidation of title over the land. The redemption price should be
P1.147 million (inclusive of 12% interest and expenses of foreclosure). There was no
meeting of the minds on the alleged conventional redemption or sale of the land after the
lapse of the redemption period.
Clearly, the right of redemption should be exercised within the specified time limit, which is
one year from the date of registration of the certificate of sale. The redemptioner should
make an actual tender in good faith of the full amount of the purchase price as provided
above, i.e., the amount fixed by the court in the order of execution or the amount due
under the mortgage deed, as the case may be, with interest thereon at the rate specified in
the mortgage, and all the costs, and judicial and other expenses incurred by the bank or
institution concerned by reason of the execution and sale and as a result of the custody of
said property less the income received from the property.
In case of disagreement over the redemption price, the redemptioner may preserve his right
of redemption through judicial action which in every case must be filed within the one-year
period of redemption. 12 The filing of the court action to enforce redemption, being
equivalent to a formal offer to redeem, would have the effect of preserving his redemptive
rights and "freezing" the expiration of the one-year period. In this case, the period of
redemption expired on January 21, 1992. The complaint was filed on December 20, 1992.
Section 78, General Banking Act provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on
real estate xxx the mortgagor or debtor xxx shall have the right, within one year
after the sale of the real estate as a result of the foreclosure of the respective
mortgage, to redeem the property by paying the amount fixed by the court in the
order of execution, or the amount due under the mortgage deed, as the case may
be, with interest thereon at the rate specified in the mortgage, and all the costs,
and judicial and other expenses incurred by the bank or institution concerned by
reason of the execution and sale and as a result of the custody of said property less
the income received from the property.
China Banking Corp. vs CA, Paulino Chua and Kiang Ming Chu Chua synopsis from case
A residential land covered by Transfer Certificate of Title No. 410603 in the name of spouses
Alfonso Roxas Chua and Kiang Ming Chu Chua was levied on execution. The latter filed an
action questioning the levy on the ground that the land was conjugal partnership property.
This resulted in a compromise agreement to the effect that the levy shall be valid only to the
extent of the share pertaining to Alfonso Roxas Chua. Accordingly, an alias notice of levy
was issued affecting the said 1/2 undivided portion of the property. After the execution sale,
a certificate of sale was executed in favor of Metrobank, the judgment creditor, and the
same was annotated on TCT No. 410603 on December 22, 1987. Meanwhile, China Banking
Corporation filed a complaint for sum of money against Pacific Multi Agro-Industrial
Corporation and Alfonso Roxas Chua. Judgment was rendered ordering defendants to pay
Chinabank the aggregate amount of P2.5 million plus interests, penalties and attorney's
fees. Defendants appealed to the Court of Appeals, but the same was dismissed for failure
to file appellants' brief. Thus, notice of levy on execution was issued on February 4, 1991
against the right and interest of Alfonso Roxas Chua in TCT No. 410603. The same was later
sold at public auction and a certificate of sale was executed in favor of Chinabank, and
inscribed on TCT 410603 on May 4, 1992. However, Alfonso Roxas Chua previously executed
in favor of his son, Paulino Roxas Chua, an "Assignment of Right to Redeem," pertaining to
his right to redeem the 1/2 undivided portion of the land sold to Metrobank. On January 11,
1989, Paulino redeemed the property from Metrobank, which was annotated on TCT No.
410603 on March 14, 1989. Paulino and his mother filed a civil case alleging that Paulino has
a prior and better right over Chinabank inasmuch as the assignment to him of the right to
redeem and his redemption of Alfonso's share in the property were inscribed on the title on
an earlier date than the annotation of the notice of levy and certificate Chinabank. Both the
trial court and the Court of Appeals ruled in favor of private respondents and enjoined
Chinabank, the Sheriff of Manila and the Register of Deeds of San Juan from causing the
transfer of possession, ownership and certificate of title, or otherwise disposing of the
property covered by TCT No. 410603 in favor of Chinabank or any other person. On March 7,
2000, the Supreme Court issued the now assailed decision reversing the judgment of the
Court of Appeals and rescinding the assignment of right to redeem executed by Alfonso in
favor of Paulino, for having been entered into in fraud of creditors. Private respondents,
thus, filed this motion for reconsideration of the said decision.
The Supreme Court ruled that private respondents sufficiently established that the
conveyance was made in good faith and for valuable consideration. Suffice it to state that
Metrobank accepted the same and reconveyed the property to Paulino. At the time
Chinabank levied on Alfonso Roxas Chua's share in TCT No. 410603 on February 4, 1991, the
said property was no longer his. The same had already been acquired by Metrobank and,
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later, redeemed by Paulino. Even without the assignment of the right to redeem to Paulino,
the subject share in the property would pertain to Metrobank. Either way, Chinabank
would not stand to acquire the same. It is an established doctrine that a judgment creditor
only acquires at an execution sale the identical interest possessed by the judgment debtor in
the property, which is the subject of the sale. It follows that if, at the time of the execution
sale, the judgment debtor had no more right to or interest in the property because he had
already sold it to another, then the purchaser acquires nothing. Chinabank's objective was
to acquire ownership of the 1/2 undivided portion of the subject property. However, the
acquisition by Chinabank, or Metrobank for that matter, of the said portion will create an
absurd co-ownership between a bank, on the one hand, and a family, on the other hand, of
the latter's family home. The rigid and technical application of the Rules may be relaxed in
order to avoid an absurd result. The Supreme Court affirmed the decision of the Court of
Appeals except the awards of moral and exemplary damages, which were deleted. Thus, its
earlier decision dated March 7, 2000 was reconsidered and set aside, and the assailed
decision of the Court of Appeals was affirmed with modification.
Lopez vs CA
On June 2, 1959, petitioner obtained a loan of P20,000.00 from Prudential Bank payable in
one year with an interest of 10% per annum. Petitioner posted a surety bond to secure his
full and faithful performance of his obligation under the promissory now with the Philippine
American Insurance Company (Philamgen) as his surety. In return for the undertaking of
Philamgen under the surety bond, petitioner executed on the same day an indemnity
agreement and a deed of assignment of shares of stock in favor of the said company,
endorsing in blank and delivering the stock certificate to the latter. The assignment of shares
was made due to a commitment made by determinate third parties to the surety that in
case petitioner defaults in payment said third parties would buy the shares from the surety
and the proceeds will be paid to the bank. When the obligation became due, and petitioner
failed to pay, Philamgen paid the loan and subsequently sued petitioner for reimbursement.
The trial court after hearing dismissed the complaint finding that the transfer of stock in the
name of Philamgen was absolute and had extinguished petitioner's obligation under the
indemnity agreement. On appeal, the Court of Appeals held that the stock assignment made
in favor of the surety was a pledge, intended as a security for the payment of the obligation
of petitioner to the surety. In this petition for review, petitioner claims that the transfer of
shares was a dacion en pago; and that there was novation of the indemnity contract when
the surety and the determinate third parties agreed that the latter would buy the shares of
stock from the former so that the bank obligations of petitioner could be paid from the
proceeds.
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The Supreme Court held that considering that the indemnity agreement connotes a
continuing obligation of petitioner towards the surety while the stock assignment indicates
a complete discharge of the same obligation, the existence of the indemnity agreement is
inconsistent with the theory of an absolute sale for and in consideration of the same
undertaking of the surety, and strong and cogent reasons exist to conclude that the surety
and petitioner intended the stock assignment as a pledge; that the assignment of stock is
not a dation in payment since the obligation of the petitioner towards the surety has not
matured at the time the same was executed; and that there was no novation of the
obligation by substitution of debtor since it was not established nor shown that petitioner
would be released from responsibility.
The indemnity agreement and the stock assignment must be considered together as related
transactions because in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered (Article 1371, New
Civil Code). Thus, considering that the indemnity agreement connotes a continuing
obligation of Lopez towards Philamgen while the stock assignment indicates a complete
discharge of the same obligation, the existence of the indemnity agreement whereby Lopez
had to pay a premium of P1,000.00 for a period of one year and agreed at all times to
indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason
of it becoming a surety, is inconsistent with the theory of an absolute sale for and in
consideration of the same understanding of Philamgen. There would have been no necessity
for the execution of the indemnity agreement if the stock assignment was really intended as
an absolute conveyance. Hence there are strong and cogent reasons to conclude that the
parties intended said stock assignment to complement the indemnity agreement and
thereby sufficiently guarantee the indemnification of Philamgen should it be required to pay
Lopez's loan to Prudential Bank.
The facts and circumstances leading to the execution of the stock assignment, Exhibit C, and
the admission of Lopez prove that it is in fact a pledge. The appellate court is correct in
ruling that the following requirements of a contract of pledge have been satisfied: (1) that it
be constituted to secure the fulfillment of a principal obligation; (2) that the pledger be the
absolute owner of the thing pledged; and (3) that the person constituting the pledge has the
free disposal of the property, and in the absence thereof, that he be legally authorized for
the purpose.
Petitioner's "sale, assignment and transfer" unto the surety of the shares of stock, coupled
with their endorsement in blank and delivery, is not dation in payment, because the debt or
obligation of the petitioner to his surety has not matured when petitioner "alienated" his
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4,000 shares of stock to his surety. Petitioner's obligation would arise only when he would
default in the payment of the principal obligation (the loan) to the bank and the surety had
to pay for it. Such fact being adverse to the nature and concepts of dation in payment, the
same could not have been constituted when the stock assignment was executed. Moreover,
there is no express provision in the terms of the stock assignment between the surety and
the petitioner that the principal obligation (which is the loan) is immediately extinguished by
reason of such assignment.
In case of doubt as to whether a transaction is pledge or a dation in payment, the
presumption is in favor of pledge, the latter being the lesser transmission of rights and
interests.
Under Article 1291 of the New Civil Code, obligations may be modified by:
(1) changing their object or principal condition;
(2) substituting the person of the debtor;
(3) subrogating a third person in the rights of the creditor.
And in order that an obligation may be extinguished by another which substitute the same,
it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. Novation which consists in
substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.
Paray vs Rodriguez
Facts: Respondents were the owners, in their respective personal capacities, of shares of
stock in a corporation known as the Quirino-Leonor-Rodriguez Realty Inc. Sometime during
the years 1979 to 1980, respondents secured by way of pledge of some of their shares of
stock to petitioners Sps Parays the payment of certain loan obligations. When the Parays
attempted to foreclose the pledges on account of respondents' failure to pay their loans,
respondents filed complaints with the RTC. Notice of Sale for public auction of shares of
stock. Respondents caused consignation of sums to RTC.
Held: The fundamental premise from which the appellate court proceeded was that the
consignations made by respondents should be construed in light of the rules of redemption,
as if respondents were exercising such right. In that perspective, the Court of Appeals made
three crucial conclusions favorable to respondents: that their act of consigning the
payments with the RTC should be deemed done in the exercise of their right of redemption;
that the buyer at public auction does not ipso facto become the owner of the pledged
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shares pending the lapse of the one-year redemptive period; and that the collective sale of
the shares of stock belonging to several individual owners without specification of the
apportionment in the applications of payment deprives the individual owners of the
opportunity to know of the price they would have to pay for the purpose of exercising the
right of redemption.
The appellate court's dwelling on the right of redemption is utterly off-tangent. The right of
redemption involves payments made by debtors after the foreclosure of their properties,
and not those made or attempted to be made, as in this case, before the foreclosure sale.
The proper focus of the Court of Appeals should have been whether the consignations made
by respondents sufficiently acquitted them of their principal obligations. A pledge contract is
an accessory contract, and is necessarily discharged if the principal obligation is
extinguished.
Preliminary, it must be clarified that the subject sale of pledged shares was an extrajudicial
sale, specifically a notarial sale, specifically a notarial sale, as distinguished from a judicial
sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs
extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit
has not been satisfied in due time, is to proceed before a Notary Public to the sale of the
thing pledged.
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to
execution sales, more precisely execution sales of real property. The right to redeem
property sold as security for the satisfaction of an unpaid obligation does not exist
preternaturally. Neither is it predicated on proprietary right, which, after the sale of
property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is
a bare statutory privilege to be exercised only by the persons named in the statute. The
right of redemption over mortgaged real property sold extrajudically is established by Act
No. 3135, as amended. The said law does not extend the same benefit to personal property.
In fact, there is no law in our statute books which vests the right of redemption over
personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served
as the vehicle for any legislative intent to bestow a right of redemption over personal
property, since that law governs the extrajudicial sale of mortgaged personal property, but
the statute is definitely silent on the point. Obviously, since there is no right to redeem
personal property, the rights of ownership vested unto the purchaser at the foreclosure sale
are not entangled in any suspensive condition that is implicit in a redemptive period.
Under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose
which of the items should be sold if two or more things are pledged. No similar option is
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given to pledgors under the Civil Code. Moreover, there is nothing in the Civil Code
provisions governing the extrajudicial sale of pledged properties that prohibits the pledges
of several different pledge contracts from auctioning all of the pledged properties on a
single occasion, or from the buyer at the auction sale in purchasing all the pledged
properties with a single purchase price. The relative insignificance of ascertaining the
definite apportionments of the sale price to the individual shares lies in the fact that once a
pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever
deficiency or excess there may be between the purchase price and the amount of the
principal obligation. A different ruling though would obtain if at the auction, a bidder
expressed the desire to bid on a determinate number or portion of the pledged shares. In
such a case, there may lie the need to ascertain with particularity which of the shares are
covered by the bid price, since not all of the shares may be sold at the auction and
correspondingly not all of the pledge contracts extinguished. The same situation also would
lie if one or some of the owners of the pledged shares participated in the auction, bidding
only on their respective pledged shares.
There is no doubt that if the principal obligation is satisfied, the pledges should be
terminated as well. Article 2098 of the Civil Code provides that the right of the creditor to
retain possession of the pledged item exists only until the debt is paid. Article 2105 of the
Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged
against the will of the creditor, unless and until he has paid the debt and its interest. At the
same time, the right of the pledgee to foreclose the pledge is also established under the Civil
Code. When the credit has not been satisfied in due time, the creditor may proceed with the
sale by public auction under the procedure provided under Article 2112 of the Code.
Union Bank vs Juniat, Winwood Apparel Inc, Wingyan Apparel Inc and Nonwoven Fabric
Phils.
Facts: Petitioner filed with the RTC a Complaint 9 with prayer for the issuance of ex-parte
writs of preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the
person in possession of the mortgaged motorized sewing machines and equipment
(Nonwoven). Petitioner alleged that Juniat, acting for and in behalf of Winwood and
Wingyan, executed a promissory note and a Chattel Mortgage over several motorized
sewing machines and other allied equipment to secure their obligation arising from export
bills transactions to petitioner in the amount of P1.1 million, and as additional security,
Juniat executed a Continuing Surety agreement. However, the mortgaged motorized sewing
machines were insufficient to answer for the obligation. Nonwoven filed an Answer,
contending that the unnotarized Chattel Mortgage executed in favor of petitioner has no
binding effect on Nonwoven and that it has a better title over the motorized sewing
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machines and equipment because these were assigned to it by Juniat pursuant to their
Agreement.
Held: Indeed, the unnotarized Chattel Mortgage executed by Juniat, for and in behalf of
Wingyan and Winwood, in favor of petitioner does not bind Nonwoven. However, it must be
pointed out that petitioner's primary cause of action is for a sum of money with prayer for
the issuance of ex-parte writs of attachment and replevin against Juniat, Winwood,
Wingyan, and the person in possession of the motorized sewing machines and equipment.
Thus, the fact that the Chattel Mortgage executed in favor of petitioner was not notarized
does not affect petitioner's cause of action. Petitioner only needed to show that the loan of
Juniat, Wingyan and Winwood remains unpaid and that it is entitled to the issuance of the
writs prayed for. Considering that writs of attachment and replevin were issued by the RTC,
Nonwoven had to prove that it has a better right of possession or ownership over the
attached properties. This it failed to do.
A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing machines,
snap machines and boilers were pledged to Nonwoven by Juniat to guarantee his obligation.
However, under Article 2096 of the Civil Code, "a pledge shall not take effect against third
persons if a description of the thing pledged and the date of the pledge do not appear in a
public instrument." Hence, just like the chattel mortgage executed in favor of petitioner, the
pledge executed by Juniat in favor of Nonwoven cannot bind petitioner.
Sarmiento and Villaseor vs Javellana
Facts: On August 28, 1911, the defendant loaned the plaintiffs the sum of P1,500 with
interest at the rate of 25 per cent per annum for the term of one year. To guarantee this
loan, the plaintiffs pledged a large medal with a diamond in the center and surrounded with
ten diamonds, a pair of diamonds earrings, a small comb with twenty-diamonds, and two
diamond rings, which the contracting parties appraised at P4,000. This loan is evidenced by
two documents wherein the amount appears to be P1,875, which includes the 25% interest
on the sum of P1,500 for the term of one year. The plaintiff allege that at the maturity of
this loan, the plaintiff Eusenio M. Villasenor, being unable to pay the loan, obtained from
the defendant an extension, with the condition that the loan was to continue, drawing
interest at the rate of 25 per cent per annum, so long as the security given was sufficient to
cover the capital and the accrued interest. In the month of August, 1919, the plaintiff
Eusebio M. Dreyfus, went to the house of the defendant and offered to pay the loan and
redeem the jewels, taking with him, for this purpose, the sum of P11,000, but the defendant
then informed them that the time for the redemption had already elapsed. The plaintiffs
renewed their offer to redeem the jewelry by paying the loan, but met with the same reply.
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Held: Javellana claimed that the jewels were sold to him. But the SC thinks otherwise as he
continued in possession of the documents evidencing the loan and the pledge. If the
defendant really bought these jewels, it seems natural that Filomena would have demanded
the surrender of the documents evidencing the loan and the pledge, and the defendant
would have returned them to plaintiff.

From the foregoing that, as the jewels in question were in the possession of the defendant
to secure the payment of a loan of P1,500, with interest thereon at the rate of 25 per cent
annum from August 31, 1911, to August 31, 1912, and the defendant having subsequently
extended the term of the loan indefinitely, and so long as the value of the jewels pledge was
sufficient to secure the payment of the capital and accrued interest, the defendant is bound
to return the jewels or their value (P12,000) to plaintiffs, and the plaintiffs, and the plaintiffs
have the right to demand the same upon the payment by them of the rate of 25% per
annum from August 28, 1911.

An action for the recovery of the goods which were pledged to secure the payment of a loan
evidenced by a document is an action on a written contract, if the pledge appears in the
document evidencing the loan, although it is not expressly stated therein that, upon the
payment of the debt, the debtor may demand their restitution, because it is essential in the
contract of pledge that upon the payment of the principal obligation the pledger shall have
the right to demand the return of the goods pledged. In such a case the period of
prescription of the action is ten years from the date on which the debtor any have paid the
debt and demanded the return of the goods pledged.

In a contract of loan with interest wherein a term was fixed for the payment thereof, it
presumed that said term was established for the benefit of the creditor as well as that of the
debtor, unless from its tenor or others circumstances it appears to have been stipulated for
the benefit of one or the other only. (Article 1127, Civil Code.) In such a case the debtor has
no right to pay the debt before the lapse of said period, without the consent of the creditor,
and demand the devolution of the goods that were pledge to secure the payment. Only
after the expiration of said period may debtor make payment, and, therefore, the action for
the recovery of the goods pledged arises only after the lapse of said period of prescription of
said action.