Pledge

1. Duran vs IAC Doctrine: The fraudulent and forged document of sale may become the root of a valid title if the certificate
has already been transferred from the name of the true owner to the name indicated by the forger.

Facts:
Circe Duran owned 2 parcels of land in Caloocan City which she had purchased form the Moja Estate. She
left the Philippines in June 1854. A Deed of Sale of the 2 lots was made in favor of Circe’s mother, Fe. In
December 1965, Fe mortgaged the same property to Erlinda Marcelo-Tiangco. When Circe came to know
about the mortgage, she wrote to the Register of Deeds of Caloocan informing that she had not given her
mother any authority to sell or mortgage any of her properties. She failed to get an answer from the
Register of Deeds. So she returned to the Philippines in May 1966.
Meanwhile, Fe failed to redeem the mortgaged properties and then Marcelo-Tiangco initiated foreclosure
proceedings.
Circe claims that the sale in favor of her mother is a forgery saying that at the time of its execution in 1963,
she was in the US. Fe alleges that the signatures of Circe in the Deed are genuine and the mortgage made
by Fe is valid.
Issues:

Whether or not the mortgage is valid

Whether or not Marcelo-Tiangco was a buyer in good faith and for value
Held:
1. Yes, the mortgage is valid with respect to the mortgagees. There is a presumption of
regularity in the case of a public document. The fraudulent and forged document of sale may become the
root of a valid title if the certificate has already been transferred from the name of the true owner to the
name indicated by the forger. Insofar as innocent 3rd persons are concerned, the owner was already Fe
inasmuch as she had become the registered owner (caused by the sale of Circe to Fe). The mortgagee
had the right to rely upon what appeared in the cert. of title and did not have to inquire further.
2. Good faith consists of the possessor’s belief that the person from whom he received the thing
was the owner of the same and could convey his title. In the case, Marcelo-Tiangcoi in good faith relied on
the cert. of title in the name of Fe.

2. Cebuhat vs CA Doctrine: It is well-settled that even if the procurement of a certificate of title was tainted with fraud and
misrepresentation, such defective title may be the source of a completely legal and valid title in the hands
of an innocent purchaser for value.

Facts:
Mary Ann Arede was the adopted daughter of appellant Mercedes Arede. In 1972, appellant purchased a
parcel of land in Cavite, and was registered by appellant in Mary Ann Arede’s name and the corresponding
title was issued by the Register of Deeds of Cavite as TCT No. T-56225.
Later on, unknown to appellant, Mary Ann Arede obtained a reconstituted owner’s duplicate of TCT No. T-
56225 thru the use of a falsified court order. Using this reconstituted title, Mary Ann Arede mortgaged the
land to Rural Bank.
Upon release of the mortgage, the land was again mortgaged by Mary Ann Arede to appellee Flordeliza
Cabuhat, which mortgage was registered by appellee on the following day at the Register of Deeds of
Cavite.
It appeared however that prior to the second mortgage, the subject lot was sold by Mary Ann Arede to
appellant Mercedes Arede as evidenced by a Deed of Sale. Unfortunately, this sale was not registered by
appellant.
Hence, upon knowledge of the mortgage to appellee Cabuhat, appellant was prompted to commence the
instant suit for annulment of title.
Judgment was rendered by the lower court against defendant Mary Ann Arede, decreeing, among others,
that the mortgage lien in favor of defendant Flordeliza Cabuhat is rendered valid and binding.
Mercedes appealed to the CA arguing that the mortgage lien was invalid because: (1) the registration was
procured through the presentation of a forged owner’s duplicate certificate of title, in violation of Section 53
of Presidential Decree 1529; and (2) the mortgage constituted when Mary Ann was no longer the absolute
owner of the subject property contravened Article 2085 of the New Civil Code.
CA rendered judgment granting Mercedes’ appeal, reversing and setting aside the trial court’s decision
upholding the mortgage lien in favor of Flordeliza. CA relied solely on the provisions of Article 2085 of the
New Civil Code, which states, in part, that for a mortgage to be valid, the persons constituting the pledge or
mortgage should have the free disposal of their property, and in the absence thereof, they should be legally
authorized for the purpose. It also cited the 1954 case of Parqui v. PNB,wherein the mortgage was
declared null and void since the registration thereof was procured by the presentation of a forged deed.

Issue:
Whether or not the mortgage lien, in favor of Cabuhat, over the subject property is valid.
Held:
Yes. It is well-settled that even if the procurement of a certificate of title was tainted with fraud and
misrepresentation, such defective title may be the source of a completely legal and valid title in the hands
of an innocent purchaser for value.
Just as an innocent purchaser for value may rely on what appears in the certificate of title, a mortgagee has
the right to rely on what appears in the title presented to him, and in the absence of anything to excite
suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor
appearing on the face of the said certificate. Furthermore, it is a well-entrenched legal principle that when
an innocent mortgagee who relies upon the correctness of a certificate of title consequently acquires rights
over the mortgaged property, the courts cannot disregard such rights.
 Article 2085 of the Civil Code, which requires that the mortgagor must have free disposal of the property, or
at least have legal authority to do so, admits of exceptions. In quite a number of instances, this Court has
ruled that the said provision does not apply where the property involved is registered under the Torrens
System.
This Court has uniformly held that when a mortgagee relies upon what appears on the face of a Torrens
title and loans money in all good faith on the basis of the title in the name of the mortgagor, only thereafter
to learn that the latter’s title was defective, being thus an innocent mortgagee for value, his or her right or
lien upon the land mortgaged must be respected and protected, even if the mortgagor obtained her title
thereto through fraud.
In the case at bar, there is no doubt that petitioner was an innocent mortgagee for value.

3. A. Francisco Realty and Doctrine: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
Development Corp vs CA dispose of them. Any stipulation to the contrary is null and void.

Facts:

A. Francisco Realty granted a Php 7.5M loan to spouses Javillonar, in consideration of

which, the latter executed a promissory note a real estate mortgage over a certain property and An undated
deed of sale of said mortgaged property in favor of A. Francisco. Upon maturity of the loan, the spouses
failed to pay. As a consequence, A. Francisco registered the sale of the mortgaged property, for which a
new TCT was issued. A. Francisco then demanded possession of the mortgaged realty. The spouses
refused to vacate. A. Francisco then filed a case for possession before the RTC. The spouses admitted that
their financial liability to A. Francisco but they also alleged that it was not their intention to sell the realty
since it was merely an additional security for their loan payment.
The RTC adjudged in favor of A. Francisco. On appeal, the CA reversed RTC, holding that the deed of sale
was void, being in the nature of a pactum commissorium which is prohibited by law. Hence, this petition
with the SC. During trial, A. Francisco contended that the forfeiture clause in the Promissory Note was not a
pactum commissorium because Art. 2088 (NCC) provided that a pactum commissorium is a forfeiture
clause in a deed of mortgage, and thus the forfeiture stipulation should be in the mortgage deed itself in
order to be prohibited.

Issue:
Whether or not a forfeiture clause in the Promissory note not incorporated in the mortgage deed is
constitutive of pactum commissorium

Held:
Yes. The stipulations in the promissory notes providing that, upon failure of mortgagor (spouses) to pay
 interest, ownership of the property would be automatically transferred and the deed of sale in its favor
would be registered to mortgagee (A. Francisco), are in substance a pactum commissorium. The
stipulations in the Promissory Note embody the two elements of pactum commissorium:
(1) That there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of
security for the payment of the principal obligation; and
(2) That there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or
mortgaged in the event of non-payment of the principal obligation within the stipulated period.
To sustain the theory of the petitioner (that the forfeiture clause should be in the mortgage deed itself in
order to be prohibited) would be to allow a subversion of the prohibition

4. DBP vs CA Doctrine: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.

Facts:
CUBA, a guarantee of a Fishpond Lease Agreement from the Government, obtained from DBP 3 separate
loans, each of which was covered by a promissory note. Simultaneous with the execution of the notes was
the execution of the “Assignment of Leasehold Rights” by CUBA, as borrower of the mortgaged properties
by way of security in the payment of the loans. Condition no. 12 provides for the appointment of DBP as
attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights in
case of default by CUBA and to apply the proceeds to the payment of the loan.

Issue:
Whether or not the condition in question constitute pactum commissorium 
 

Held:

Yes. Condition 12 did not 
 provide that the ownership over the leasehold rights would
automatically pass 
 to DBP upon CUBA’s failure to pay the loan on time. Pactum commissorium is when
there is a pledge or mortgage and a property is pledged or mortgaged by way of security for the payment of
the principal obligation and a stipulation for an automatic appropriation by the creditor of the thing pledged
or mortgaged in the event of non-payment of the principal obligation within the stipulated period is present
just like in the case at bar. DPB exceeded the authority vested by condition. DBP cannot take refuge in

 condition 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated,
condition 12 did not provided that CUBA’s default would operate to vest DBP ownership of the said rights.
Besides, an 
 assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not
an absolute conveyance of title which confers ownership on the assignee

5. Hechanova vs Adil Doctrine: No valid mortgage has been constituted in plaintiff's favor, the alleged deed of mortgage being a
mere private document and not registered; moreover, it contains a stipulation (pactum commissorium)
which is null and void under Article 2088 of Civil Code. Even assuming that the property was validly
mortgaged to the plaintiff, his recourse was to foreclose the mortgage, not to seek annulment of the sale.

Facts:
The case under review is for the annulment of a deed of sale dated March 11, 1978, executed by
defendant Jose Y. Servando in favor of his co-defendants, the petitioners herein, covering three parcels of
land situated in Iloilo City. Claiming that the said parcels of land were mortgaged to him in 1970 by the
vendor, who is his cousin, to secure a loan of P20,000.00, the plaintiff Pio Servando impugned the validity
of the sale as being fraudulent, and prayed that it be declared null and void and the transfer certificates of
title issued to the vendees be cancelled, or alternatively, if the sale is not annulled, to order the defendant
Jose Servando to pay the amount of P20,000.00, plus interests, and to order defendants to pay damages.
Jose Servando certified that he is the sole owner of three parcels of land situated at Sto. Nino St. Arevalo
Compania St. & Compania St. Interior Molo who has mortgaged the said property to his cousin Pio
Servando in the amount of 20,000 redeemable for a period not exceeding ten years with the mortgage
amount bearing an interest of 10% per annum. He further certified that in case of failure to redeem the said
properties within in period stated, his cousin should become the sole owner.
The defendants moved to dismiss the complaint on the grounds that it did not state a cause of action, the
alleged mortgage being invalid and unenforceable since it was a mere private document and was not
recorded in the Registry of Deeds; and that the plaintiff was not the real party in interest and, as a mere
mortgagee, had no standing to question the validity of the sale. The motion was denied by the respondent
Judge, in its order dated June 20, 1978, "on the ground that this action is actually one for collection."
On June 23, 1978, defendant Jose Y. Servando died. The defendants filed a Manifestation and Motion,
informing the trial court accordingly, and moving for the dismissal of the complaint pursuant to Section 21 of
Rule 3 of the Rules of Court, pointing out that the action was for. recovery of money based on an
actionable document to which only the deceased defendant was a party. The motion to dismiss was denied
on July 25, 1978, "it appearing from the face of the complaint that the instant action is not purely a money
claim, it being only incidental, the main action being one for annulment and damages."
On August 1, 1978, plaintiff filed a motion to declare defendants in default, and on the very next day,
August 2, the respondent Judge granted the motion and set the hearing for presentation of plaintiff's
evidence ex-parte on August 24, 1978.
On August 2, 1978, or the same day that the default order was issued, defendants Hechanova and Masa
filed their Answers, denying the allegations of the complaint and repeating, by way of special and
affirmative defenses, the grounds stated in their motions to dismiss.
On August 25, 1978, a judgment by default was rendered against the defendants, annulling the deed of
sale in question and ordering the Register of Deeds of Iloilo to cancel the titles issued to Priscilla Masa and
Gemma Hechanova, and to revive the title issued in the name of Jose Y. Servando and to deliver the same
to the plaintiff.
The defendants took timely steps to appeal the decision to the Court of Appeals by filing a notice of appeal,
 an
appeal bond, and a record on appeal. However, the trial court disapproved the record on appeal due to the
failure of defendants to comply with its order to eliminate therefrom the answer filed on August 2, 1978 and
accordingly, dismissed the appeal, and on February 2, 1978, issued an order granting the writ of execution
prayed for by plaintiff.

Issue:
Whether or not the plaintiff has standing to question the validity of the deed of sale
executed by the deceased in favor of his co-defendants.

Held:
No. It is clear from the records of this case that the plaintiff has no cause of action. Plaintiff has no standing
to question the validity of the deed of sale executed by the deceased defendant Jose Servando in favor of
his co-defendants Hechanova and Masa. No valid mortgage has been constituted plaintiff's favor, the
alleged deed of mortgage being a mere private document and not registered; moreover, it contains a
stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil Code. Even assuming that
the property was validly mortgaged to the plaintiff, his recourse was to foreclose the mortgage, not to seek
annulment of the sale.

6. Reyes vs Sierra Doctrine: Once a mortgage attaches to a transaction, its character as a mortgage will always continue. The
parties cannot by any stipulation deprive it of the essential attributes of a mortgage in equity. The creditor
cannot appropriate the things given by way of mortgage.

Facts:
Vicente Reyes sought to register under his name a parcel of land located in Antipolo, Rizal
but opposed by Sierra. Trial Court approved Reyes’ application, declaring him owner of said land owing to
his and his predecessor-in-interest’s constructive possession of the same, particularly because they had
been paying the realty taxes thereon since 1926 until 1961. The origin of the dispute over land was
because in 1926, the Sierras’ predecessor, Basilia Beltran, borrowed P100 from Vicente Reyes, Sr. and
secured the loan with the said piece of land. In so doing, Basilia’s children executed together with her a
document (“katibayan ng papgpapahintulot sa aming ina na ipananagutan kay Vicente Reyes sa inutang na
halagang P100”). Beltran, however, died in 1938 without being able to pay the loan and Vicente Reyes, Jr.
continued in possession thereof, believing that the document executed was a contract of sale and not of
mortgage. Sierra et al now claiming that the words “sangla”, “ipinanagutan sa halagang isangdaang piso”
manifest that the document was one of mortgage.

Issue:
Whether or not the nature of the contract was that of a mortgage contract
 Held:

YesIt is a mortgage contract. The intention of the parties at the time it was executed must
prevail, i.e., the borrowing and lending of money with security. The terms indicate a debt and the creation of
a creditor-debtor relationship, where the land was used to secure repayment of the loan. 
 Following
established doctrine, once a mortgage attaches to a transaction, its character as a mortgage will always
continue. The parties cannot by any stipulation deprive it of the essential attributes of a mortgage in equity.
Civil Code provides: The creditor cannot appropriate the things given by way of mortgage. Act of Vicente
Reyes in registering the property in his name after failure of mortgagor to redeem the property constitutes a
pactum commisorium which is against good morals and public policy. 
 The court also declared that
possession by Reues has not been continuous (they had only used the property to spend some vacation
time there, but this was discontinued for the last 23 years). Moreover, mere failure of owner to pay taxes
does not necessarily imply abandonment of a right to property; and on the other hand, payment of realty
taxes by itself does not constitute sufficient evidence of title. 
 Application by Reyes for registration should
therefore be dismissed. Oppositors directed to pay back the P100 debt plus interest (6% p.a.) from 1926
until paid. 


7. PNB vs Banatao Doctrine: It is basic in law that a compromise agreement, as a contract, is binding only upon the parties to
the compromise, and not upon non-parties. This is the doctrine of relativity of contracts.

Facts:
On November 16, 1962, Banatao, et al. initiated an action for recovery of real property against Marciano
Carag before the Regional Trial Court. The disputed property was a new land formation on the banks of the
Cagayan River — an accretion to Lot 3192 of the Iguig Cadastre — that the plaintiffs-respondents claimed
as the owners of the adjoining Lot 3192. The defendants-respondents, on the other hand, were the
occupants of the disputed property.
While the case was pending, the defendants-respondents were able to secure homestead patents
evidenced by Original Certificates of Title (OCTs) issued in their names. The OCTs were issued in 1965
and 1966, and all bear the proviso that, in accordance with the Public Land Act, the patented homestead
shall neither be alienated nor encumbered for five (5) years from the date of the issuance of the patent.
The defendants-respondents separately applied for loans with the Philippine National Bank (PNB or the
bank) secured by real estate mortgages on their respective titled portions of the disputed property. The
PNB mortgages were annotated on the defendants-respondents' respective OCTs also in the years 1965
and 1966.
The trial court decided the case in favor of the plaintiffs-respondents and ordered the return of the disputed
property to the plaintiffs-respondents. Carag appealed the trial court decision to the Court of Appeals (CA).
In an amended complaint, the plaintiffs-respondents also added two (2) additional causes of action, or a
total of three (3) causes of action, namely: (1) recovery of real property; (2) cancellation of the OCTs; and
(3) annulment of real estate mortgage.
The bank was made a party to the case in view of the suit for annulment of mortgage. The records disclose
that on March 29, 1973, while the case was pending before the trial court, the bank extrajudicially
foreclosed the property. The bank was declared the highest bidder in the ensuing public auction, resulting
in the consolidation of title in the bank’s name; hence, the issuance on October 3, 1985 of TCT No. T-
65664 in the name of the bank.
On February 28, 1991, the plaintiffs-respondents and the defendants-respondents entered into a
compromise agreement whereby ownership of virtually the northern half of the disputed property was
ceded to the plaintiffs-respondents, while the remaining southern half was given to the defendants-
respondents. In the same compromise agreement, the defendants-respondents acknowledged their
indebtedness to petitioner PNB and bound themselves to pay their respective obligations to the bank,
including the interests accruing thereon. Petitioner PNB, however, was not a party to the compromise
agreement.
The trial court rendered its decision, approving and adopting in toto the compromise agreement, and
ordering the participating parties to strictly comply with its terms. The appellate court dismissed the appeal
in its decision of March 30, 2001.
PNB submits that its consent to the compromise agreement is necessary to secure a final and complete
determination of the claims and defenses of all the parties to the case. The PNB further argues that when
the appellate court approved in toto the trial court's judgment on the compromise agreement, it failed to
consider that the bank was a mortgagee in good faith. The bank claims good faith on the position that the
OCTs presented to it were all clean on their faces at the time the mortgages were applied for; that there
were no notices of lis pendens or any annotation of liens or encumbrances on all of them; and that it had no
knowledge, actual or constructive, of facts or circumstances to warrant further inquiry into the titles of the
defendants-respondents.
Issue:
Whether or not the compromise agreement entered into by some of the parties in litigation is binding upon
those who did not participate to the agreement.
Whether or not the mortgage constituted on the disputed land covered by a homestead patent is valid.
Held:
1. No. The compromise agreement does not bind those who are not part of such compromise. It
is basic in law that a compromise agreement, as a contract, is binding only upon the parties to the
compromise, and not upon non-parties. This is the doctrine of relativity of contracts. Consistent with this
principle, a judgment based entirely on a compromise agreement is binding only on the parties to the
compromise the court approved, and not upon the parties who did not take part in the compromise
agreement and in the proceedings leading to its submission and approval by the court. Otherwise stated, a
court judgment made solely on the basis of a compromise agreement binds only the parties to the
compromise, and cannot bind a party litigant who did not take part in the compromise agreement.
2. No. The mortgage on the land covered by a homestead patent is not valid. We conclude from

8. The Manila Banking Corp. vs
Teodoro
our own examination of these OCTs that the mortgages cannot but be void ab initio. The inscription, as
amended, which contains a proscription against the alienation or encumbrance of homestead patents
within five years from issue. The rationale for the prohibition, reiterated in a line of cases, first laid down in
Pascua v. Talens states that "x x x homestead laws were designed to distribute disposable agricultural lots
of the State to land-destitute citizens for their home and cultivation. It aims to preserve and keep in the
family of the homesteader that portion of public land which the State had gratuitously given to him." PNB
cannot claim that it is a mortgagee in good faith. The proscription against alienation or encumbrance is
unmistakable even on a cursory reading of the OCTs. Thus, one who contracts with a homestead patentee
is charged with knowledge of the law's proscriptive provision that must necessarily be read into the terms of
any agreement involving the homestead. Under the circumstances, the PNB simply failed to observe the
diligence required in the handling of its transactions and thus made the fatal error of approving the loans
secured by mortgages of properties that cannot, in the first place, be mortgaged.
Doctrine: Article 1292: in order that an obligation may be extinguished by another which substitutes 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.
Facts:
On April 1966, Spouses Teodoro together with Teodoro Sr executed a Promissory note in favor of Manila
Banking Corp (MBC) which should be payable within 120 days (until Aug), with 12% interest per annum.
They failed to pay and left balance of 15k as of September 1969. On May and June 1966, executed two
Promissory notes with 8,000 and 1,000 respectively payable within 120 days and 12% per annum. They
made partial payment but still left 8.9k balances as of September 1969. It appears that in 1964, Teodoro Jr
executed a Deed of Assignment of Receivables in favor of MBC from 
 the fishing boats and that the
Philippine Fisheries Commission succeeded after its abolition, that the non-payment of the Promissory
notes was due to failure of the Commission to pay spouses and that the Bank took steps to collect from the
Commission but no collection was effected;
For failure of the spouses and Teodor Sr to pay, MBC instituted against them. Teodoro Sr subsequently
died so suit only against the spouses. Trial Court favored MBC. Motion for consideration was denied and
Spouses appealed to CA but since issue pure question of law, CA forwarded case to SC.
Issues:
Whether or not the assignment of receivables has the effect of payment of all the loans contracted by the
spouses;
Whether or not MBC must exhaust all legal remedies against PFC before it can proceed against the
spouses. No
Held:
1. No. Assignment of receivables in 1964 did not transfer the ownership of the receivables to MBC and
release the spouses from their loans; The consideration was for certain credits, loans, overdrafts and credit
 accommodations worth 10k extended by MBC to spouses and as security for the payment of said sum and
interest thereon; also quitclaim of rights to MBC of their interest in the receivables. It was stipulated also
that it was a continuing guaranty for future loans and correspondingly, the assignment shall extend to all
accounts receivable. If it was intended to secure the payment of money, it must be construed as a pledge.
Assignment of receivables did not result from sale or by virtue of a dation in payment because at time the
deed was executed, the loans were non-existent yet. At most, it was a dation for 10k, the amount of credit
with MBC indicated in the deed, at the time of execution, there was no obligation to be extinguished except
for the 10k;
Article 1292: in order that an obligation may be extinguished by another which substitutes 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. Deed of assignment intended as collateral security for the loans, as a
continuing guaranty for whatever sums that would be owing by spouses. In case of doubt as to whether a
transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the
lesser transmission of rights and interests.
2. No. MBC need not exhaust all legal remedies against PFC. Spouses, not being released by the
assignment, remain as the principal debtors of MBC,rather than mere guarantors.
Article 2058: “creditor must have exhausted property of debtor and resorted to all legal remedies before it
can proceed to guarantor” does not apply to them. Appellants are both the principal debtors and the
pledgors or mortgagors. MBC did try to collect but it was disapproved so the loan was basically unsecured.

Real Mortgage (1 - 32)

6. NAVARRO VS LAGUNA FACTS: Subject of this suit is the 1/6 portion of a parcel of land located in Alabang, Muntinlupa, known as
DEVELOPMENT BANK Lot No. 1513-A. Records show that the late Catalino Navarro and his wife Consuelo Hernandez originally
owned Lot No. 1513-A. On December 4, 1968, they sold 5/6 of the unsegregated portion of the lot to their
children, namely, Leticia, Esther, Benjamin, Luciana and Leoniza, all surnamed Navarro. By virtue of the
sale, TCT No. 244200 was issued in their names. Spouses Benjamin and Rosita Navarro, herein
petitioners, are listed therein as co-owners of the property.
On March 18, 1978, without the knowledge and consent of petitioners, spouses Donalito Velasco and
Esther Navarro, conspiring with the latters sister Luciana Navarro, executed a falsified Deed of Absolute
Sale wherein they made it appear that the entire lot was sold to said spouses Velasco for P35,000.00. TCT
No. 244200 was thus cancelled and in lieu thereof, TCT No. 114526 was issued in the names of spouses
Velasco. Subsequently, they mortgaged the property to respondent Second Laguna Development Bank to
secure payment of a loan.
On June 30, 1987, upon failure of spouses Velasco to pay their loan, respondent bank had the mortgage
foreclosed. Later was sold to respondent spouses Isaac Guzman and Vilma Esporlas.
 Petitioners filed a partial motion for reconsideration of the Court of Appeals Decision but it was denied in
the Resolution[7] dated June 11, 1997.
Hence, the instant petition.
ISSUE: W/N the Court of Appeals erred in upholding the validity of the sale of the property between
respondent bank and spouses Guzman and declaring that they are estopped from questioning the
validity of the mortuigage and its foreclosure.
HELD: NO. In entering into the mortgage contract with spouses Velasco, there was no indication that
respondent bank acted in bad faith. Spouses Velasco presented to the bank their TCT No. 114256 showing
they were then the absolute owners thereof. Indeed, there were no circumstances or indications that
aroused respondent banks suspicion that the title was defective.
As to the validity of the sale of the property to respondent spouses Guzman, this Court agrees with the
finding of the Court of Appeals that petitioners are estopped from assailing the same.
Article 1431 of the Civil Code states that through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person relying
thereon.A person, who by his deed or conduct has induced another to act in a particular manner, is barred
from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to
another.[10]
It bears reiterating that in their two letters to respondent bank earlier mentioned, petitioners did not state
that spouses Velasco falsified their signatures appearing in the Deed of Absolute Sale. Nor did they
question the validity of the mortgage and its foreclosure. Indeed, those letters could have led respondent
bank to believe that petitioners recognized the validity of the Deed of Absolute Sale and the mortgage as
well as its subsequent foreclosure.
WHEREFORE, the instant petition is DISMISSED.

7. WINIFREDA URSAL, FACTS: The spouses Jesus and Cristita Moneset (Monesets) are the registered owners of a 333-square
petitioner, vs. COURT OF meter land together with a house thereon situated at Sitio Laguna, Basak, Cebu City covered by Transfer
APPEALS, THE RURAL BANK Certificate of Title No. 78374. On January 9, 1985, they executed a "Contract to Sell Lot & House" in favor
OF LARENA (SIQUIJOR), INC. of petitioner Winifreda Ursal (Ursal).
and SPOUSES JESUS Petitioner paid the down payment and took possession of the property. She immediately built a concrete
MONESET and CRISTITA perimeter fence and an artesian well, and planted fruit bearing trees and flowering plants thereon which all
MONESET amounted to P50,000.00. After paying six monthly installments, petitioner stopped paying due to the
Monesets' failure to deliver to her the transfer certificate of title of the property as per their agreement; and
because of the failure of the Monesets to turn over said title, petitioner failed to have the contract of sale
annotated thereon.
Unknown to petitioner, the Monesets executed on November 5, 1985 an absolute deed of sale in favor of
Dr. Rafael Canora, Jr. over the said property for P14,000.00. 6On September 15, 1986, the Monesets
executed another sale, this time with pacto de retro with Restituto Bundalo. 7 On the same day, Bundalo,
as attorney-in-fact of the Monesets, executed a real estate mortgage over said property with Rural Bank of
Larena (hereafter Bank) located in Siquijor for the amount of P100,000.00. The special power of attorney
made by the Monesets in favor of Bundalo as well as the real estate mortgage was then annotated on the
title on September 16, 1986. 9 For the failure of the Monesets to pay the loan, the Bank served a notice of
extrajudicial foreclosure dated January 27, 1988 on Bundalo.
On September 30, 1989, Ursal filed an action for declaration of non-effectivity of mortgage and damages
against the Monesets, Bundalo and the Bank. She claimed that the defendants committed fraud and/or bad
faith in mortgaging the property she earlier bought from the Monesets with a bank located in another island,
Siquijor; and the Bank acted in bad faith since it granted the real estate mortgage in spite of its knowledge
that the property was in the possession of petitioner.
The Monesets answered that it was Ursal who stopped paying the agreed monthly installments in breach of
their agreement. The Bank, on the other hand, averred that the title of the property was in the name of
"Cristita Radaza Moneset married to Jesus Moneset" and did not show any legal infirmity. Bundalo,
meanwhile, was not served summons because he could no longer be found at his given address. Trial on
the merits proceeded. Thereafter, the Regional Trial Court of Cebu City, Branch 24, rendered its decision
finding that Ursal is more credible than the Monesets and that the Monesets are liable for damages for
fraud and breach of the contract to sell.
As to the real estate mortgage, the trial court held that the same was valid and the Bank was not under any
obligation to look beyond the title, although the present controversy could have been avoided had the Bank
been more astute in ascertaining the nature of petitioner's possession of the property, thus: The Real
Estate Mortgage and the Foreclosure Proceedings cannot be considered null and void in the sense that per
se the formalities required by law were complied with except for the fact that behind their execution there
was fraud, deceit and bad faith on the part of defendant spouses Moneset and Bundalo.
The defendant Rural Bank of Larena for its part could have avoided this situation if the bank appraiser who
made the ocular inspection of the subject house and lot went deeper and investigated further when he
learned that the owner is not the actual occupant. He was however told by Moneset that the actual
occupant was only a lessee. Banking on this information that the actual occupant was only a lessee with no
other right over and above such, the bank approved a loan of P100,000.00 in favor of Moneset through
Bundalo their attorney-in-fact.
ISSUE: Whether or not the Contract to Sell vested ownership in Ursal.
HELD: Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged properties;
as their business is impressed with public interest, they are expected to exercise more care and prudence
in their dealings than private individuals. Indeed, the rule that persons dealing with registered lands can
rely solely on the certificate of title does not apply to banks.
As enunciated in Cruz vs. Bancom: Respondent . . . is not an ordinary mortgagee; it is a mortgagee-bank.
As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings,
including those involving registered lands. A banking institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its operations.
Our agreement with petitioner on this point of law, notwithstanding, we are constrained to refrain from
granting the prayers of her petition, to wit: that the Deed of Real Estate Mortgage be declared as non-
effective and non-enforceable as far as petitioner is concerned; that she be declared as the absolute owner
of the house and lot in question; that the Monesets be ordered to execute a deed of absolute sale covering
the subject property; and that the Bank be ordered to direct the collection or payment of the loan of
P100,000.00 plus interest from the Monesets for they were the ones who received and enjoyed the said
loan.
The reason is that, the contract between petitioner and the Monesets being one of "Contract to Sell Lot and
House," petitioner, under the circumstances, never acquired ownership over the property and her rights
were limited to demand for specific performance from the Monesets, which at this juncture however is no
longer feasible as the property had already been sold to other persons. A contract to sell is a bilateral
contract whereby the prospective seller, while expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
In such contract, the prospective seller expressly reserves the transfer of title to the prospective buyer, until
the happening of an event, which in this case is the full payment of the purchase price. What the seller
agrees or obligates himself to do is to fulfill his promise to sell the subject property when the entire amount
of the purchase price is delivered to him. Stated differently, the full payment of the purchase price partakes
of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the prospective buyer.
It is different from contracts of sale, since ownership in contracts to sell is reserved by the vendor and is
not to pass to the vendee until full payment of the purchase price, while in contracts of sale, title to the
property passes to the vendee upon the delivery of the thing sold. In contracts of sale the vendor loses
ownership over the property and cannot recover it unless and until the contract is resolved or rescinded,
while in contracts to sell, title is retained by the vendor until full payment of the price. In contracts to sell, full
payment is a positive suspensive condition while in contracts of sale, non-payment is a negative resolutory
condition.
A contract to sell may further be distinguished from a conditional contract of sale, in that, the fulfillment of
the suspensive condition, which is the full payment of the purchase price, will not automatically transfer
ownership to the buyer although the property may have been previously delivered to him. The prospective
vendor still has to convey title to the prospective buyer by entering into a contract of absolute sale. While in
a conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute and
affects the seller's title thereto such that if there was previous delivery of the property, the seller's
ownership or title to the property is automatically transferred to the buyer.
Indeed, in contracts to sell the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition, that is, the full payment of the purchase price by the buyer. It is only
upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the
thing sold to the buyer. Prior to the existence of the contract of sale, the seller is not obligated to transfer
the ownership to the buyer, even if there is a contract to sell between them.
In this case, the parties not only titled their contract as "Contract to Sell Lot and House" but specified in
 their agreement that the vendor shall only execute a deed of absolute sale on the date of the final payment
by vendee. Such provision signifies that the parties truly intended their contract to be that of contract to
sell. Since the contract in this case is a contract to sell, the ownership of the property remained with the
Monesets even after petitioner has paid the down payment and took possession of the property. In Flancia
vs. Court of Appeals, 44 where the vendee in the contract to sell also took possession of the property, this
Court held that the subsequent mortgage constituted by the owner over said property in favor of another
person was valid since the vendee retained absolute ownership over the property. At most, the vendee in
the contract to sell was entitled only to damages.

8. RIZAL BANKING FACTS: GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After
CORPORATION VS. CA due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao,
recommended GOYUs application for approval by RCBCs executive committee. A credit facility in the
amount of P30 million was initially granted. Upon GOYUs application and Uys and Laos recommendation,
RCBCs executive committee increased GOYUs credit facility to P50 million, then to P90 million, and finally
to P117 million. As security for its credit facilities with RCBC, GOYU executed two real estate mortgages
and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds at
Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU committed itself to insure
the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and
deliver the insurance policies to RCBC. GOYU obtained in its name a total of ten insurance policies from
MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the
Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by fire. Consequently,
GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on
the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments
issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU
alleging better rights to the proceeds than the insured. GOYU filed a complaint for specific performance
and damages which was docketed at the Regional Trial Court. RCBC, one of GOYUs creditors, also filed
with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for
the same reasons that MICO denied GOYUs claims.
ISSUE: Whether or not RCBC, as mortgagee, has any right over the insurance policies taken by
GOYU, the mortgagor, in case of the occurrence of loss.
HELD: It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC.
The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy
in favor of any particular beneficiary or payee other than the insured had not such named payee or
beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and
purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject pieces of property were
mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been
 for GOYU, Alchester would not have known of GOYUs intention of obtaining insurance coverage in
compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have
endorsed the policies to RCBC had it not been so directed by GOYU. RCBC, in good faith, relied upon the
endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts.
We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonably
repudiate the authority of the person or persons who prepared such endorsements. Over and above this,
GOYU continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After
the occurrence of the loss insured against, it was too late for GOYU to disown the endorsements for any
imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had
not been actually an implied ratification of said endorsements by virtue of GOYUs inaction in this case,
GOYU is at the very least estopped from assailing their operative effects. To permit GOYU to capitalize on
its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of
RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts,
is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust
situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is
bound to recognize RCBCs right to the proceeds of the insurance policies if not for the actual endorsement
of the policies, at least on the basis of the equitable principle of estoppel.

Facts:
Respondent Better Homes Realty filed a case against Petitioner Lao for unlawful retainer stating that
they own a property wherein by pure liberty they allowed the petitioner to occupy the property and to leave
9. Lao vs CA on demand. But the petitioner refused to do so contending that he is the real owner of the property
mortgaged. The MeTC ruled in favor of the respondent, which was reversed by the RTC stating that the
petitioner is the rightful owner of the property, hence respondent filed an appeal in the CA which decided in
favor of the respondent and state that the MeTC has no jurisdiction to decide over the matter of to which of
the two parties are the owner of the property.

Issue:
Whether or not private respondent had acquired ownership over the property in question.
Whether or not petitioner should be ejected from the premises in question

Held:

The law enumerates when a contract may be presumed to be an equitable mortgage:

(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right repurchase another instrument extending the period
of redemption or granting a new period is executed;
 (4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

Applying the preceding principles to the factual milieu of this case, the court find the agreement between
the private respondent and N. Domingo Realty & Housing Corporation, as represented by petitioner,
manifestly one of equitable mortgage. Moreover, since the borrower's urgent need for money places the
latter at a disadvantage vis-a-vis the lender who can thus dictate the terms of their contract, the Court, in
case of an ambiguity, deems the contract to be one which involves the lesser transmission of rights and
interest over the property in controversy.

On the second Issue:

Based on the previous discussion, there was no sale of the disputed property. Hence, it still belongs to
petitioner's family corporation, N. Domingo Realty & Development Corporation. Private respondent, being a
mere mortgagee, has no right to eject petitioner. Private respondent, as a creditor and mortgagee, " . . .
cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and void."

10. Statement Investment House Facts:

vs CA Sps. Oreta executed a contract to sell no. 36 with SOLID Homes Inc. involving a parcel of land. Nov.
1976 SOLID executed several real estate mortgage contracts in favor of STATE (investment house) over
its subdivided parcels of land, including the parcel of land covered by the transaction. Due to the failure of
SOLID to pay its obligation, STATE extrajudicially foreclosed the lands part of the mortgage. SOLID thru its
Memorandum of Agreement negotiated for the determent of consolidation of ownership over the foreclosed
properties by committing to redeem the properties from STATE. Sps. Oreta filed a case in the HLURB for
the failure of SOLID to execute the absolute deed of sale and the title of the property . SOLID contended
that because of the impossibility of performance, SOLID be partially be released from the obligation; and is
to offer another parcel of lan to the sps. Oreta of which they also own/operate.

Issue:
Whether or not STATE has more right over the property covered by torrens certificate than the Sps.
Oreta

Held:
The unrecorded sale between respondent sps. And SOLID had parted with his ownership of the thing
sold then he no longer had ownership and free disposal of the thing so as to be able to mortgage it again.
Petitioner asserts that a mortgagee cover under the torrens system is not required to do more than to rey
 upon the certificate of title. It is being a general rule. But an exception of which is that when the mortgagee
knows the defect/lack of the title of his vendor. Petitioner being aware of the dealing of SOLID with the sps.
Oreta cannot contend that they are not expected to look over the transactions of SOLID. It is a settled rule
that a mortgagee close its eyes to facts which should put a reasonable man upon his guard and then claim
he acted in good faith that there was no defect in the title of the mortgagor.

11. Flancia vs CA Facts:

Sps. Flancia purchased a parcel of land from defendant corporation, that by virtue of the contract of sale,
the plaintiffs moved their personal belonging on the property. Plaintiff sps. Later received a copy of the
execution foreclosing the mortgage issued by the RTC. Sps. Flancia alleged that the foreclosure is null and
void pursuant to Art. 2085 of the Civil Code. Defendant Genato filed an answer averring that his co-
defendant corporation mortgage to Genato two parcel of land which includes the property of the sps. As
security and guaranty of the payment of the loan obtained, Oakland defaulted in the payment hence,
defendant Genato filed an action for foreclosure of the real estate mortgage against the defendant
corporation and since the deed of sale as not registered in the registry of deed; the ownership of the
property was retained by the defendant hence the mortgage is valid.

Issue:
Whether or not the registered mortgage is valid and is superior to the contract to sell between the sps
and Oakland corporation

Held:
The mortgage was made prior the execution of the contract to sell hence it is valid and binding. The
court discussed the difference between a contract of sale and contract to sell. In the contract of sale; the
title to the property passes to the vendee upon the delivery if the thing sold. In a contract to sell; ownership
is by agreement, reserved by the vendor and is not to pass to the vendee until the full payment of the
purchased price. In the contract between the petitioner and defendant corporation, it is a contract to sell
and the ownership over the property is retained by the defendant corporation until full payment of the
purchased price was clearly stipulated. All was granted was an occupancy permit. The state investment
house ruling will not apply since it was a contract of sale where in the case at bar, it is a contract to sell.
Oakland retained ownership over the property under the contract to sell and therefore had the every right to
mortgage it.

12. Premier Development Bank vs Facts:

CA At the core of the controversy is a 2,660-square meter parcel of land, denominated as Lot 23 of the
subdivision. Two different persons with exactly the same name,Vicente T. Garaygay, each claimed
exclusive ownership of Lot 23 by virtue of an owners duplicate certificate each had possession of during
the period material covering said lot. One held TCT No. 9780, supra, and the other, TCT No. 9780 (693),
 supra. Garaygay of Ceb executed a deed of sale in favor of his nephew Joselito over the lot covered by his
land title, in another transaction, Garaygay of Rizal sold the same to Liberto Yambao and Jesus Rodriguez.
A fire broke out in guttered a portion of the City Hall of QC and destroyed in the process the original copy of
the land title. Reinstitution was then filed and was granted to Garaygay of Cebu. Joselito who purchased
the property assigned it to Century Realty who mortgage the same to Premiere Bank to secure a 2.5 Million
loan. In the meantime, Yambao, Rodriquez and Morales as pro indiviso buyers of Lot No. 23, caused the
annotation of their respective adverse claims on Joselito. They then filed with the Regional Trial Court at
Quezon City suit against Joselito, Century Realty and Premiere Bank for quieting of title and annulment of
said defendants fake titles with prayer for damages.

Issue:
whether or not the Court of Appeals erred in holding Garaygay of Rizal, instead of Garaygay of Cebu, as
the real owner of Lot 23.

Held:
No. Since it was proven that Garaygay of Rizal has the right over the property. Respondent's explanation
for the defective state of Exhibit B, as related to them by Garaygay of Rizal, i.e., it was due to exposure of
the document to the elements, like rain, following his evacuation from Manila to Angono, Rizal during the
Japanese occupation, merited approval from the trial court and the Court of Appeals. Both courts, being in
a better position to pass upon the credibility of petitioners witness and appreciate his testimony respecting
the less than usual appearance of Exhibit B, their findings command the respect of the Court. However,
unlike Exhibit B, Exhibit 1 contained entries and other uncommon markings or features which could not
have existed without human intervention. Although any one of them may perhaps not be appreciable in
isolation, these features and/or markings, taken together, indeed put the integrity of Exhibit 1 under heavy
cloud and indeed cast doubt on its genuineness. Petitioner failed to inquire over the property when they
have the duty to do so give rise to the presumption that they acted in bad faith.
If the land mortgaged is in the possession of a person other than the mortgagor, the mortgagee is
required to go beyond the certificate of title and make inquiries as to the rights of the actual possessors.
Failure to do so would make him a mortgagee in bad faith.

13. Dela Merced vs GSIS Facts:

Governor Zulueta and his wife owns a parcel of lands title 26105, 37177, 50256. The latter obtained a
loan from the GSIS and mortgage the two lands TCT No. 37177 and 50256 excluding the land 26105 for
the reason of it has been previously sold or has been donated to the government. Zulueta executed a
contract to sell whereby they undertook to sell to Francisco dela Merced and Evarista Mendoza covered by
TCT No. 26105. After full payment by Col. dela Merced of the purchase price, a Deed of Absolute Sale
was executed by the Zuluetas in his favor. The sps. Zulueta defaulted in their payment to the GSIS which
prompted the latter to execute an order of foreclosure the mortgage. Later the GSIS held a sale at a public
auction sps. Manlongat being the highest bidder. Col. Dela Merced filed a complaint in the RTC claiming
 that the foreclosure sale insofar as his lots are concerned are null and void, which was affirmed by the RTC
but was reversed by the CA. Hence the case.

Issue:
Whether or not Col. Dela Merced has the superior right over the property over the respondent and the
sps. Manlongat

Held:

Petitioners rights of ownership over the properties in dispute, albeit unregistered, are superior to the
registered mortgage rights of GSIS over the same. The execution and validity of the contract to sell dated
September 3, 1957 executed by the Zulueta spouses, as the former subdivision owner, in favor of
Francisco dela Merced, are beyond cavil. There is also no dispute that the contract to sell was entered into
by the parties before the third mortgage was constituted on October 15, 1957 by the Zuluetas in favor of
GSIS on the property covered by TCT No. 26105, which included the subject lots. Francisco dela Merced
was able to fully pay the purchase price to the vendor, who later executed a deed of absolute sale in his
favor. However, the Zuluetas defaulted on their loans; hence, the mortgage was foreclosed and the
properties were sold at public auction to GSIS as the highest bidder. GSIS cannot contend that they need
not to investigate further and relay on the torrens title since they have the knowledge of the contract to sell
between the petitioner and the Zulueta, the ruling in the case of State Investment House inc, shall not apply
to the case at bar. The constructive knowledge of GSIS of the defect in the title of the subject property, or
lack of such knowledge due to its negligence, takes the place of registration of the rights of petitioners. The
petition is granted and the decision of the CA is reversed and set aside.

14. Navarro vs Laguna

Development Bank

15. Ursal vs CA

16. Rizal Banking Corporation vs

CA

17. Ramirez vs CA

18. Prudential Bank vs Alviar

19. Union Bank vs CA Facts: In a memorandum of agreement, DRossa Incorporated (DRI) agreed to mortgage its parcels of land
in favor of Union Bank of the Philippines (Union Bank) as security for the credit facility of Josephine Marine
Trading Corporation (JMTC). JMTC availed P3 million from the credit line.

Subsequently, Union Bank increased the credit facility of JMTC to P27 million, from which JMTC availed
US$700,503.64 or P18,318,170.18. Upon JMTCs failure to pay its obligation, Union Bank instituted
foreclosure proceedings on DRIs properties.

On September 20, 1996, DRIs properties were auctioned where Union Bank was declared the highest
bidder for P15,300,000.00.

On February 26, 1997, DRI filed a supplemental complaint seeking to declare the public sale as null. It
claimed that its liability is only P3 million which was the liability incurred by JMTC under its first agreement
with Union Bank. However, Union Bank alleged that DRI was liable to JMTCs total outstanding obligations,
regardless of whether it was incurred during or subsequent to the first agreement.

Trial Court dismissed the case for lack of merit. The DRI is ordered to pay the defendant UBP, the sum of
P250,000.00 as and for attorneys fees and the costs.

Th Court of Appeals reversed the decision of the trial court. While it upheld Union Banks right to foreclose,
it found that DRIs mortgage liability is pegged at P3 million and which was later amended and increased to
P8.61 million. It ruled that DRI could not be held liable for more than P8.61 million even if JMTC availed
more than this amount. It also noted that the date of the public sale as contained in the notice varies with
the actual date of sale. As such, it declared as null the foreclosure sale because a foreclosure sale carried
out on a day different from the published notice is a total nullity.

Issues: The foregoing issues can be summed up into: (a) whether the Court of Appeals erred in holding
that the liability of DRI is limited only to P8.61 million; and (b) whether the Court of Appeals erred in finding
the foreclosure sale of DRIs mortgaged properties as null for lack of republication of the notice of sale.

Held: The pertinent provisions of the Real Estate Mortgage provide:

Section 1. Secured Obligations. The obligations secured by this Mortgage (the Secured Obligations) are
the following:

a) All the obligations of the Borrower and/or the Mortgagor under: (i) the Notes, the Agreement and this
Mortgage; (ii) any and all instruments or documents issued upon the renewal, extension, amendment or
novation of the Notes, the Agreement and +this Mortgage, irrespective of whether such obligations as
renewed, extended, amended or novated are in the nature of new, separate or additional obligations; and
(iii) any and all instruments or documents issued pursuant to the Notes, the Agreement and this Mortgage;
b) All other obligations of the Borrower and/or the Mortgagor in favor of the Mortgagee, whether presently
owing or hereinafter incurred and whether or not arising from or connected with the Agreement, the Notes
and/or this Mortgage; and

c) Any and all expenses which may be incurred in collecting any and all of the above and in enforcing any
and all rights, powers and remedies of the Mortgagee under this Mortgage.[11] (Emphasis supplied)

The foregoing provisions clearly show the parties intent to constitute DRIs real estate properties as
continuing securities, liable for the current as well as the future obligations of JMTC. Indeed, a mortgage
liability is usually limited to the amount mentioned in the contract, but where the intent of the contracting
parties is manifest that the mortgage property shall also answer for future loans or advancements, the
same is valid and binding between the parties. In this case, DRI expressly agreed to secure all the
obligations of JMTC, whether presently owing or subsequently incurred. Thus, its liability is not limited to
P8.61 million only.

In Prudential Bank v. Don A. Alviar and Georgia B. Alviar, the Court referred to this provision as blanket
mortgage clause or dragnet clause. Thus:

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. 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. 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. Indeed, it has been settled in a long line of decisions that
mortgages given to secure future advancements are valid and legal contracts, 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.

Even if DRI is considered as an accommodation mortgagor only, its liability would still exceed P8.61 million.
It is well to note that DRI, through its President, Rose D. Teodoro, agreed to secure not only the present
obligations of JMTC but also those that may be incurred after the execution of the mortgage contract. DRI
also actively participated in facilitating the increase of JMTCs credit facility.

It also appears from the tenor of one letter that, more than just being a third-party mortgagor, DRI was
actively involved in the business and operations of JMTC. As observed by the trial court:

[DRI] could not feign innocence on the subsequent renewal and increase of credit facility to JMTC because
 it even wrote a letter dated 26 January 1995 (Exhibit to defendant UBP, signed by its President Rose D.
Teodoro...

...

Parenthetically, Josephine Marine Trading Corporation and DRossa Incorporated are family owned
corporations of the Teodoros.

Likewise, the evidence presented during the proceedings in the trial court reveal that DRI acknowledged
and consented to the renewal and increase of the credit facilities of JMTC.Thus, by agreeing to secure
JMTCs future loans or advancements with its real properties, DRI is estopped from questioning the
foreclosure proceedings conducted upon the failure of JMTC to pay its obligations to Union Bank.

Concerning DRIs allegation of lack of republication, the same is without factual or legal basis. Other than its
bare allegations, DRI did not present proof that there was no republication of the notice of sale. On the
other hand, Union Bank presented a Certificate of Posting executed by Sheriff Norberto Magsajo and the
Affidavit of Publication by Veronica Arguilla, the General Manager of Pilipino Newsline, attesting to the
publication of the notice on August 29, September 5 and 12, 1996. The original issues of Pilipino Newsline
where the notice was republished were also attached in the records. Verily, in the face of such
overwhelming evidence, there is no reason why the regularity and validity of the mortgage foreclosure
should not be upheld as the trial court did.

Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to
rebut the same is on the party that seeks to challenge the proceedings. Likewise, the presumption of
regularity in the performance of duty applies in this case in favor of the Sheriff. These presumptions have
not been rebutted by convincing and substantial evidence by DRI.

It is settled that the principal object of a notice of sale is not so much to notify the mortgagor as to inform
the public in general of the nature and condition of the property to be sold, and of the time, place, and
terms of the sale. In fact, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not
even necessary, unless stipulated.Yet it cannot be argued that DRI was left in the dark regarding the exact
date of the sale. In a letter dated September 19, 1996, its counsel wrote the Sheriff of Makati requesting
that the sale on September 20, 1996 be held in abeyance in view of their pending petition for the issuance
of a temporary restraining order. This proves that DRI knew of the scheduled sale and cannot therefore
claim to have been deprived of the opportunity to participate therein.

20. Maglaque vs Planters Facts: A real estate mortgage was executed to secure a loan in the amount of P2,000 at 12% per annum
Development Bank obtained by the spouses Sabina and Egmidio Maglaque from Bulacan Development Bank now known as
Planters Development Bank. After the death of Sabina, payment was made by Egmidio in the amount of
 P2,000 which the bank accepted. However, the real estate mortgage was extra-judicially foreclosed for
non-payment in full of the loan. Title was consolidated in the name of the bank as the highest bidder.
Thereafter, petitioners, heirs of the spouses, filed a complaint for annulment of sale, reconveyance of title,
with damages, and injunction. Meanwhile, the subject property was sold to herein private respondents.
The trial court rendered judgment dismissing the complaint for insufficiency of evidence. This was affirmed
on appeal by the Court of Appeals. Hence, this recourse, petitioners assailing the findings of fact of the
trial and appellate courts and that the Court of Appeals erred in not finding that the bank should have filed
its claim in the settlement of estate of estate of the deceased mortgagor.

Issue: Whether or not the Honorable Court of Appeals erred in not finding that the Bank should have filed
its claim in the settlement of estate of the deceased mortgagors.

Held: The Supreme Court reiterated its ruling that factual issues are not subject to review by the Court; and
that a secured creditor has three options in case of death of the mortgagor namely: to waive the mortgage
and claim the entire debt from the estate of the mortgagor as an ordinary claim; to judicially foreclose the
mortgage and prove any deficiency as an ordinary claim; and to extrajudicially foreclose the mortgage
without right to file a claim for any deficiency. Here, respondent Bank availed itself of the third option.

21. McCullough vs Veloso Facts: On March 23, 1920, the plaintiff corporation, E. C. McCullough & Co., Inc., sold to Mariano Veloso
the property known as "McCullough Building," consisting of a land, with the building thereon, for the price of
P700,000, Veloso having paid P50,000 cash on account at the execution of the contract, the balance of
P650,000 to be paid, in installments, all of said amounts to draw interest at the rate of 7 per cent per
annum, payable semestrally on the first days of April and October of each year. Veloso agreed,
furthermore, to pay 10 per cent of the amount of the debt, as attorney's fee, in the event that a judicial
action should be necessary for the collection of the whole or a part of the debt. Veloso assumed also the
obligation to insure the property for not less than P500,000, as well as to pay all legal taxes that might be
imposed upon the property, and in the event of his failure to do so, the plaintiff should pay said taxes at the
expense of Veloso, with the right to recover of him the amounts thus paid, with interest at 7 per cent per
year. To secure the payment of these amounts, Veloso mortgaged the property purchased, this
encumbrance having been noted on the certificate of title. It was, finally, stipulated that in case of failure on
the part of Veloso to comply with any of the stipulations contained in the mortgage deed, all the
installments with the interest thereon shall become due, and the creditor shall then have the right to bring
the proper action for the collection of the unpaid part of the debt.

On August 21, 1920, Mariano Veloso, in turn, sold the property, with the improvements thereon for P100,00
to Joaquin Serna, who agreed to respect the mortgage of the property in favor of the plaintiff and to
assume Mariano Veloso's obligation to pay the plaintiff the balance due of the price of the estate on the
respective dates when payments should be made according to the contract between Mariano Veloso and
the plaintiff, dated March 20, 1920.

Veloso paid P50,000 on account of the P650,000, and Serna made several payments up to the total sum of
P250,000. Subsequently, however, neither Veloso, nor Serna, made any payment upon the last
installments, by virtue of which delay, the whole obligation became due, and Veloso lost the right to the
installments stipulated in his contract with the plaintiff.

The plaintiff brings this action to recover of the defendant the sum due of P510,047.34 plus 10 per cent
thereon as attorney's fee.

The defendant contends that having sold the property to Serna, and the latter having assumed the
obligation to pay the plaintiff the unpaid balance of the price secured by the mortgage upon the property, he
was relieved from this obligation and it then devolved upon Serna to pay the plaintiff. This means that as a
consequence of the contract between the defendant and Serna, the contract between the defendant and
the plaintiff was novated by the substitution of Serna as a new debtor.

Issue: Whether or not there was a novation.

HELD: This is untenable. In order that this novation may take place, the law requires the consent of the
creditor (art. 1205 of the Civil Code). The plaintiff did not intervene in the contract between Veloso and
Serna and did not expressly give his consent to this substitution. Novation must be express, and cannot be
presumed. The fact that the plaintiff did not oppose the sale subsequently made by the defendant to Serna
of the mortgage property does not mean anything. The mortgage is merely an encumbrance upon the
property and does not extinguish the title of the debtor, who does not, therefore, lose his principal attribute
as owner, that is, the right to dispose. This being so, the fact that the plaintiff recognized the
efficaciousness of that sale cannot prejudice him, which sale the defendant had the right to make and the
plaintiff cannot oppose and which, at all events, could not affect the mortgage, as the latter follows the
property whoever the possessor may be. (Art. 1876 of the Civil Code.)

The defendant argues in this court that the law on novation is not applicable to the contract of mortgage.
This is an error. The effects of a transfer of a mortgaged property to a third person are well determined by
the Civil Code. According to article 1879 of this Code, the creditor may demand of the third person in
possession of the property mortgaged payment of such part of the debt, as is secured by the property in his
possession, in the manner and form established by the law. The Mortgage Law in force at the promulgation
of the Civil Code and referred to in the latter, provided, among other things, that the debtor should not pay
the debt upon its maturity after a judicial or notarial demand for payment has been made by the creditor
upon him. (Art. 135 of the Mortgage Law of the Philippines of 1889.) According to this, the obligation of the
new possessor to pay the debt originated only from the right of the creditor to demand payment of him, it
being necessary that a demand for payment should have previously been made upon the debtor and the
 latter should have failed to pay. And even if these requirements were complied with, still the third possessor
might abandon the property mortgaged, and in that case it is considered to be in the possession of the
debtor. (Art. 136 of the same law.) This clearly shows that the spirit of the Civil Code is to let the obligation
of the debtor to pay the debt stand although the property mortgaged to secure the payment of said debt
may have been transferred to a third person. While the Mortgage Law of 1893 eliminated these provisions,
it contained nothing indicating any change in the spirit of the law in this respect. Article 129 of this law,
which provides for the substitution of the debtor by the third person in possession of the property, for the
purposes of the giving of notice, does not show this change and has reference to a case where the action
is directed only against the property burdened with the mortgage. (Art. 168 of the Regulation.)

Finally, the fact that the plaintiff has received payments from Serna on account of Veloso's debt is of no
importance, for this is, at most, a payment by a third person, which, while it may create a juridical relation
between Serna and Veloso, cannot affect the relation between the latter and the plaintiff, except that the
obligation thus paid is discharged.

22. Philippine Trust Company vs Facts: Plaintiff Forfom Development Corporation is engaged in agricultural business and real estate
CA development and owns several parcels of land in Pampanga. On December 26, 1989, plaintiff instituted
the present action against the defendants Ma. Teresa Limcauco, Ellenora D. Limcauco, spouses Raul P.
Claveria and Elea R. Claveria, Philippine Trust Company and the Register of Deeds of Angeles City. The
Complaint alleged conspiratorial acts committed by said defendants who succeeded in causing the
fraudulent transfer of registration of plaintiffs properties in the names of Ma. Teresa Limcauco and Ellenora
D. Limcauco and the subdivision of the land covered by TCT No. 10896 over which separate titles have
been issued.

Thus plaintiff alleged in addition that (1) the supposed court Order directing the issuance of another owners
duplicate copy actually did not exist, copy of said Order not bearing either the signature of the judge or his
branch clerk of court as well as the court seal, and yet accepted at face value in conspiracy or at least
negligently, by defendant Register of Deeds of Angeles City, not to mention the haste, among other signs
of conspiracy, with which said new owners duplicate copy of the title was issued; (2) the mortgage
executed by defendant-spouses Claveria in favor of defendant bank was characterized by irregularities, the
bank having extended a loan in the amount of P8 million, far in excess of the propertys market value of
P2,855,070.00, as well as the haste in which said loan was granted.

In its Answer, defendant Philippine Trust Company denied the allegations of the Complaint as to the
irregularities in the granting of the P8 million loan to defendant-spouses Raul and Elea Claveria. According
to said defendant, the Claveria spouses have been their clients since 1986 and on October 2, 1987, all
their outstanding obligations in the amount of P7,300,000.00 were consolidated into one (1) account on
clean basis. Defendant bank had required the Claveria spouses to secure their clean loan of P7,300,000.00
with a real estate mortgage, and hence on October 21, 1987, said spouses executed mortgage on real
property covered by TCT No. 75533 for an obligation of P8 million after securing an advance from the
defendant bank in the amount of P700,000.00. It had subjected the land offered as security to the usual
bank appraisals and examined the genuineness and authenticity of TCT No. 75533 with the Register of
Deeds of Angeles City and found the same to be in existence and in order. Thereupon, the deed of
mortgage executed by the Claveria spouses was registered by the defendant bank with the Register of
Deeds and had it annotated in the original copy of the title.

According to the Court of Appeals, Philtrust was negligent in its credit investigation procedures and its
standards for granting of loans, as shown by (a) its previously extending unsecured and uncollateralized
loans to the spouses Raul and Elea Claveria, and (b) its failure to discover the latters statement of a
fictitious address in the mortgage contract and being the subject of estafa cases. The Court of Appeals
agreed with the trial courts finding that Philtrust acted in haste in the execution of the mortgage and loan
contracts, as the property, assessed only at more than P2 million and allegedly purchased at more than P5
million, was made to secure the principal loan obligation of P8 million.

The appellate court further took note of Philtrusts refusal to present the records and details of its
transactions with the spouses Claveria despite being pressed to do so by Forfom. The Court of Appeals
found this circumstance cast serious doubt on Philtrusts allegation that it was a mortgagee in good faith.

Issue: Whether or not Philtrust is a mortgagee in bad faith

Held: Yes. Contrary to the allegation in the third argument presented by Philtrust, the Court of Appeals did
not seem to have disregarded the rule that a forged deed may be the root of a valid title. The appellate
court clearly specified the circumstances allowing the application of such rule:

A forged deed may be the root of a valid title when an innocent purchaser for value intervenes. A purchaser
in good faith and for value is one who buys the property of another without notice that some other person
has a right to or interest in such property and pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claims or interest of some other person in the property. It has been
held that where a mortgagee bank accepted the mortgage in good faith, the land involved being registered
land, it is not bound to go [beyond] the certificate of title to look for flaws in the mortgagors title, the doctrine
of innocent purchaser for value being applicable to an innocent mortgagee for value. A mortgagee in good
faith and for value is entitled to protection. A bank is not required, before accepting a mortgage, to make an
investigation of the title of the property being given as security. This is a consequence of the rule that a
person dealing with registered land has a right to rely upon the face of the Torrens certificate of title and to
dispense with the need of inquiring further, except when the party concerned has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry.

Indeed, the presence of anything which excites or arouses suspicion should prompt the vendee or
 mortgagee to look beyond the certificate and investigate the title of the vendor appearing on the face of
said certificate. If the vendee or mortgagee failed to do so before the execution of the contract, the vendee
or mortgagee is deemed to be in bad faith and therefore cannot acquire any title under the forged
instrument.

It is settled that banks, their business being impressed with public interest, are expected to exercise more
care and prudence than private individuals in their dealings, even those involving registered lands. The rule
that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.
Consequently, Philtrust should prove that it exercised extraordinary diligence required of it in approving the
mortgage contract in favor of the spouses Claveria.

23. PNB vs Sps Maranon Facts: The case is a petition for review on certiorari under Rule 45 of the Rules of Court. The antecedent
events being the Spouses Maranon, owner of a piece of real property, erected with a building occupied by
various tenants. Said subject property was among the properties mortgaged by spouses Montealegre to
PNB as a security for a loan. Spouses Montealegre, through a falsified Deed of Sale, acquired title to the
property and used the property’s title which was purportedly registered in the name of Emelie Montealegre.
However, due to failure to pay the loan, said property was foreclosed by PNB, and upon auction, was
thereafter acquired by the same bank, PNB. Spouses Maranon filed before the RTC a complaint for
Annulment of Title, Reconveyance and Damages against spouses Montealegre. Judgment of RTC was
rendered in favour of spouses Maranon, and also stipulated that the Real Estate Mortgage lien of PNB
shall stay.. and be respected. Such decision prompted PNB to also seek for entitlement to the fruit0s of the
property such as rentals paid by the tenants.

Issue: Whether or not is PNB entitled to fruits of the disputed property.

Ruling: No. Rent is a civil fruit that belongs to the owner of the property producing it by right of accession.
The rightful recipient of the disputed rent in this case should be thus the owner of the lot at the time the rent
accrued. It is beyond question that spouses Maranon never lost ownership over the subject lot, and that
technically, there is no juridical tie created by a valid mortgage contract that binds PNB to the subject lot
because the mortgagors Montealegre were not the true owners. PNB’s lien as a mortgagee in good faith
pertains to the subject lot alone and not on the erected building which was not foreclosed and still remained
to be a property of Maranon. Thus, PNB’s claim for the rents paid by the tenants has no basis.

24. Arguelles vs Malarayat ARGUELLES VS MALARAYAT RURAL BANK

GR 200468 MARCH 19, 2014
● Fermina Guia was registered owner of Lot 3, a parcel of agricultural land in Barrio Pinagkurusan,
Batangas
● Fermina sold the south portion to Sps. Arguelles.
● Sps. Arguelles acquired possession of lot BUT the Deed of Sale was UNREGISTERED nor
 annotated with RD
● Meanwhile, Fermina ordered her son Eddie and his wife Teresita (will be referred to as “Sps.
Guia”) to SUBDIVIDE the land into 3 lots and apply for issuance of separate titles: Lot 3-A; Lot 3-B;
Lot 3-C.
● Fermina delivered the TCT of Lot 3-C to Sps. Arguelles of the unregistered sale.
● But Sps. Arguelles claimed that they never received such TCT from Fermina
● After the subdivision of Lot 3, August 18, 1997, Sps. Guia obtained a loan in the amount of
P240,000 from Malarayat Rural Bank, SECURED the loan with a Real Estate Mortgage (REM),
made pursuant to the Special Power of Atty purportedly executed by Fermina as the registered
.owner of Lot 3-C in favour of Sps. Guia. Such was annotated as encumbrances in TCT of Lot3C.
● Sps Arguelles alleged: It was only in 1997 (7 years from date of Unregistered sale) that they
learned of such SUBDIVISION; the issuance of separate TCT; annotation of REM and SPA over
TCT of Lot 3C
● After 2 years, Sps. Arguelles registered their adverse claim based on the unregistered sale
● Subsequently, Sps. Arguelles, claiming ownership over the land, filed a complaint to annul the
Mortgage and cancel the mortgage lien with damages against Malarayat.
● Malarayat contend: Sale to Sps. Arguelles is UNREGISTERED, thus fatal to their claim of
ownership
● RTC ruled in favor of Sps. Arguelles, and declared VOID the REM made by Sps. GUia to
Malarayat, the subsequent foreclosure sale, and corresponding issuance of title. RTC found that
Sps. GUia were not the absolute owners of Lot 3C at the time it was mortgage in view of the
unregistered sale in favour of Sps. Arguelles, and Malarayat, as banking institution should exercise
due diligence in the approving loan transaction.
● On appeal, CA REVERSED, on the ground that, failure of Sps. Arguelles to register their Deed
of Sale, the unregistered sale could not affect Malarayat; thus, Malarayat has the better right.
Hence this petition.
● Sps. Arguelles Contention: Malarayat, as a banking institution, failed to conduct thorough ocular
inspection and investigation over the contested lot, and the title of the registered owner, thus, not a
mortgagee in good faith

ISSUE: WON Malarayat is a mortgagee in good faith who is entitled to protection on its mortgage lien?

HELD: NO. Malarayat is not a mortgagee in good faith

Sps. Arguelles, as vendees of unregistered sale has the better right to mortgaged land. In Cavite
Development Bank Case, Doctrine of Mortgagee in Good Faith was defined, where, despite the fact that
the mortgagor is not owner of mortgaged property, his title being fraudulent, the mortgage contract is given
effect by reason of public policy. It is based on the rule that “all persons dealing with property covered by
Torrens, as buyers. Mortgagees, are NOT required to go beyond the face of title.”
Mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property
 offered as security, and no obligation to take further investigation.
BUT where the mortgage does not directly deal with registered owner of real property, the law requires
that a higher degree of prudence be exercised by mortgagee.
Mortgagee- Bank, unlike private individuals, it is expected to exercise greater care and prudence in
its dealings, including those involving registered lands, since banking institutions’ business is impressed
with public interest, it cannot rely merely on Certificate of title offered by mortgagor in ascertaining status of
mortgaged properties. Thus, as a standard operating practice, BANKS, before approving a loan application,
must conduct an ocular inspection of property offered for mortgage and verify genuineness of title to
determine real owners thereof. Its purpose is to protect “true owner” of property as well as innocent third
parties with a right, interest or claim from one who may have acquired a fraudulent title.
SC found that Malarayat failed to meet the required degree of diligence in approving loan
application of SPs. Guia. Malarayat should have diligently conducted an investigation of the land offered as
collateral. Though, there was evidence that it really inspected the lot, It was not able to realize the the
finding therein, that “lot is planted with sugarcane with annual yield of P15,000”. Such fact should
immediately prompted Malarayat to conduct FURTHER INQUIRIES, especially since Sps. Guia were not
registered owners (Fermina was the registered owner)
Since the subject lot was not mortgaged by owner thereof and since Malarayat is NOT mortgagee
in good faith, said bank is not entitled to protection under the law. Unregistered sale must prevail over
Malarayat’s mortgage lien.

25. DSM Construction and Dev DSM CONSTRUCTION VS CA AND MEGA WORLD GLOBUS ASIA
Corp vs CA GR 166993 DECEMBER 19, 2005

This Petition for Certiorari assails the RESOLUTION dated February 21, 2005 of CA which ordered the
issuance of a TRO (Temporary Restraining Order) enjoining the enforcement of an Alias Writ of Execution
issued by CIAC (Construction Industry Arbitration Commission), and ordering them to cease and desist
from proceeding with the scheduled EXECUTION SALE on March 1, 2005 of LEVIED condominium units of
Salcedo Park owned by Megaworld.

According to Megaworld:
● DSM and Megaworld entered into an agreement in the construction of Salcedo Park, a
condominium project owned by Megaworld, and DSM as their contractor.
● In the course of the project, dispute as regards to billing arose. DSM thus filed, a complaint for
compulsory arbitration before CIAC claiming payment of approx.. P97M as Megaworld’s
outstanding balance.
● CIAC rendered a decision partially granting both of their claims, with a net of P62,760,558.49 in
favour of DSM.
● This award was affirmed by CA, which permanently enjoined DSM from registering its contractor’s
 lien on all except 6 units of condominium, which according to Megaworld that such award can be
covered by the value of the 6 condominium.
● 7 condominium units however were eventually levied upon as result of Megaworld’s act of
substituting 2 units for the one already paid for by buyer Sps. Golan.
● Initially, execution sale did not push through after SC issued TRO in its 2002 decision, however,
SC promulgated the 2004 decision affirming CA ruling and lifting the TRO. Thus, judgment become
final and executor, and CIAC ordered the parties to agree on the satisfaction of the arbitral award,
otherwise a writ of execution will be issued, but they failed to do so thus CIAC issued writ of
execution
● Megaworld, clarified with CIAC if the writ of execution shall be limited to 6 condo units in
accordance with the CA decision, that such obligation of MEgaworld can be satisfied by the value
of 6 units.
● CIAC, replied in NEGATIVE. It expounded that the mention of 6 units was only brought up by CA
in relation to provisional remedy of securing judgment debt which is temporary in nature.
● Consequently, in addition to the 7 units which was initially levied, 3 units more were levied by
the Sheriff. Prompting MEgaworld to file a petition to CA to restrain scheduled execution sale, and
nullify CIAC orders.
● Megaworld contention: Alias Writ of Execution made no qualification as to specific classes of
property, such as condo units, which should be executed upon, much less any denominated
quantity of properties, thus, CIAC acted grave abuse of discretion
● Megaworld asserted, that the inclusion of 3 additional units in the levy on execution was
excessive and thus void. CA issued resolution restraining the implementation of writ.
● DSM filed this instant petition with SC, imputing grave abuse of discretion on the part of CA .
● CA rendered decision declaring orders of CIAC null and void, such decision was rendered 3 days
before the expiration of TRO, and was only brought to the attention of SC the following month.
● The SC issued a Resolution directing parties to maintain the status quo, the date of the expiration
of TRO issued by CA.

ISSUE: Whether or not the Alias Writ of Execution issued by CIAC is valid?

HELD: YES
First Megaworld’s contention that Alias Writ of Execution made no qualification as to specific classes of
property, such as condo units, which should be executed upon, much less any denominated quantity of
properties which thereby makes CIAC to have acted with grave abuse of discretion. Such argument is
ABSURD. They anchor their contention in the last sentence of the 2002 CA decision, which provides:

“……….The writ of preliminary mandatory injunction ordering private respondent to withdraw its contractor’s
lien on all, except 6 of private respondent’s condominium units, is hereby made permanent”
But Megaworld, ignored the paragraph which preceded the abovementioned clause:

“…. However, justice and fairplay dictate that the annotation of private respondent’s lien should be limited
to 6 units of its choice and not to all of the condominium units. As we noted, in our January 17, 2002
Resolution, as clarified by the January 18, 2002 Resolution, private respondent’s claim against petitioner in
the amount of P62M can be covered by the value of 6 units of condo project”

The CA’s pronouncement is thus, clear. However, such pronouncement did not make allowances for the
interests of 6% and 12% imposed by CIAC because the alleged limit related merely to the provisional
remedy, not the eventual execution of judgment. The 6 unit limit was NEVER intended by CA to operate in
perpetuity as to sanction recovery of the principal award without legal interest.
The reason for the imposition of 6 unit limit can be better understood when viewed in the context of the
circumstances which led the CA to make such pronouncement, i.e., in making writ of preliminary mandatory
injunction permanent, CA was only protecting Megaworld’s business standing from damage caused by
DSM’s act of annotating lien on all 209 condo units, (wherein, the DSM thru counsel, caused the
publication in the newspaper Inquirer, a paid advertisement announcing that all units of Salcedo Park
Towers Condo are subject to Contractor’s lien.) There, is therefore, no justification for Megaworld’s claim
that in satisfying the award in favour of DSM, the latter and the CIAC only limited to only 6 units. Moreover,
assuming that there was indeed a “6 condo- unit limit” , Megaworld, itself breached the same, by replacing
the number of units levied, from 6 to 7, due to the fact that the substitution made was so that the unit
already paid for by its buyers can be transferred in the latter’s name free from all liens and encumbrances .
Megaworld is therefore, in estoppel.

Second, Megaworld contends that alis writ failed to state the specific amount due. This allegedly vests
sheriff the judicial function of determining total amount ought to be satisfied. SC held however was
convinced that such alias writ substantially satisfied the requirements of law. It states the principal award
sought to be satisfied, as well as, the percentage to be imposed as interest, it even specified the lawful fees
that are due to the sheriffs for the satisfaction of the judgment.
Third, Megaworld claimed before CA that sheriffs exceeded their authority when they included 5 condo
units fully paid for buyers in the notice of execution sale, which according to them, the unregistered buyer’s
right over the property is superior to that of the judgment obligor. The SC was baffled why is it that it is
Megaworld and not the buyers who raises the issue, which is laid down in the Revised Rules of Civil
Procedure that, in cases where properties levied upon are claimed by third person, it is the third person
claiming the property who has to make an affidavit or right to possession thereof. Moreover, the fact that
the contracts to buy and sell are unregistered and are still in the name of Megaworld, underlines the fact
that sales are not absolute, and units are still owned by Megaworld. Sec. 51 of Property Registration
Decree provides that the act of registration is the operative act which conveys or affects the land in so far
as, third persons are concerned. It is of the SC’s view in Megaworld’s contentions that it, considers DSM as
mortgage creditors, which is not synonymous to judgment creditors. The law expects a mortgage creditor to
 inquire as a reasonably prudent man would regarding the encumbrances on the property in question, NO
SUCH KNOWLEDGE is imputed to a judgment creditor who merely seeks the satisfaction of the judgment
award in his favour. Thus, clearly CA has no authority to take cognizance of the petition filed by Megaworld.
PETITION GRANTED.

26. Castro vs CA CASTRO VS CA AND UNION BANK OF PHIL.

GR 97401 DECEMBER 6, 1995

● Cabanatuan City Colleges (CCC) obtained loan from Bancom Devt. Corp.
● To secure indebtedness CCC mortgaged 2 parcels of land located within the premises of the
school to BAncom.
● While MORTGAGE WAS SUBSISTING, CCC Board of Directors leased to Petitioners 1000
sq.m. portion of the encumbered property. Petitioners, subsequently, built a residential house
which Bancom is duly advised.
● CCC defaulted in due payment. BAncom extrajudicially foreclosed on the mortgage. A certificate
of sale was accordingly executed by sheriff in favour of Bamcom as the only bidder.
● Bancom assigned its credit to Union Bank of Phil, respondent
● The college failed to exercise their right to redemption during the redemption period. Thus
respondent consolidated the property. Respondent filed with RTC for the issuance of Writ of
Possession, not only over the land but the builddings and the residential house thereon. RTC
GRANTED.
● The sheriff, to implement the Writ, sought for the vacation of premises by the petitioners.
Petitioners refused.
● Petitioners averred: They are the owners of the residential house, which they had built on a
foreclosed property with prior knowledge of the mortgagee (Bancom), they could not be ousted
simply on the basis of the Writ under Act No. 3135.
● Despite efforts by the petitioners to save their residential house, the lower court still in the end
denied their motion for reconsideration, on the ground that, residential building was included in the
Writ of Possession pursuant to Art 2217 of NCC.
● Petitioners elevated the matter to CA. CA AFFIRMED RTC. Hence, this petition.

ISSUE: WON a residential house, which was constructed by lessee on a portion of the leased property
theretofore encumbered under real estate mortgage by lessor, can be rightly covered by a Writ of
Possession following the foreclosure of the mortgaged land.

HELD: NO. Residential House owned by petitioners are IMPROPERLY included in Writ of Possession.

To resolve the issue, proper application of Art. 2217 must first be determined.

27. Prudential Bank vs Alviar
28. Litonjua vs L&R Corporation
ART. 2217 provides: The mortgage extends to the natural accessions, to the improvements, growing fruits
and the rents or income not yet received when the obligation becomes due and to the amount of the
indemnity granted or owing to the proprietor from the insurers of the property mortgaged,, or in virtue of
expropriation for public use, with the declarations, amplifications, and limitations established by law,
whether the estate remains in the possession of the mortgagor or passes into the hands of third person.
This article extends the effects of the real estate mortgage to accessions and accessories found on
the mortgaged property when thee secured obligation becomes due. The law presumes that the ownership
of such accessions and accessories belongs to the mortgagor as the owner of the principal. Referring to
the long line of cases, the provision means, that all immprovements SUBSEQUENTLY introduced or owned
by mortgagor on the encumbered property are deemed to form part of mortgage. That the improvements
are to be considered so incorporated only IF SO OWNED by the mortgagor, is a rule that can hardly be
debated since a contract of security whether resl or personal needs as an indispensable element the
ownership by the pledgor and mortgagor of property mortgaged or pledged
In the event of default on secured obligation, the foreclosure sale of property would naturally be the
next step to follow. A sale would result, transmitting the title to the buyer which is feasible only if seller can
be in a position to convey ownership of thing sold. It is to say, that in the instant case, that a foreclosure
would be ineffective unless the mortgagor has the title to the property to be foreclosed.
In respect of the lease on the foreclosed property, the buyer at the foreclosure sale merely
succeeds to the rights and obligations of the pledger- mortgagor subject, however to provision of Art. 1676.
NCC on its possible termination.
Art. 1676 provides: The purchaser of the piece of land, which is under a lease that is not recorded in the
Registry of Property may terminate the lease, save when there is stipulation to the contrary in the contract
of sale,, or when the purchaser knows of the existence of lease………..”
CA DECISION REVERSED AND SET ASIDE.
repeat
SPS. LITONJUA AND PHIL. WHITE HOUSE AUTO SUPPLY VS. L&R CORP
GR 130722 DECEMBER 9, 1999
● Sps. Litonjua, petitioners, obtained loans from L& R Corp, in sum total of P400K. The loans were
secured by a mortgage upon the spouses’ 2 parcels of land and improvements thereon. Mortgage
was registered with Registry of Deeds (RD), Quezon City.
● Subsequently, Sps. Litonjua, sold such mortgaged lots to Phil. White House (PWHAS). Sale was
annotated at the back of the title.
● Sps. Litonjua, defaulted in payment of their loans. L&R initiated extrajudicial foreclosure.
 ● Mortgaged properties were sold at public auction to L& R Corp as the only bidder. However, upon
presentation of their Certificate of Sale to Registry of Deeds for registration, they learned for the
first time, upon seeing the inscription in the title that the subject properties were already sold to
PHWAS.
● L&R requested for cancellation of the inscription in the title with regards to the sale made to
PHWAS by Sps. Litonjua..
● L&R contends: Sale to PHWAS was WITHOUT their written consent, thus, the same should not
have been registered.
● 7 months after foreclosure sale, PHWAS for the account of the SPs. Litonjua, tendered payment
of the full redemption price to L&R Corp, to which the latter refused. Hence, PHWAS was
compelled to redeem the mortgaged properties through tender of payment of redemption price with
the Sheriff. The check was deposited in the Branch Clerk of Court with corresponding receipt, and
Sheriff, issued Certificate of Redemption in favour of Sps. Litonjua.
● Such Certificate, informed L&R Corp of the fact of redemption and directed the latter to surrender
the owner’s duplicate certificates of title (ODCT) within 5 days.
● The Sps. Litonjua asked RD to annotate their Certificate of Redemption as an adverse claim on
the titles of the subject properties on account of the refusal of L&R to surrender ODCT on the
same, which the RD refused. Sps. Litonjua thus filed s petition in the lower court to make L&R
surrender ODCT.
● While said case was pending, L&R executed an Affidavit of Consolidation of Ownership, and RD
issued a cancelled the previous ones and issued a new one in favour of L&R free from
encumbrances and liens.
● Consequently, L&R advised tenants of the subject property, that payment of rental would be
made to them, being the new owner.
● Sps. Litonjua filed an adverse claim and notice of lis pendens with RD. In the process, they
learned that the prior sale to PWHAS was not annotated in the new titles issued to L&R.
● A complaint for Quieting the Tittle, Annumant and Damages with preliminary injunction was filed
by the Sps. However, LowerCourt Dismissed, holding that sale madde by Sps. Litonjua to PHWAS
was null and void and unenforceable against L&R. On appeal, CA REVERSED, and held that
redemption by SPs. Litonjua of the subject properties are valid. But subsequently, on
reconsideration, the previous decision was set aside. Hence, the instant petition.

ISSUE: WON mortgagor cannot sell the mortgaged property without first obtaining the consent of the
mortgagee, thus the sale made by Sps. Litonjua to PHWAS shall be invalid; b) PHWAS has the right to
redeem the foreclosed properties on the account of Sps. Litonjua, thus there is a valid redemption; c) right
of first refusal in favour of mortgagee

HELD:
a) VALID SALE BET. SPS. LITONJUA AND PHWAS, thus, b) VALID REDEMPTION but c) FAILED TO
EXERCISE RIGHT OF FIRST REFUSAL by mortgagee thus, prior SALE by Sps. LITONJUA is
RESCISSIBLE.

In the Deed of Real Estate Mortgage executed by the parties, the crucial stipulations are as follows:
“Para. 8: That the MORTGAGORS shall NOT sell, dispose, mortgage nor in any manner encumber the real
property/s subject of this mortgage WITHOUT prior consent of MORTGAGEE.
Para 9:That should the MORTGAGORS decide to sell the real property/s subject of the mortgage, the
mortgagee shall be duly notified thereof by the MORTGAGORS and should the MORTGAGEE be
interested to purchase the same, the latter shall be given priority over all the other prospective buyers”

SC averred that Sps. Litonjua violated the above stipulations in the contract by selling to PHWAS the
subject properties without L&R’s written consent, without giving the latter notice of such sale nor priority
over PHWAS.

But ass petitioners contended that such stipulation is a violation of Art. 2130, NCC, which provides: “A
stipulation forbidding the owner from alienating the immovable mortgaged shall be void”

In the long line of cases, referred to by SC, the case of Cruz and Medida are NOT applicable to the instant
case. But the Tambunting case remains the controlling law.
The Cruz case was not applicable , because no discussion as to the validity of Art 2130 was made sincee
the same was not raised as issue. The Medida case was not applicable either because, facts in this case
are different from the instant case for what was in issue in the said case was a Second Mortgage over a
foreclosed property during period of redemption, to which the Court held that, the only rights which a
mortgagor can legally transfer, cede and convey after foreclosure of properties are the right to redeem and
possession, use and enjoyment of the same during period of redemption. This case has no connection to
the right of the mortgagor to sell a mortgaged property without the required consent of mortgagor.

On the other hand, in the Tambunting case, such stipulation (prohibiting the Mortgagor to subject the
mortgaged properties to any new and subsequent contracts) can only be construed as against subsequent
mortgage or encumbrance BUT NOT to alienation of the immovable itself, which is prohibited by Art. 2130.
In the Instant case, lower court and CA rationalize, that Par. 8 contains no absolute prohibition against sale
of property mortgage but only requires the mortgagor to obtain their prior written consent. SC agrees with
this ruling, but reiterated that what it does not outright prohibit, it nevertheless achieves. The stipulation
practically gives the mortgagee the sole prerogative to prevent any sale of the mortgage property to a third
party. The mortgagee can simply withhold consent and thereby prevent mortgagor from selling property.
This creates an unconscionable advantage for mortgagee and amounts to virtual prohibition of the owner to
sell his mortgaged property, thus, stipulations under Par. 8 circumvent the law, specifically Art. 2130,
therefore not binding upon parties. Thus, sale by Sps. Litonjua to PHWAS even without prior consent was
 valid.

In effect, the redemption offered by PHWAS on account of Sps. Litonjua was also valid. PHWAS stepped
into the shoes of Sps. Litonjua, they became the latter’s successor-in-interest. The right to redeem by
PHWAS finds support in Sec. 6, ACT 3135, which gives mortgagor- debtor and his successor-in-interest
right to redeem. PHWAS exercised such right well within the 1 year period of redemption

However, with regards to Par. 9, the right of first refusal has long been recognized as VALID. The sale
between the Sps. Litonjua and PHWAS is valid, despite, the absence of L&R’s prior written consent
thereto. Inasmuch, as the sale to PHWAS was valid, its offer to redeem and its tender of redemption price,
as successor in interest of Sps. Litonjua, within one year period should have been accepted as valid by
L&R. HOWEVER, while the sale is indeed, valid, the same is RESCISSIBLE because it ignored L&R’s
right of first refusal.
PHWA cannot claim ignorance over such right, for it was Deed of Real Estate Mortgage containing such
provision, duly registered with RD. Rescinding sale made to PHWAS, the purpose is to uphold and enforce
the right of first refusal of L&R. Decision appealed AFFIRMED with MODIFICATIONs: Ordering rescission
of sale of mortgaged properties between Sps. Litonjua and PHWAS; Disallowing redemption made by
PHWAS; Allowing L&R to retain consolidated titles but ordering it to pay to Sps. Litonjua additional sum
representing difference from purchase price in the rescinded sale.

29. Luzon Development Bank vs Facts:

Conquilla Feliciano Conquilla was the president of an educational institution located at Noveleta Cavite and known as
Columbia College. He was joined by his children Benedicto, Cornelio and Dorotea in mortgaging the three
properties on which the school sat and titled in their names. There were series of loan entered into by the
respondents to the petitioners amounting to P7,220,000 and later on raised to P10,000,000. The loan was
secured with the Promissory Note appears to have been signed by the four in their personal capacities, but
Felicianos name in the Amendment of Real Estate Mortgage was preceded by the telling phrase
ColumbiaCollege By. After some months, Feliciano Conquilla applied for a restructuring of the loan.
Another loan has been entered into by the respondents and the loan was raised to P12,242,000 payable
monthly for the next five years.
Two years after, the respondents failed to pay their loans. Feliciano filed in the name of Columbia College
with the RTC of Cavite City against Luzon Development Bank and the notary public Rolando Torres to
prevent the foreclosure of the mortgage. But after a month, Judge Lock dismissed the case on the ground
that the plaintiff failed to establish cause of action. There’s a hearing set and the respondent appeared
while none of the plaintiff nor their lawyer appeared. 6 days later, in the order, he declared that there was
no reason why the foreclosure of mortgage should be enjoined, and ruled that in the face of the clear
admission of plaintiff that they were unable to settle their obligations[,] which were secured by the
mortgage, defendants have a clear right to foreclose the mortgage[,] which is the remedy provided by law.
On the other hand, Feliciano and his wife filed a case on their own name which still fell in the sala of Judge
Lock praying for the same remedy of injunction against the foreclosure. Judge dismissed the complaint
since it was already ruled before.
However, the properties were auctioned off to Luzon Development Bank and was advised Columbia
College through Feliciano their right to buy back the lots within the redemption period. Conquillas alleged in
their complaint that of the amount of the loan of P7.2 million agreed to on April 2, 1996, the defendant
Luzon Development Bank failed to release to them the amount of P1,940,000, thus causing a breach of
contract and rendering the foreclosure premature. The contract obligation was, furthermore, increased to
over P12 million without further releases. Even as it bidded for the properties in the amount of over P18
million, it failed to turn over to them the difference between this price and the amount of the actual releases,
representing a balance of about P13 million. There are 3 separate cases filed by the respondents in this
case.

RTC ruled in favor of the Petitioners.

CA noted that the lower court had ordered the dismissal of the previous cases without any pretrial or trial.
Although the CA recognized that a formal trial was not necessary for a judgment to be on the merits, it
nevertheless held that the parties should have been given the opportunity to be heard on their claims
before judgment was passed. Thus, it ruled that the orders of dismissal were violative of respondents right
to due process and remand the case back to the RTC.

Issue:

Whether or not there is a premature foreclosure of mortgage.

Held:
The validity of the foreclosure in Civil Case No. LP 99-0019 is assailed by respondents on the ground of
prematurity. Despite the stipulation that the loan would mature only on December 27, 2001, the foreclosure
of their mortgage took place on March 16, 1998. Notably, that cause of action was the same as that raised,
considered, and conclusively passed upon in Civil Case No. N-6659. In the latter case, Respondent
Feliciano sought to prevent foreclosure by also contending that it was premature. In order to obtain the
reliefs sought, respondents in both cases should have presented proof that the bank had no right to
foreclose before December 27, 2001.
What respondents are saying is that petitioner has no right to foreclose, on the ground that it has yet to
comply fully with its obligation. In other words, the foreclosure is allegedly premature and invalid. In order
to sustain their claim, respondents should have presented proof that petitioner had no right to foreclose at
the time of their application. It will be recalled that this was the same proof needed to sustain the claim in
the First Case. Since the same evidence sustains both actions, they are considered to be the same for
purposes of res judicata. Moreover, the alleged failure of petitioner bank to release the balance of the loan
 was a fact already in existence at the time that the First Case was filed in court. If petitioner had really
violated the terms of the loan agreement, this fact should have been pleaded by respondents in the First
Case. If true, such fact bolstered the claim of respondents that petitioner had no right to foreclose.
According to the principle of res judicata, a judgment is conclusive between the parties with respect to
matters directly adjudged and to any other matter that may have been raised in relation to it. By failing to
raise this matter in the first instance, respondents are deemed to have waived it. They can no longer cite
any ground for invalidating the Mortgage Contract, which was already in existence at the time of the First
Case. SC ruled that the case is remanded to the RTC for further proceedings as to the matter of recovery
of the alleged excess proceeds of the auction sale.

30. Sycamore Ventures Corp Facts:

Metropolitan Bank and Trust
It was sometimes in 1997 when Sycamore and Sps Paz obtained a credit line from Metrobank amounting to
Php 180,000,000.00, secured by 10 real estate mortgages4 over Sycamore’s 11 parcels of land, together
with their improvements. Sycamore and the spouses Paz withdrew from the credit line the total amount of
P65,694,914.26, evidenced by 13 promissory notes. Petitioners failed to pay.

Metrobank instituted extrajudicial foreclosure proceedings over the six real estate mortgages, pursuant to
Act No. 3135, as amended. The public auction sale was set for various dates – March 22, 2000, April 23,
2000 and May 23, 2000 – but the sale did not take place because Sycamore and the spouses Paz asked
for postponements.

Despite of numerous reminders, petitioners failed to settle their loan obligations. Metrobank filed for a
second petition for auction sale. Sycamore and the spouses Paz once again asked for the postponement
but this time Metrobank refused to give in.

Sycamore and Sps Paz filed before the RTC, Branch 43, San Fernando Pampanga, a complaint for the
annulment of the contract and of the real estate mortgage. They likewise asked for the issuance of a
temporary restraining order (TRO). The TRO was granted.

At the trial, Sycamore and the spouses Paz moved for the appointment of independent commissioners to
determine the mortgaged properties’ appraisal value. They mainly alleged that Metrobank arbitrarily and
unilaterally reduced the mortgaged properties’ appraisal value; hence, the need for their reappraisal to
determine their true value.

RTC granted the petitioner's’ motion. Metrobank filed an appeal to the CA. The CA granted Metrobank’s
petition for certiorari under Rule 65. It found that the appraisal value of the mortgaged properties was not
an issue since the real estate mortgage and the promissory note already indicated with certainty the
amount of the loan obligation.
 Issue: Whether or not the determination of the mortgaged properties’ appraisal value constitutes a
prejudicial question that warrants the suspension of the foreclosure proceedings.

Held: No. There is no question in this case that Sycamore and the spouses Paz failed to settle their loan
obligations to Metrobank as they fell due. There is likewise no dispute on the total amount of their
outstanding loan obligation. Sycamore and the spouses Paz also acknowledged Metrobank’s right to
foreclose when they asked for the sale’s postponement. Determination of mortgaged properties’ appraisal
value is not material to the foreclosure’s validity. Whether Metrobank’s reduced valuation is valid or not, or
whether the valuation is outrageously lower than its current value, has nothing to do with the foreclosure
proceedings. From this perspective, we cannot but conclude that that the recourses sought in this case
have been intended solely to delay the inevitable.

31. Borromeo vs CA Facts: Sps. Borromeo were client-depositors of EPCIB for more than 12 years. The branch manager of
J.P. Rizal Branch offered them a loan under its program "Own-a-Home Loan Program". Petitioners were
able to apply for a loan and later on was approved for a loan amounting to Php 4,000,000.00. To complete
the loan process, the petitioners were asked by the bank to sign blank loan documents consisting of the
Loan Agreement, Promissory Notes, Real Estate Mortgage and Disclosure Statements. To be able to
secure the payment for the loan, petitioners executed a real estate mortgage of their land in Loyola Grand
Villas Q.C. From April 2001-September 2002, petitioners were able to pay a total amount of Php
3,600,000.00 in 4 installments. They left with Php 400,000.00 balance. Petitioners asked the bank to
furnish them their copies of the loan documents but the respondent did not answer the former. Petitioners
also questioned the amount of interest rate from 14% to 17% charged against the original interest rate of
11% to 11.5% that they agreed upon. Because of the no answer of the bank, petitioners did not pay the
remaining balance. However, they began to pay the amortization fee. it was in 2003 when they received an
answer from EPCIB Vice President explaining that as a matter of practice, their clients were given original
copies of the loan documents only upon full release of the amount loaned. The bank clarified that since
petitioners’ loan had not been fully released, the original documents were not yet sent to them. Petitioners
were also informed that the applicable interest rate was set at the time the loan was released, not at the
time the loan was approved, and that the prevailing interest when the first four installments of the loan were
released ranged from 9.5% to 16%. It was on August 2003 when the bank sent a letter to the petitioners
demanding payment for their obligation amounted to P4,097,261.04, inclusive of interest and other
charges. Respondent informed petitioners that failure to pay their obligation would result in its pursuing
legal action against petitioners, including foreclosure proceedings on their real estate mortgage. According
to petitioners, they were surprised to find out that the Loan Agreement and REM designated respondent
ESB as lender and mortgagor, instead of EPCIB with whom they allegedly entered into the agreement.
However, in contrast to the Loan Agreement and the REM, the four Promissory Notes designated EPCIB
as the lender. Petitioners also alleged that instead of the prevailing interest rates of 8% to 10% annually,
which the parties agreed upon. Due to non-payment of the said remaining balance plus interest,
respondent sought to extra-judicially foreclose the real estate mortgage. The extrajudicial sale was already
set and the petitioners were notified. The mortgage debt was set at P5,114,601.00. The petition for
preliminary injunction filed by the petitioners to stop the extrajudicial sale was granted by the RTC. On the
other hand, it held that respondent’s interest was amply protected, since petitioners’ mortgaged property
was valued at P12,000,000.00, which was more than sufficient to answer for petitioner’s obligation pegged
at P4,097,261.00, and respondent’s REM over said property remained in effect. Moreover, petitioners
posted a bond in the amount of P3,500,000.00 to cover their unpaid liabilities. A Special Civil Action for
Certiorari before the Court of Appeal was filed by the respondents. It further ruled that the intended
foreclosure of the mortgage by respondent was a proper exercise of its right after petitioners admittedly
stopped paying their loan amortizations. Moreover, it held that the foreclosure of the REM would not result
in any grave and irreparable damage to the petitioners since petitioners, as mortgagors, may redeem the
subject property or avail themselves of the remedy of claiming damages or nullifying the sale.

Issue: Whether or not the private respondent savings bank has the right to foreclose the mortgage.

Held: No. Petitioners’ rights to their property is restricted by the REM they executed over it. Upon their
default on the mortgage debt, the right to foreclose the property would be vested upon the creditor-
mortgagee. Nevertheless, the right of foreclosure cannot be exercised against the petitioners by any
person other than the creditor-mortgagee or its assigns. According to the pertinent provisions of the Civil
Code: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received from
the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. An extrajudicial foreclosure instituted by a third party to the Loan
Agreement and the REM would, therefore, be a violation of petitioners’ rights over their property. Petitioners
assert that their creditor-mortgagee is EPCIB and not respondent. While ESB claims that petitioners have
had transactions with it, particularly the five check payments made in the name of ESB, it fails to
categorically state that ESB and not EPCIB is the real creditor-mortgagor in this loan and mortgage
transaction. This Court finds the position taken by the petitioners to be more credible. The four Promissory
Notes designate EPCIB as the "lender." In a letter dated 19 December 2002, addressed to Home Guaranty
Corporation, EPCIB Vice President Gary Vargas even specified petitioners’ loan as one of its housing loans
for which it sought insurance coverage. Records also show that petitioners repeatedly dealt with EPCIB.
When the petitioners complained of not receiving the loan documents and the allegedly excessive interest
charges, they addressed their letter dated 3 August 2003 to the president of EPCIB. Respondent, although
a wholly-owned subsidiary of EPCIB, has an independent and separate juridical personality from its parent
company. The fact that a corporation owns all of the stocks of another corporation, taken alone, is not
 sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s
separate existence shall be respected, and the liability of the parent corporation, as well as the subsidiary,
shall be confined to those arising from their respective businesses. From a perusal of the records,
petitioners did not enter into a Loan Agreement and REM with respondent. Respondent, therefore, has no
right to foreclose the subject property even after default, since this right can only be claimed by the creditor-
mortgagor, EPCIB; and, consequently, the extrajudicial foreclosure of the REM by respondent would be in
violation of petitioners’ property rights.

32. Roxas vs CA Facts: Petitioner Blanca Consuelo Roxas is the owner of a parcel of land located at Tanza Norte, Panay,
Capiz. She executed a special power of attorney appointing her brother, the late Manuel Roxas, as her
attorney-in-fact for the purpose of applying for an agricultural loan with private respondent Rural Bank of
Dumalag, Inc. using said land as collateral. By the use of the special-power of attorney, Manuel Roxas was
able to apply for the agricultural loan and it was granted in the amount of Php 2,000.00 was granted. As
security for the loan, he executed the corresponding real estate mortgage over the subject land. Four years
after, private respondent foreclosed the real estate mortgage for failure to pay the loan on maturity. Such
land was sold at public auction to private respondent, being the highest bidder for P3,009.37. For failure to
exercise the right of redemption, private respondent consolidated its ownership over the land. In 1981,
petitioner filed a complaint for cancellation of foreclosure of mortgage and annulment of auction sale
against private respondent. However, in 1982, the land was taken by the private respondent from Jennifer
Roxas, daughter of Manuel Roxas.

Petitioner claimed that Manuel Roxas never informed her about the approval of the loan. When the loan
matured, she did not received any demand for payment from private respondent nor was there any
information from Manuel Roxas about the maturity of the loan. The foreclosure did not comply with the
requirement of giving written notices to all possible redemptioners, neither did Manuel Roxas inform her
about the foreclosure. Private respondent finally replied, informing petitioner that it already foreclosed the
subject land and it can no longer be redeemed since the redemption period has expired. However,
according to the RTC, private respondent failed to give notice of foreclosure to petitioner as owner of the
property and there was no compliance with the requirements of Section 5 of Republic Act No. 720 as
amended by Republic Act No. 5939. The RTC rendered judgment in favor of petitioner.
The CA reversed the decision of the RTC. According to the appellate court, Section 5 of R.A. NO. 720 does
not require personal notification to the martgagor in case of foreclosure and there was substantial
compliance with the requirements of said law.

Issue: Whether or not notice is necessary in case of foreclosure of mortgage.

Held: It is settled doctrine that failure to publish notice of auction sale as required by the statute constitutes
a jurisdiction defects with invalidates the sale. Section 5 of R.A. No. 720, as amended by R.A. No. 5939,
provides that notices of foreclosure should be posted in at least three (3) of the most conspicuous public
 places in the municipality and barrio where the land mortgaged is situate. In the case at bar, the Certificate
of Posting which was executed by the sheriff states that he posted three (3) copies of the notice of public
auction sale in three (3) conspicuous public places in the municipality of Panay, where the subject land was
situated and in like manner in Roxas City, where the public auction sale took place.

33. Salazar vs De Torres FACTS: The original action was brought by respondent Justiniana de Torres, et. Al., against petitioner
Gregorio Salaza to foreclose a real estate mortgage. Both parties filed a joint motion for judgment on the
following compromise agreement:
1. That the defendant Gregorio Salazar will pay unto plaintiffs the sum of P2,896.50 xxx.
2. That the plaintiffs hereby accept the terms of payment as specified above.
3. That the failure on the part of the defendant to comply with the terms of payment as specified in
paragraph 01 hereof, the plaintiff will be entitled to the immediate execution of the full amount of
P2,896.50 and to foreclose the mortgage.
4. That on the basis of the above-stated agreement it is prayed that this Honorable Court render
judgment which will become final, executory and not subject of appeal by both parties.
The trial court approved the joint motion for judgment. However, it appears that Petitioner Salazar paid only
P1,030.00 failing to pay the balance of P1,866.50. This eventually resulted in the sale at public auction took
place on February 25, 1957 of the mortgaged property to three of the four respondents in the sum of
P2,034.00 to satisfy the balance of the judgment of P1,866.50. Respondents moved to confirm the Sheriff's
sale, but upon objection of petitioner on the ground that the sale had been made to only three of the four
respondents, and that there was no proof that the fourth respondent, Bonifacia de Torres, had been paid
her share of the proceeds of the sale, the trial court denied the motion to confirm and ordered the party to
be sold anew at public auction.
After due notice of publication, the second auction sale was made in the course of which, petitioner
submitted a written bid to the Sheriff of P2,069.00, to cover the judgment credit of P1,866.50 and the costs
of the second foreclosure sale amounting to P202.50. However, the Sheriff returned petitioner's bid after
respondents had made their bid for P2,257.34, representing the balance of the judgment, the Sheriff's fees
and the costs of the sale at public auction, which the Sheriff considered to be the highest bid. A deed of
sale was subsequently issued to respondents, without requiring them to pay down the amount of the bid
because they were the judgment creditors. Respondent moved to confirm the second sale. Petitioner filed
two motions: to declare the judgment debtor (himself), as the highest bidder and to set aside the sale; to
stay confirmation of the sale until after his motion to annual the same had been acted upon.
It is petitioner's contention that although respondents' bid was higher than his, nevertheless, the former was
void since respondents did not actually paid down or offer to pay the amount of their bid of P2,257.34; that
Bonifacia de Torres' participation in the bid was illegal and unauthorized, she having previously waived
whatever cause or causes of action she had against him.
The trial court held the motion of respondents to confirm the sale, in abeyance. The trial court upheld the
right of Bonifacio de Torres to participate in the bid, at the same time declaring untenable petitioner's
petition regarding the failure of respondents to pay down the amount of their bid, saying that being
judgment creditors, they need not pay down their bid unless it exceeded the amount of the judgment, in
which case, they had to pay only the excess. At the same time, the lower court sustained the sufficiency of
petitioner's bid for P2,069.00, saying that he need not pay the expenses incurred in the first auction sale,
which was set aside. In conclusion, the court alternatively gave defendant-petitioner an unextendible period
of two days within which to pay the amount of his bid of P2,069.00 to the Sheriff, otherwise, the plaintiffs-
respondents were equally given an unextendible period of two days within which to pay to the Sheriff the
sum of P167.50, representing the excess over the balance of the judgment, including the lawful Sheriff's
fees and costs chargeable to the defendants, after which the sale would be confirmed. The trial court
confirmed the Sheriff sale of property in question.
Petitioner's record on appeal and the opposition thereto by respondents but the lower court issued an order
dismissing petitioner's appeal (one of the orders sought to be avoided), the court stating that the order of
November 21, 1957 which petitioner was appealing did not finally dispose of the case as between the
parties, inasmuch as there was something more left to be done by the court, and that petitioner's failure to
appeal the order of December 3, 1957 confirming the Sheriff's sale has allowed said order to become final,
thereby rendering his appeal from the order of November 27, 1957, a moot question. Hence, this petition.
ISSUE: W/N an order or judgment is final for the purpose of appeal
RULING: The records of this case show that the Court issued its order confirming the sheriff's sale dated
September 24, 1957 on December 3, 1957, and that accordingly the counsel for the defendant had
received a copy of the said order on December 7, 1957. Said counsel did not appeal from this order. In
view of this confirmation, and the defendant's failure to appeal therefrom, his appeal interposed on the
order dated November 21, 1957 has become a moot question, as the order confirming the sale of
December 3, 1957 has already become final.
It will be observed that the appealed order of November 21, 1957 neither set aside nor confirmed the
foreclosure sale of September 27, 1957, but it held confirmation in abeyance so as to give petitioner an
opportunity to pay to the Sheriff the amount of his bid. The same opportunity was alternatively given to the
respondents to pay to the Sheriff the excess of their bid over the judgment credit. But even after the
payment by respondent of the said amount because of the failure of petitioner to take advantage of the
opportunity accorded to him by the court, still, the proceedings were not ended for the reason that the court
had yet to confirm the sale, which would have been the final act to consumate and complete the
foreclosure sale.
In the case of Philippine Sugar Estates Development Co. vs. Camps, 34 Phil., 426, this Court said: . . . the
sale of the property under the foreclosure procedure must be confirmed by the court. .. a sale by the sheriff
does not have the effect of transferring the property sold until the same is confirmed by a decree of the
court. Thus it appears that the confirming of the sale is a very important order. The title of the property
cannot pass to the purchaser until the sale is confirmed. The court may decline to confirm the sale for good
cause shown, and the same set aside and order a new sale. While the court may or may not confirm the
sale within his discretion, we are of the opinion that, whatever his order is, the interested parties may
appeal therefrom if they feel themselves aggrieved.
Courts have declined a final order or judgment which is appealable as one which either terminates the

34. Sps Agbada v. Inter Urban
Developers
action itself or operates to vest some right in such manner as to put it out of the power of the court making
the order to place the parties in their original condition:
The true test for determining whether an order or judgment is final for the purpose of appeal is not whether
the judgment disposes of the contentions of the parties, or whether it touches the merit of the case, but
whether it finally disposes of the legal proceeding, so that nothing more can be done with it in the court
where it is determined or in the language of Sec. 143 of Act No. 190, whether "it disposes of the
action."(Fuentebella vs. Carrascoso, Lawyers' Journal, Vol. XIV, p. 305).
A foreclosure sale is not complete until it is confirmed, and before said confirmation, the court retains
control of the proceedings by exercising the sound discretion in regard to it, either granting or withholding
confirmation as the rights and interests of the parties and the ends of justice may require. From this
standpoint, the order of November 21, 1957 which neither set aside nor confirmed the foreclosure sale was
merely interlocutory in character.
Until confirmed the sale is in fieri — the highest bidder proposes to the court to buy the lands at a specified
price, which the court may acceptor reject. (Lowa vs. Guicie, 69 Ala. 82).
The final act which consummates a decretal sale is an order confirming the sale, and only when that order
is entered can be there be an appeal. (Massey vs. Fischer, 243 S. W. 2d 889).
FACTS: On 21 February 1991 petitioner-spouses Guillermo Agbada and Maxima Agbada borrowed
P1,500,000.00 from respondent Inter-Urban Developers, Inc. through its president, Simeon L. Ong Tiam.
To secure the loan, the parties concurrently executed a Deed of Real Estate Mortgage over a parcel of land
and the improvements thereon situated in Tandang Sora, Quezon City owned by the spouses.The loan
was payable within six (6) months from 21 February 1991 at three percent (3%) interest per month,
otherwise, failure to discharge the loan within the stipulated period would entitle Inter-Urban Developers,
Inc. to foreclose the mortgage judicially or extra-judicially. The spouses failed to pay the loan within the six-
month period despite several out-of-court demands made by respondent Inter-Urban Developers, Inc.[4]
Inter-Urban Developers, Inc. filed with the RTC Quezon City, a complaint for foreclosure of real estate
mortgage. On 2 March 1994, without assistance of counsel, the spouses filed their unverified answer
admitting that they had borrowed the amount of P1,500,000.00 from respondent and had executed the real
estate mortgage to secure the loan but denying that it was payable within six (6) months and at three
percent (3%) interest per month. As affirmative defense they alleged in their answer that - [petitioner-
spouses] and Simeon L. Ong Tiam, then acting for and in behalf of [Inter-Urban Developers], were
compadre and comadre, for this reason, after the execution of the Real Estate Mortgage Contract x x x
[Spouses Guillermo and Maxima Agbada] were only charged with interest at legal rate and the period for
the said contract is five (5) years from execution thereof x x x x That the said contract is merely simulated
and for formality sake only x x x x That the claim or demand set forth in the plaintiffs complaint is not yet
due and demandable, thus, the complaint states no cause of action against the defendants x x x.
The parties filed their respective pre-trial briefs with petitioner-spouses again filing their own and without the
assistance of counsel. Guillermo Agbada submitted a one-page hand written letter addressed to the trial
judge asking for continuance of the pre-trial and further admitting liability for the due and demandable loan:
"hindi ko po nais makipaglaban dito sa kasong ito dahilan po itong perang ito dapat ko pong bayaran."On 8
June 1994, pre-empting the pre-trial conference, Inter-Urban Developers, Inc. moved for summary
judgment alleging that - 1. In [the spouses] answer which they admit the amount of indebtedness as
alleged in the Complaint; 2.They likewise admit that they have executed the Real Estate Mortgage
Contract subject of this Complaint; 3. What [the spouses] are questioning in this Complaint is only the
period and their compadre, Simeon Ong Tiam, then President of [Inter-Urban Developers], to be payable
after five years and at the legal rate of interest; 4.Their Compadre, Simeon Ong Tiam, and the [Inter-Urban
Developers] are not one and the same entity so that their alleged arrangement with their compadre does
not in anyway bind [Inter-Urban Developers] who has relied on the subject Deed of Real Estate Mortgage;
the said mortgage contract which execution, [the spouses] admit, clearly shows that they contracted with
the [Inter-Urban Developers], the amount of P1,500,000.00 payable within six months from execution at the
interest rate of three percent per month.
5. The [petitioner] Mr. Guillermo Agbada, in one scheduled setting, has written this Honorable Court, as
borne by the records of this case, that he is admitting the total amount of indebtedness and is only bidding
for time because he has already arranged with a bank to pay the total amount of indebtedness so as to
terminate the case once and for all x x x x. On 7 July 1994, this time with the assistance of counsel,
petitioner-spouses Agbada moved to amend their answer to allege that the mortgage contract was not
reflective of the true intention of the parties since in reality the loan was interest-free and would mature only
after five (5) years from execution thereof and that consequently they were denying under oath the due
execution and authenticity of the mortgage document, although the proposed answer was still not verified
by them. Interestingly, the amended answer departed from the allegation in the original answer that the
loan would earn interest at the legal rate. The trial court denied the amendment of the answer holding that
the change would substantially alter the gist of the defense.
On 13 January 1995 the trial court promulgated its Summary Judgment in favor of respondent Inter-Urban
Developers, Inc. It held that Simeon Ong Tiam, compadre of petitioner-spouses and then president of Inter-
Urban Developers, Inc. could not have obligated his principal by contemporaneous agreement amending
the maturity of the loan from six (6)months to five (5) years and the interest rate from three percent (3%)
per month to the default or statutory rate, much less interest-free, since the undertaking was contrary to the
express provisions of the duly executed loan and mortgage contract. The trial court awarded Inter-Urban
Developers, Inc. the amounts of "P1.5 million with monthly interest of 3% from February 21, 1991 until fully
paid plus attorneys fees of P10,000.00 including the real estate taxes and registration expenses. In case of
failure of defendants to do so within ninety (90) days from finality, the decree of foreclosure shall issue."
The trial court granted the motion and issued a decree of foreclosure.On 19 August 1996 respondent
moved for an order authorizing the sale of the mortgaged real estate for failure of the spouses to pay the
judgment debt. Once again the petitioner-spouses did not oppose the motion nor did they attend the
hearing thereon. On 26 August 1996 the trial court ordered the foreclosure sale of the mortgaged property.
On 6 November 1996 the mortgaged real estate was sold at public auction to respondent Inter-Urban
Developers, Inc. as highest bidder for P4,637,092.74 which was supposed to be in full satisfaction of the
judgment debt.
Upon motion of Inter-Urban Developers, Inc. and despite petitioner-spouses' opposition thereto on the
ground that the purchase price of the mortgaged property was below its appraised value according to an
appraisal report, the trial court confirmed the sale in favor of Inter-Urban Developers, Inc. The trial court
ruled that it could not have given weight to the appraisal report since this report was not authenticated nor
was the appraiser presented as witness during the hearing of the motion to allow Inter-Urban Developers,
Inc. an opportunity to cross-examine on the appraised value of the property.
On the other hand, respondent Inter-Urban Developers, Inc. claims that petitioner-spouses did not deny
under oath the authenticity and due execution of the real estate mortgage document, hence, were barred
from setting up the defense that the interest rate and maturity provisions of the loan and mortgage contract
were different from those stipulated in the written agreement. Respondent further argues that the alleged
promise made by Simeon Ong Tiam even if true cannot be enforced against Inter-Urban Developers, Inc.
since there is nothing to show that he was authorized to enter into the alleged contemporaneous
agreement. Finally, respondent asserts that there were other remedies available to petitioners which they
failed to exhaust by their own negligence, thus rendering the petition for annulment of judgment clearly
unavailing and that they voluntarily submitted to the jurisdiction of the trial court by seeking affirmative relief
from the effects of the assailed Summary Judgment.
ISSUE: W/N a party may be barred from raising questions of jurisdiction where estoppel by laches
has set in.
RULING: The petition has no merit. As explained quite frequently, a party may be barred from raising
questions of jurisdiction where estoppel by laches has set in. [46] In a general sense, estoppel by laches is
failure or neglect for an unreasonable and unexplained length of time to do what, by exercising due
diligence, ought to have been done earlier, warranting a presumption that the party entitled to assert it has
either abandoned to defend it or has acquiesced to the correctness and fairness of its resolution. The
doctrine is based on grounds of public policy which for peace of society requires the discouragement of
stale claims and, unlike the statute of limitations, is not a mere question of time but is principally an issue of
inequity or unfairness of permitting a right or claim to be enforced or espoused. Verily, after voluntarily
submitting a cause, it is too late for the loser to question the jurisdiction or power of the court just so he
could escape an adverse decision on the merits.
In the instant case, while petitioner-spouses appear to tender a material issue of fact, i.e., demandability
and interest rate of the loan, summary judgment would nonetheless be proper where it is shown that issues
tendered are sham, fictitious, contrived, set up in bad faith, or patently unsubstantial. [50] To forestall
summary judgment, it is essential for the non-moving party to confirm the existence of genuine issues
where he has substantial, plausible and fairly arguable defense, i.e., issues of fact calling for the
presentation of evidence upon which a reasonable findings of fact could return a verdict for the non-moving
party although mere scintilla of evidence in support of the party opposing summary judgment will be
insufficient to preclude entry thereof.[51] The proper inquiry would therefore be whether the affirmative
defense offered by petitioner-spouses constitutes genuine issue of fact requiring a full-blown trial.
We rule that the affirmative defense sets up a sham issue which justifies summary judgment. For one,
petitioner-spouses have not explained how their affirmative defense, since it attempts to vary a written
agreement, could be proved by admissible evidence. It would be useless to avail of a complete trial where
the issue proposed by petitioner-spouses could not be resolved in any manner other than by referring to
the explicit terms of the loan and mortgage agreement. To be sure, where the parties have reduced their
agreement in writing, it is presumed that they have made the writing the only repository and memorial of the
truth and whatever is not found in the writing must be understood to have been waived and abandoned.
Specifically, under Sec. 9, Rule 130, Revised Rules of Evidence, the trial court is barred from admitting
evidence which proves or tends to prove the alleged concurrent agreement with Simeon Ong Tiam which
alters or varies the terms of the deed between the parties -
Sec. 9 Evidence of written agreements. - When the terms of an agreement have been reduced to writing, it
is considered as containing all the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of the written agreement if
he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto; (c)
The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written agreement x x x x
While it is true that contracting parties may establish stipulations, clauses, terms and conditions as they
may deem convenient provided they are not contrary to law, morals, good customs, public order, or public
policy, the parol evidence rule forbids any addition to or contradiction of the terms of an agreement reduced
into writing by testimony purporting to show that, at or before the signing of the document, other or different
terms were orally agreed upon by the parties. As applied herein, the alleged terms of the contemporaneous
agreement between petitioner-spouses and Simeon Ong Tiam cannot be proved for they are not embodied
in the mortgage deed but exist only in their faint recollection. Only the terms of the loan and mortgage
agreement providing for six (6) months maturity from date of execution thereof and the interest rate of three
percent (3%) per month are worth considering and implementing.
The instant case is not unprecedented. In Tarnate v. Court of Appeals[52] involving a case of foreclosure of
real estate mortgage that was resolved by means of summary judgment where neither the existence of the
loans and the mortgage deeds nor the fact of default on the due repayments was disputed, we rejected as
genuine issue the contention of petitioners therein that they were misled by respondent bank to believe that
the loans were long-term accommodations since the loan documents admittedly executed by the parties
clearly contradicted petitioners asseverations and the parties must have realized that when the terms of the
agreement were unequivocally reduced in writing, they could hardly be controverted by oral evidence to the
contrary. Similarly, in Heirs of Amparo del Rosario v. Santos,[53] where we rejected the alteration of the
conditions imposed in the deed of sale, this Court ruled that appellants therein could not be allowed to
introduce evidence of conditions allegedly agreed upon by them other than those stipulated in the deed of
sale because when they reduced their agreement in writing, it is presumed that they have made the writing
the only repository and memorial of truth, and whatever is not found in the writing must be understood to
have been waived and abandoned.
 Petitioner-spouses cannot invoke any of the exceptions to the parol evidence rule, more particularly, the
alleged failure of the writing to express the true intent and agreement of the parties. The exception obtains
only where the written contract is so ambiguous or obscure in terms that the contractual intention of the
parties cannot be understood from a mere reading of the instrument, thus necessitating the reception of
relevant extrinsic evidence of the contractual provision in dispute to enable the court to make a proper
interpretation of the instrument.[54] However, in the case at bar, the loan and mortgage deed is clear and
without ambiguity, mistake or imperfection in specifying the maturity of the loan exactly after six (6) months
from date of execution thereof at interest rate of three percent (3%) per month, and certainly these
unmistakable terms forbid petitioner-spouses from introducing evidence aliunde of the alleged
contemporaneous agreement in violation of the parol evidence rule.
Indeed the literal meaning of the stipulations is bolstered by the intention of the parties as inferred from
their contemporaneous and subsequent acts.[55] It is a matter of record that, without hesitation, petitioner
Guillermo Agbada asked for the postponement of the pre-trial conference through a one-page handwritten
letter addressed to the trial judge admitting liability for the due and demandable loan: Hindi ko po nais
makipaglaban dito sa kasong ito dahilan po itong perang ito ay dapat ko pong bayaran [56] Furthermore,
when proceedings had been ongoing in the trial court for more than four (4) years, petitioner-spouses
plainly assailed the finding of the trial court vis--vis the appraised value of the foreclosed property, without
more, thus strongly implying their acquiescence to the due and demandable loan, and in fact attempted to
pay the loan completely and recover the foreclosed lot and improvements thereon by tendering a cashiers
check worthP6,307,532.66 through a house help.
Furthermore, for purposes of defeating respondents motion for summary judgment, petitioner-spouses did
not avail of any means to prove prima facie that Simeon Ong Tiam had authority to change the terms of the
real estate mortgage by a contemporaneous agreement or, at the very least, to corroborate their
allegations by means of the verified statements of Simeon Ong Tiam himself.Verily the spouses were not
able to adduce even a single explanation why respondent Inter-Urban Developers, Inc. would suddenly and
conveniently abandon the formalities which it had gone through in drafting and executing the real estate
mortgage in place of an alleged coincidental and plain verbal novation of the original stipulations on interest
rate and duration of the loan. In the absence of even prima facie basis for inferring authority on the part of
Simeon Ong Tiam or inferring his corroboration of petitioner-spouses affirmative defense, we cannot bind
over Inter-Urban Developers, Inc. to the test of trial to meet the affirmative defense.

35. PNB vs Cabatingan Facts: Respondent spouses Tomas Cabatingan and Agapita Edullantes obtained two loans, secured by a
real estate mortgage 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. Thus, on September 25, 1991,
petitioner extrajudicially foreclosed on the mortgage pursuant to Act 3135.
Pursuant to the notice, the properties were sold at public auction on November 5, 1991. The auction began
at 9:00 a.m. and was concluded after 20 minutes with petitioner as the highest bidder. On March 16,
1993, respondent spouses filed in the Regional Trial Court (RTC) of Ormoc City, Branch 12 a complaint
 for annulment of extrajudicial foreclosure of real estate mortgage and the November 5, 1991 auction
sale. They invoked Section 4 of Act 3135 which provides:
Section 4. The sale shall be made at public auction, between the hours of nine in the morning and four
in the afternoon, and shall be under the direction of the sheriff of the province, the justice or auxiliary
justice of peace of the municipality in which such sale has to be made, or of a notary public of said
municipality, who shall be entitled to collect a fee of Five pesos for each day of actual work performed, in
addition to his expenses. (emphasis supplied) CTIDcA
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.
Issue: Whether 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.
Held: No. The sale doesn’t need to be conducted the whole day. The law only prohibits the conduct of a
sale at any time before nine in the morning and after four in the afternoon. Thus, a sale held within the
intervening period (i.e., at any time between 9:00 a.m. and 4:00 p.m.), regardless of duration, is valid. We
grant the petition.
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 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 … 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.

36. Perez vs PNB Facts: On August 29, 1939, Vicente Perez mortgaged Lot No. 286-E of the Kabankalan Cadastre to the
appellant Philippine National Bank, Bacolod Branch. On October 7, 1942, Vicente Perez, mortgagor, died
intestate, survived by his widow and children (appellees herein). At that time, there was an outstanding
balance of P1,917.00, and corresponding interest, on the mortgage indebtedness.
On October 18, 1946, the widow of Perez instituted Special Proceedings for the settlement of the estate of
Vicente Perez. The widow was appointed Administratrix, and notice to creditors was duly published. The
Bank did not file a claim. The project of partition was submitted on July 18, 1956; it was approved and the
properties distributed accordingly. Special Proceeding No. 512 was then closed.
It appears also that, as early as March of 1947, the widow of the late Vicente Perez inquired by letter from
the Bank the status of her husband's account and she was informed that there was an outstanding balance
thereon of P2,758.84 earning a daily interest of P0.4488.
On January 2, 1963, the Bank, pursuant to authority granted it in the mortgage deed, caused the
mortgaged properties to be extrajudicially foreclosed. The Provincial Sheriff accordingly sold Lot No.
286-E at auction, and it was purchased by the Bank. In the ordinary course, after the lapse of the year of
redemption, Certificate of Title No. T-29530 in the name of Vicente Perez was cancelled, and Certificate T-
32066, dated May 11, 1962, was issued in the name of the Bank. The widow and heirs of Perez were not
notified.
Three months later, the widow and heirs of Vicente Perez instituted this case against the Bank in the court
below, seeking to annul the extra-judicial foreclosure sale and the transfer of the Certificate of Title, as
well as to recover damages, claiming that the Bank had acted illegally and in bad faith. The Bank
answered, denying the charges. After trial, the court a quo rendered judgment holding that, according
to the doctrine of this Supreme Court in Pasno vs. Ravina, 54 Phil. 382, the Bank should have
foreclosed its mortgage in court; that the power to sell contained in the deed of mortgage had
terminated upon the death of the mortgagor, Vicente Perez. Wherefore, the trial court declared null and
void the extra-judicial foreclosure sale to the Bank, as well as the cancellation of the Certificate of Title of
Vicente Perez and the issuance in its stead of a new certificate in the name of the Bank; and ordered the
Latter to pay the plaintiffs P3,000 damages and P2,000 attorneys' fees and costs.
Issue: Whether or not the power of the bank to foreclose the mortgage extra-judicially had
terminated upon the death of the mortgagor
Held: No. SC overturned Trial court, and allowed the extra-judicial foreclosure. However, because the bank
did not notify the widow of the foreclosure, they allowed the widow and the other heirs to redeem the
property by paying or tendering to the bank the capital of the debt with interest.
Pasno vs Ravina Doctrine: (No longer followed)
Basis of Trial court in ruling that no extra-judicial foreclosure upon death of the mortgagor. The court here
held that Section 7, Rule 87, of the original Rules of Court adopted in 1941 (now Section 7, Rule 86, of the
1964 Revised Rules) held that a creditor holding a claim against the deceased secured by mortgage or
other collateral security has 3 options:
1. to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary
claim
2. to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; |||
3. to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by
prescription, without right to file a claim for any deficiency.|||
The majority opinion in Pasno vs. Ravina, 54 Phil., 378, in requiring a judicial foreclosure, virtually wipes
out the third alternative, which would include extra-judicial foreclosure. This result is not warranted by the
text of the Rules. In addition, the recognition of the creditor's right to foreclosure extrajudicially presents
undoubted advantages for the estate of the mortgagor, as pointed out by the dissenting opinion in the
aforementioned case. The majority decision in that case should therefore be overruled and the light
of the mortgage creditor to foreclose extra-judicially should be upheld.
The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the
principal by the agent, but is primarily an authority conferred upon the mortgagee for the latter's own
protection. It is an ancillary stipulation supported by the same cause or consideration for the mortgage and
forms an essential and inseparable part of that bilateral agreement. That power survives the death of the
mortgagor.
37. Guanco vs Antolo FACTS:
Antolo is a resident of Funda, Hamtic, Antique who applied for a P600.00 loan from the Rural Bank
of Sibalom (RBS) (Antique), Inc. To secure payment thereof, Antolo executed a Real Estate Mortgage over
a parcel of land. RBS, through Mañosa requested him to pay his account with RBS, otherwise the real
estate mortgage would be foreclosed. Antolo failed to pay his loan account. The RBS, through counsel,
then sent a letter, declaring that unless Antolo paid his loan account including the accrued interest thereon
within ten (10) days from notice thereof, appropriate legal action would be taken against him to protect its
rights and interests. Antolo later inquired on his account status, he found that his account had previously
been paid for, that the owner’s title had been released, and that the property had been sold to Guanco via a
public auction. Antolo filed a complaint against Luisa Guanco and her husband Leonardo Guanco,
Provincial Sheriff Alvior and the RBS, for annulment of the sheriff's sale, recovery of ownership with
damages.
ISSUE: Whether or not Antolo can recover ownership?
Held: Yes. Under Section 5 of Republic Act No. 720, as amended by Rep. Act No. 7939, the provincial
sheriff is mandated to post a notice of the foreclosure of the real estate mortgage in at least three of the
most conspicuous public places not only in the municipality but also in the barrio where the land mortgaged
is situated during the 60day period immediately preceding the public auction

“The foreclosure of mortgages covering loans granted by rural banks shall be exempt from the publication
in newspapers now required by law where 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 public places in the municipality and barrio
where the land mortgaged is situated during the period of sixty days immediately preceding the public
auction…”
In this case, the provincial sheriff failed to comply with the law. It appears on the face of the Final Deed of
Sale executed by Deputy Sheriff that the petition for extrajudicial foreclosure of the real estate mortgage
purportedly filed with the said office was dated July 21, 1977. The deputy sheriff set the public auction sale
on August 19, 1977,or less than a month after the filing of the said petition, short of the 60 day period
under Section 5 of Rep. Act No. 720, as amended. Guanco and the deputy sheriff made it appear that a
public auction sale took place on August 19, 1977, that Guanco purchased the property for P775.00 on
said date, that Antolo failed to redeem the property within the requisite period, and, consequently, a final
deed of sale was executed on August 28, 1977. The only conclusion is that Deputy Sheriff Alvior made it
appear in the certificate of sale that a sale at public auction was conducted on August 19, 1977, and that
respondent failed to redeem the property within one year from registration of the sale. This was clearly
done to enable petitioner Luisa Guanco to secure a Torrens title over the property in her name. Unless it
was made to appear that a sale at public auction was conducted and that the requisite redemption period
had lapsed, no Torrens title over the property can be issued by the Register of Deeds to and under the
 name of petitioner.

38. Sps Certeza vs Philippines FACTS:

Saving Bank Petitioner spouses obtained a P1,255,000.00 loan from respondent Philippine Savings Bank (PS Bank),
secured by two parcels of land. Petitioners failed to pay their outstanding obligation despite demands
hence PS Bank instituted, an action for Extrajudicial Foreclosure of the Real Estate Mortgage. Bank
emerged as the sole and highest bidder. A corresponding Certificate of Sale dated February 20, 2003 was
issued in favor of PS Bank, which was registered with the Registry of Deeds of Quezon City. During the
period of redemption, on December 1, 2003, PS Bank filed an Ex-parte Petition for Writ of Possession with
the Regional Trial Court (RTC) of Quezon City, which was granted. Petitioners filed an Omnibus Motion for
Leave to Intervene and to Stay Issuance or Implementation of Writ of Possession, attaching therein their
Petition-in-Intervention. They sought the nullification of the extrajudicial foreclosure sale for allegedly
having been conducted in contravention of the procedural requirements.
PS Bank opposed the motion citing Manalo v. Court of Appeals where we held that (T)he issuance of an
order granting the writ of possession is in essence a rendition of judgment within the purview of Section 2,
Rule 19 of the Rules of Court. PS Bank also argued that with the issuance of the trial courts, the Motion for
Leave to Intervene can no longer be entertained.
Ruling of the Regional Trial Court:
The issuance of writ of possession being ministerial in character, the implementation of such writ by the
sheriff is likewise ministerial. WHEREFORE, premises considered, the motion to intervene and to stay the
implementation of the writ of possession is hereby denied.
Ruling of the Court of Appeals
The CA, found that (1) the issuance of a writ of possession is a ministerial function; (2) there was
no irregularity in the foreclosure sale; (3) the denial of the motion to intervene is proper; and (4)
certiorari is not the proper remedy.
ISSUE: W/N CA erred in their decision
HELD:
No. The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135. The
requirement for at least two participating bidders provided in the original version of paragraph 5 of A.M. No.
99-10-05-0 is not found in Act No. 3135. Hence, in the Resolution[26] of the Supreme Court en banc dated
January 30, 2001, we made the following pronouncements:

It is contended that this requirement is now found in Act No. 3135 and that it is impractical and
burdensome, considering that not all auction sales are commercially attractive to prospective bidders. The
observation is well taken. Neither Act No. 3135 nor the previous circulars issued by the Court governing

39. Sps Yu vs Philippine
Commercial International Bank
extrajudicial foreclosures provide for a similar requirement. The two-bidder rule is provided under P.D. No.
1594 and its implementing rules with respect to contracts for government infrastructure projects because of
the public interest involved. Although there is a public interest in the regularity of extrajudicial foreclosure of
mortgages, the private interest is predominant. The reason, therefore, for the requirement that there must
be at least two bidders is not as exigent as in the case of contracts for government infrastructure projects.
On the other hand, the new requirement will necessitate republication of the notice of auction sale in case
only one bidder appears at the scheduled auction sale. This is not only costly but, more importantly, it
would render naught the binding effect of the publication of the originally scheduled sale.
The use of the word bids (in plural form) does not make it a mandatory requirement to have more than one
bidder for an auction sale to be valid. A.M. No. 99-10-05-0, as amended, no longer prescribes the
requirement of at least two bidders for a valid auction sale. We further held that Except for errors or
omissions in the notice of sale which are calculated to deter or mislead bidders, to depreciate the value of
the property, or to prevent it from bringing a fair price, simple mistakes or omissions are not considered
fatal to the validity of the notice and the sale made pursuant thereto.
In view of the foregoing, the extra-judicial foreclosure sale conducted in this case is regular and valid.
Consequently, the subsequent issuance of the writ of possession is likewise regular and valid. Hence, it is
no longer necessary for this Court to rule on the other issues presented by the petitioners, which are also
grounded on the supposed irregularity in the auction. WHEREFORE, the instant petition is DENIED. The
assailed Decision of the Court of Appeals dated May 8, 2009 and its Resolution dated October 20, 2009
are hereby AFFIRMED.
FACTS
On April, 1995, Spouses Yu, among others mortgaged their title,interest & participation over several parcels
of land located in Dagupan City in favor of the respondent, Philippine Commercial International Bank, as
security for the payment of loan. Petitioners failed to pay the loan, interests & penalties due thereon,
respondent filed a Petition for Extra- Judicial Foreclosure of Real Estate on Dagupan City properties before
the RTC, Dagupan City. Auction sale of the said properties was scheduled on September 10, 1998 where
respondent emerged as the highest bidder. On September 14, 1998, a Certificate of Sale was issued in
favor of the respondent. On October 1, 1998, the sale was registered with the Registry of Deeds, Dagupan
City. On August 20, 1998, about 2 months before the expiration of the redemption period, respondent filed
an Ex-Parte Petition for Writ of Possession before the RTC, Dagupan City, docketed as Special Proceeding
No. 99-00988-D & raffled to Branch 43. On September 14, 1999, a hearing was conducted where the
respondent presented its evidenceex-parte by the testimony of Rodante Manuel. On September 30, 1999,
petitioners filed a Motion to Dismiss & to Strike Out testimony of Rodante Manuel stating that the Certificate
of Sale dated Sept. 14, 1998, is void because respondent violated Article 2089 of the Civil Code in the
indivisibility of the mortgaged by conducting 2 separate foreclosure proceedings on the mortgaged
properties in Dagupan City &Quezon City. Likewise the petitioners filed a Complaint for Annulment for a
 Certificate of Sale.

Issue: W/N foreclosure over several properties in different localities can be foreclosed

Held: Petitioners have mistaken a notion that the indivisibility of a real estate mortgage relates to the venue
of extra judicial foreclosure proceedings. The rule on indivisibility of a real estate mortgage is provided for in
Article 2089 of the Civil Code which provides. Article 2089: A pledge or mortgage is indivisible even though
the debt may be divided among the successors in interest of the debtor or the creditor. Indivisibility means
that the mortgage obligation cannot be divided among the different lots, that is each & every parcel under
mortgage answers for the totality of the debt. The indivisibility of the real estate mortgage by conducting 2
separate foreclosure proceedings on mortgaged properties located in different provinces as long as each
parcel of land is answerable for the entire debt.

40. (32) United Coconuts Planters Facts:

Bank vs CA On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement
whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a
term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real
estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title as additional
security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the
Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to 28 February
1998. Credit lines were availed of under 3 promissory notes which were renewed several times.To
completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso
executed two more promissory notes for a total of P350,000.00. However, the spouses Beluso alleged that
the amounts covered by these last two promissory notes were never released or credited to their account
and, thus, claimed that the principal indebtedness was only P2 Million.
In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From
1996 to February 1998 the spouses Beluso were able to pay the total sum of P763,692.03. From 28
February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the obligations of the
spouses Beluso. The spouses Beluso, however, failed to make any payment of the foregoing
amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of
P2,932,543.00 plus 25% attorney's fees, but the spouses Beluso failed to comply therewith. On 28
December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit
line, which, by that time, already ballooned to P3,784,603.00. On 9 February 1999, the spouses Beluso
filed a Petition for Annulment, Accounting and Damages against UCPB.
Issue: Whether or not there is merit in the contentions of UCPB
Held: No.
The Court of Appeals held that the imposition of interest in the following provision found in the promissory
notes of the spouses Beluso is void, as the interest rates and the bases therefor were determined solely by
 petitioner UCPB
Stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it
violates the Truth in lending Act. The provision stating that the interest shall be at the “rate indicative of
DBD retail rate or as determined by the Branch Head” is indeed dependent solely on the will of petitioner
UCPB. Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate
indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given this
choice, the rate should be categorically determinable in both choices. If either of these two choices
presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus
making the entire interest rate provision violative of the principle of mutuality of contracts.

Chattel Mortgage ( 1 - 8)

41. Northern Motors vs Coquia RESOLUTION

Respondent Honesto Ong and City Sheriff of Manila filed a motion for the reconsideration of this Court's
resolution of August 29, 1975. In that resolution, it was held that the lien of Northern Motors, Inc., as chattel
mortgagee, over certain taxicabs is superior to the levy made on the said cabs by RESPONDENT :
Honesto Ong, the assignee of the unsecured judgment creditor of the chattel mortgagor, Manila Yellow
Taxicab Co., Inc.
On the other hand, Northern Motors, Inc. in its motion for the partial reconsideration of the same August 29
resolution, further prayed that the sheriff should be required to deliver to it the proceeds of the execution
sale of the mortgaged taxicabs without deducting the expenses of execution.
— Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the mortgaged
taxicabs. He contends that his only recourse was to levy upon the taxicabs which were in the possession of
the judgment debtor, Manila Yellow Taxicab Co. Inc., whereas, Northern Motors, Inc., as unpaid seller and
mortgagee, "has still an independent legal remedy" against the mortgagor for the recovery of the unpaid
balance of the price.
That contention is not a justification for setting aside the holding that Ong had no right to levy upon the
mortgaged taxicabs and that he could have levied only upon the mortgagor's equity of redemption. The
essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and
not for the judgment credit of the mortgagor's unsecured creditor. The mortgagee is not obligated to file an
"independent action" for the enforcement of his credit. To require him to do so would be a nullification of his
lien and would defeat the purpose of the chattel mortgage which is to give him preference over the
mortgaged chattels for the satisfaction of his credit. (See art. 2087, Civil Code).
It is relevant to note that intervenor Filinvest Credit Corporation, the assignee of a portion of the chattel
mortgage credit, realized that to vindicate its claim by independent action would be illusory. For that
pragmatic reason, it was constrained to enter into a compromise with Honesto Ong by agreeing to pay him
 P145,000. That amount was characterized by Northern Motors, Inc. as the "ransom" for the taxicabs levied
upon by the sheriff at the behest of Honesto Ong.
Honesto Ong's theory that Manila Yellow Taxicab's breach of the chattel mortgage should not affect him
because he is not privy of such contract is untenable. The registration of the chattel mortgage is an
effective and binding notice to him of its existence (Ong Liong Tiak vs. Luneta Motor Company, 66 Phil
459). The mortgage creates a real right (derecho real, jus in re or jus ad rem, XI Enciclopedia Juridica
Española 294) or a lien which, being recorded, follows the chattel wherever it goes.
Honesto Ong's contention that Northern Motors, Inc., was negligent because it did not sue the sheriff within
the 120-day period provided for in section 17, Rule 39 of the Rules of Court is not correct. Such action was
filed on April 14, 1975 in the Court of First Instance of Rizal, Pasig Branch XIII, in Civil Case No. 21065
entitled "Northern Motors, Inc. vs. Filwriters Guaranty Assurance Corporation, et al.". However, instead of
Honesto Ong, his assignor, Tropical Commercial Corporation, was impleaded as a defendant therein. That
might explain his unawareness of the pendency of such action.
The other arguments of Honesto Ong in his motion may be boiled down to the proposition that the levy
made by mortgagor's judgment creditor against the chattel mortgagor should prevail over the chattel
mortgage credit. That proposition is devoid of any legal sanction and is glaringly contrary to the nature of a
chattel mortgage. To uphold that contention is to destroy the essence of chattel mortgage as a paramount
encumbrance on the mortgaged chattel.
Respondent Ong admits "that the mortgagee's right to the mortgaged property is superior to that of the
judgment creditor". But he contends that the rights of the purchasers of the cars at the execution sale
should be respected. He reasons out they were not parties to the mortgage and that they acquired the cars
prior to the mortgagee's assertion of its rights thereto.

Issue: WON mortgagee shall have preferential rights over the judgement creditor. YES

Held: We already held that the execution was not justified and that Northern Motors, Inc., as mortgagee,
was entitled to the possession of the eight taxicabs. Those cabs should not have been levied upon and
sold at public auction to satisfy the judgment credit which was inferior to the chattel mortgage. Since the
cabs could no longer be recovered because apparently they had been transferred to persons whose
addresses are unknown (see par. 12, page 4, Annex B of motion), the proceeds of the execution sale may
be regarded as a partial substitute for the unrecovarable cabs

42.PNB vs RBL Enterprises Facts : [respondents] opened a prawn hatchery in San Enrique, Negros Occidental, and for this purpose,
leased from Nelly Bedrejo a parcel of land where the operations were conducted; In order to increase
productions and improve the hatchery facilities, [respondents] applied for and was approved a loan of
P2,000,000.00, by [Petitioner] PNB. To secure its payment, [respondents] executed in favor of PNB, a real
estate mortgage over two (2) parcels of land, located at BagoCity , in the names of [respondents], and
another real [estate] and chattel mortgage over the buildings, culture tanks and other hatchery facilities
located in the leased property of Nelly Bedrejo; PNB partially released to [respondents] on several dates,
the total sum of P1,000,000.00 less the advance interests, During the mid-part of the construction of the
improvements, PNB refused to release the balance of P1,000,000.00 allegedly because [respondents]
failed to comply with the banks requirement that Nelly Bedrejo should execute an undertaking or a lessors
conformity provided in Real Estate and Chattel Mortgage contract dated August 3, 1989, It is a condition of
this mortgage that while the obligations remained unpaid, the acquisition by the lessor of the permanent
improvements covered by this Real Estate Mortgage as provided for in the covering Lease Contract, shall
be subject to this mortgage. For this purpose, the mortgagor hereby undertakes to secure the lessors
conformity hereto. For said alleged failure of [respondents] to comply with the additional requirement and
the demand of PNB to pay the released amount of P1,000,000.00, PNB foreclosed the mortgaged
properties, to the detriment of [respondents]. Due to the non-release of the remaining balance of the loan
applied for and approved, the productions-operations of the business were disrupted causing losses to
[respondents], and thereafter, to the closure of the business.
PNB filed its Answer with Counterclaim alleging that the lessors conformity was not an additional
requirement but was already part of the terms and conditions contained in the Real Estate and Chattel
Mortgage dated August 3, 1989, executed between [respondents] and [petitioner]; and that the release of
the balance of the loan was conditioned on the compliance and submission by the [respondents] of the
required lessors conformity.
On November 8, 1993, a writ of preliminary injunction was issued by the court a quo prohibiting PNB and
the Provincial Sheriff of Negros Occidental from implementing the foreclosure proceedings

Issue : whether the non-release of the balance of the loan by PNB is justified;
Held: Petitioner maintains that the lessors signature in the conforme portion of the Real Estate and Chattel
Mortgage Contract was a condition precedent to the release of the balance of the loan to respondents.
Petitioner invokes paragraph 9.07 of the Contract as legal basis for insisting upon respondents fulfillment of
the aforesaid clause.
We are not persuaded. If the parties truly intended to suspend the release of the P1,000,000 balance of the
loan until the lessors conformity to the Mortgage Contract would have been obtained, such condition should
have been plainly stipulated either in that Contract or in the Credit Agreement.The tenor of the language
used in paragraph. 9.07, as well as its position relative to the whole Contract, negated the supposed
intention to make the release of the loan subject to the fulfillment of the clause. From a mere reading
thereof, respondents could not reasonably be expected to know that it was petitioners unilateral intention to
suspend the release of the P1,000,000 balance until the lessors conformity to the Mortgage Contract would
have been obtained.
Respondents had complied with all the requirements set forth in the recommendation and approval sheet
forwarded by petitioners main office to the Bacolod branch for implementation; and the Credit Agreement
had been executed thereafter. Naturally, respondents were led to believe and to expect the full release of
their approved loan accommodation. This belief was bolstered by the initial release of the first P1,000,000
 portion of the loan.
In the instant case, there is a clear and categorical showing that when the parties have finally executed the
contract of loan and the Real Estate and Chattel Mortgage Contract, the applicant complied with the terms
and conditions imposed by defendant bank on the recommendation and approval sheet, hence, defendant
bank waived its right to further require the plaintiffs other conditions not specified in the previous
agreement. Should there [appear] any obscurity after such execution, the same should not favor the party
who caused such obscurity.
The records show that all the real estate and chattel mortgages were registered with the Register of Deeds
of Bago City, Negros Occidental, and annotated at the back of the mortgaged titles. Thus, petitioner had
ample security to protect its interest. As correctly held by the appellate court, the lessors nonconformity to
the Mortgage Contract would not cause petitioner any undue prejudice or disadvantage, because the
registration and the annotation were considered sufficient notice to third parties that the property was
subject to an encumbrance.

43. PAMECA Wood Treatment Facts: petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of P2,000,000.00 from
Plant vs CA respondent Bank. As security for the said loan, a chattel mortgage was also executed over PAMECAs
properties in Dumaguete City, consisting of inventories, furniture and equipment, to cover the whole value
of the loan. On January 18, 1984, and upon petitioner PAMECAs failure to pay, respondent bank
extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the
foreclosed properties for a sum of P322,350.00. On June 29, 1984, respondent bank filed a complaint for
the collection of the balance of P4,366,332.46 , , petitioners contend that the amount of P322,350.00 at
which respondent bank bid for and purchased the mortgaged properties was unconscionable and
inequitable considering that, at the time of the public sale, the mortgaged properties had a total value of
more than P2,000,000.00. According to petitioners, this is evident from an inventory dated March 31,
1980[5], which valued the properties at P2,518,621.00, in accordance with the terms of the chattel mortgage
contract[6] between the parties that required that the inventories be maintained at a level no less than P2
million. Petitioners argue that respondent banks act of bidding and purchasing the mortgaged properties for
P322,350.00 or only about 1/6 of their actual value in a public sale in which it was the sole bidder was
fraudulent, unconscionable and inequitable, and constitutes sufficient ground for the annulment of the
auction sale.

ISSUE(S) 1. WON 1484 and 2115 of the civil code shall be applied. NO
2. WON the auction sale is void. NO

Held: Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of
the Civil Code by reading the spirit of the law, and taking into consideration the fact that the contract of loan
was a contract of adhesion.
This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage Law
regarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of Article 2115,
Article 2115 in relation to Article 2141, may not be applied to the case.
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:
Xx The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping
and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue
shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the
mortgage, shall be paid to the mortgagor or persons holding under him on demand.xx
It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law run
inconsistent with those of pledge under Article 2115.Whereas, in pledge, the sale of the thing pledged
extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the
sale in excess of the amount of the principal obligation, Section 14 of the Chattel Mortgage Law expressly
entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and
costs.
Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case.
As correctly pointed out by the trial court, the said article applies clearly and solely to the sale of personal
property the price of which is payable in installments. Although Article 1484, paragraph (3) expressly bars
any further action against the purchaser to recover an unpaid balance of the price, where the vendor opts
to foreclose the chattel mortgage on the thing sold, should the vendees failure to pay cover two or more
installments, this provision is specifically applicable to a sale on installments.

We are also unable to find merit in petitioners submission that the public auction sale is void on grounds of
fraud and inadequacy of price. Petitioners never assailed the validity of the sale in the RTC, and only in the
Court of Appeals did they attempt to prove inadequacy of price through the documents, i.e., the Open-End
Mortgage on Inventory and inventory dated March 31, 1980, likewise attached to their Petition before this
Court. Basic is the rule that parties may not bring on appeal issues that were not raised on trial.
Having nonetheless examined the inventory and chattel mortgage document as part of the records, We are
not convinced that they effectively prove that the mortgaged properties had a market value of at least
P2,000,000.00 on January 18, 1984, the date of the foreclosure sale. At best, the chattel mortgage contract
only indicates the obligation of the mortgagor to maintain the inventory at a value of at least P2,000,000.00,
but does not evidence compliance therewith. The inventory, in turn, was as of March 31, 1980, or even
prior to April 17, 1980, the date when the parties entered into the contracts of loan and chattel mortgage,
and is far from being an accurate estimate of the market value of the properties at the time of the
foreclosure sale four years thereafter. Thus, even assuming that the inventory and chattel mortgage
contract were duly submitted as evidence before the trial court, it is clear that they cannot suffice to
substantiate petitioners allegation of inadequacy of price.
Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in the
public sale does not warrant the conclusion that the transaction was attended with fraud. Fraud is a serious
allegation that requires full and convincing evidence, [20] and may not be inferred from the lone circumstance

44. Makati Leasing and FInancial
Corp vs Wearever Textile Mills
that it was only respondent bank that bid in the sale of the foreclosed properties.
Facts: It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing
and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned
several receivables with the former under a Receivable Purchase Agreement. To secure the collection of
the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials
inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties
mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into
private respondent's premises and was not able to effect the seizure of the aforedescribed machinery.
Petitioner thereafter filed a complaint for judicial foreclosure
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of
which was however subsequently restrained upon private respondent's filing of a motion for
reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order lifting
the restraining order for the enforcement of the writ of seizure and an order to break open the premises of
private respondent to enforce said writ, the sheriff enforcing the seizure order, repaired to the premises of
private respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized by the
sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of replevin,
much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new Civil Code,
the same being attached to the ground by means of bolts and the only way to remove it from respondent's
plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to enfore
the writ was to take the main drive motor of said machinery.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has
brought the case to this Court for review by writ of certiorari.
Issue : WON the chattel mortgage is null and void
Held: no,
the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal
property from the point of view of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking
through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal property, yet by ceding,
 selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant
to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now
be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood on a
rented lot to which defendants-appellants merely had a temporary right as lessee, and although this can
not in itself alone determine the status of the property, it does so when combined with other factors to
sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as
personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L.
Strong Machinery & Williamson, wherein third persons assailed the validity of the chattel mortgage, it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel
mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as the
appellate court did, the present case from the application of the abovequoted pronouncement. If a house of
strong materials, like what was involved in the above Tumalad case, may be considered as personal
property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so
agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may
not be likewise treated as such. This is really because one who has so agreed is estopped from denying
the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays
stress on the fact that the house involved therein was built on a land that did not belong to the owner of
such house. But the law makes no distinction with respect to the ownership of the land on which the house
is built and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by the
parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties
to a contract may by agreement treat as personal property that which by nature would be real property, as
long as no interest of third parties would be prejudiced thereby

From what has been said above, the error of the appellate court in ruling that the questioned machinery is
real, not personal property, becomes very apparent. Moreover, the case of Machinery and Engineering
Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the
nature of the machinery and equipment involved therein as real properties never having been disputed nor
in issue, and they were not the subject of a Chattel Mortgage.

45. Monserrat vs Ceron

46. Davao Sawmill Co Inc vs Facts:

Castillo
Petitioner, as a holder of a lumber concession from the Philippine Government, was leasing its place of
operations that actually belonged to another person. Petitioner constructed a building to house the
machinery and materials necessary for its business operations. Some of the machines stored were
mounted on foundations of cement. According to its contract of lease, the Petitioner had agreed to turn
over all improvements and buildings erected by it on the premises with the exception of machineries which
shall remain under its ownership.

In an action brought by the Davao Light and Power Co., judgment was rendered against herein petitioner
and the machineries in the sawmill were levied upon by the sheriff. Davao Light and Power Co. proceeded
to purchase the machinery and other properties auctioned by the sheriff.

Davao Sawmill Co Inc contends that on a number of occasions they treated the machinery as personal
property by executing chattel mortgages in favor of third persons.

Issue:

Whether or not the machineries and equipments were personal in nature

Held:

Yes, the SC ruled that Machinery which is movable in nature only becomes immobilized when placed in a
plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary or any
person having only a temporary right, unless such person acted as the agent of the owner.

In the given case, since the Petitioner is merely leasing the land from a third person, it merely enjoys a
temporary right to make use of the property by virtue of its lease contract and therefore the movables
placed in the said plant, retained their movable nature.

47. Torres vs Limjap Facts:

Two actions were commenced in Manila for the purpose of securing from the defendant Limjap the
possession of two drug stores in the City covered by two chattel mortgages executed by the deceased
Jose B. Henson in favor of the plaintiffs.

In both cases, the plaintiffs alleged that they were the heirs of the late Don Florentino Torres the party in
favor of whom Jose B. Henson executed the chattel mortgages. The plaintiffs further alleged that Henson
violated the terms of the mortgages and as such they are entitled to take possession of the subject
properties. The Defendant alleged that 1.) the chattel mortgages were null and void for lack of sufficient
 particularity in the description of the property mortgaged, and 2.) That the chattels were not the same
property described in the mortgage.

Plaintiffs allege that the scope of the mortgage was extended to after-acquired property.

Issue:

Whether or not the stipulation in the mortgage extending the scope thereof to after-acquired property is
valid and binding?

Held:

The Supreme Court held that such a stipulation is valid and binding "Where the after acquired property is in
renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the
proceeds of the sale of such goods, etc."

The SC further quoted Cobbey, an authority on chattel mortgages, in saying "A mortgage may by express
stipulation, be drawn to cover goods put in stock in place of others sold out from time to time. A mortgage
may be made to include future acquisitions of goods to be added to the original stock mortgage, but the
mortgage must expressly provide such inclusion.

48. Tolentino vs Salazar

Antichresis

49. Dizon vs Gaborro

Facts:
After his properties were extrajudicially foreclosed but before the expiration of the redemption period,
petitioner executed a "Deed of Sale with Assumption of Mortgage" in favor of private respondent, who
in turn executed on the same day an "Option to Purchase Real Estate" in favor of petitioner. Thereafter,
private respondent made several payments to the mortgagee, took possession of, cultivated, and paid
taxes, on the land.
Two years later, petitioner offered to reimburse what private respondent had paid to the mortgagee,
and demanded an accounting. When private respondent dishonored the request, petitioner sued the
former for accounting, alleging that the two deeds did not express their true intent, the transaction
being one of an equitable mortgage and not an absolute sale.
 The trial court ordered the instruments reformed in the sense that the true agreement is one whereby
private respondent, in consideration of the use of petitioner's properties, would assume the latter's
debts. The Court of Appeals affirmed the decision, with the modification that petitioner "has the right to
reimburse" respondent at 8% per annum, which right shall be exercised within one year from the finality
of decision.
Issue: WON the petitioner has the right to reimburse
Held:
The Supreme Court affirmed the decision of the Court of Appeals, holding that after foreclosure, the
only right that the mortgagee may transfer is that of redemption; that the disputed agreement is one of
innominate contracts, under Article 1307 of the Civil Code, partaking of antichresis; and that the
agreement may be reformed pursuant to Articles 1359 and 1361 of the Civil Code, because a mutual
mistake of the parties caused the failure of the instrument to disclose their true agreement.
Where the "Deed of Sale with Assumption of Mortgage" and "Option to Purchase Real Estate" stipulate
rights and obligations between the parties thereto pertaining to and involving parcels of land that had
already been foreclosed and sold extrajudicially, and purchased by the mortgage creditor, it becomes
necessary to determine the legality of said rights and obligations arising from the foreclosure and sale
proceedings not only between the two contracting parties to the instruments executed between them
but also insofar as the agreement affects the rights of third parties.|||
Under Section 6 of Act 3135, as amended by Act 4118, the judgment debtor may redeem the property
extrajudicially sold within one year from and after the date of the foreclosure sale.|||
Under Section 33, Rule 39, Revised Rules of Court, the judgment debtor in possession of the property
foreclosed and sold is entitled to remain therein during the period of redemption, shall receive its fruits
and may transfer his right of redemption to any one whom he may desire. This is so because the
purchaser who has an inchoate right over the property during the redemption period is not entitled to
such possession.|||
The right to redeem land sold under execution within 12 months is a property right and may sold
voluntarily by its owner and may also be attached and sold under execution.|||

Concurrence and Preference of Credit

50. Barreto vs Villanueva Facts: Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot
herein involved to Villanueva for P19K. The purchaser paid P1,500 in advance, and executed a promissory
note for the balance. However, the buyer could only pay P5,500 On account of the note, for which reason
the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to
secure a clean certificate of title and mortgaged the property to appellant Barretto to secure a loan of P30K,
said mortgage having been duly recorded.

Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her
favor, obtained judgment, and upon its becoming final asked for execution. Cruzado filed a motion for
recognition for her "vendor's lien" invoking Articles 2242, 2243, and 2249 of the new Civil Code. After
hearing, the court below ordered the "lien" annotated on the back of the title, with the proviso that in case of
sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be
paid pro rata from the proceeds.

Appellants insist that:

1. The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can only
become effective in the event of insolvency of the vendee, which has not been proved to exist in the instant
case; and .
2. That the Cruzado is not a true vendor of the foreclosed property.

Article 2242 of the new Civil Code enumerates the claims, mortgage and liens that constitute an
encumbrance on specific immovable property, and among them are: .
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."

Article 2249 of the same Code provides that "if there are two or more credits with respect to the same
specific real property or real rights, they shall be satisfied pro-rata after the payment of the taxes and
assessment upon the immovable property or real rights.

Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario
Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants
the proceeds of the foreclosure sale.

Issue: Appellant’s argument: inasmuch as the unpaid vendor's lien in this case was not registered, it
should not prejudice the said appellants' registered rights over the property.

Held: There is nothing to this argument. Note must be taken of the fact that article 2242 of the new Civil
Code enumerating the preferred claims, mortgages and liens on immovables, specifically requires that.
Unlike the unpaid price of real property sold. mortgage credits, in order to be given preference, should be
recorded in the Registry of Property. If the legislative intent was to impose the same requirement in the
case of the vendor's lien, or the unpaid price of real property sold, the lawmakers could have easily inserted
the same qualification which now modifies the mortgage credits. The law, however, does not make any
distinction between registered and unregistered vendor's lien, which only goes to show that any lien of that
kind enjoys the preferred credit status.

As to the point made that the articles of the Civil Code on concurrence and preference of credits are
applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If
we are to interpret this portion of the Code as intended only for insolvency cases, then other creditor-debtor
relationships where there are concurrence of credits would be left without any rules to govern them, and it
would render purposeless the special laws on insolvency.

Resolution on Motion to Consider (1962)

Appellants, spouses Barretto, have filed a motion vigorously urging that our decision be reconsidered and
set aside, and a new one entered declaring that their right as mortgagees remain superior to the
unrecorded claim of herein appellee for the balance of the purchase price of her rights, title, and interests in
the mortgaged property.

We have reached the conclusion that our original decision must be reconsidered and set aside:

Under the system of the Civil Code of the Philippines, only taxes enjoy a similar absolute preference. All the
remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but
must be paid pro-rata i.e., in proportion to the amount of the respective credits. Thus, Article 2249
provides:
If there are two or more credits with respect to the same specific real property or real rights, they, shall be
satisfied pro-rata after the payment of the taxes and assessments upon the immovable property or real
rights."

The full application of Articles 2249 and 2242 demands that there must be first some proceedings where
 the claims of all the preferred creditors may be bindingly adjudicated, such as:
1. insolvency,
2. the settlement of decedents estate under Rule 87 of the Rules of Court, or
3. other liquidation proceedings of similar import.

This explains the rule of Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles" shall be considered as mortgages or
pledges of real or personal property, or liens within the purview of legal provisions governing insolvency.

And the rule is further clarified in the Report of the Code Commission, as follows:
The question as to whether the Civil Code and the insolvency Law can be harmonized is settled by Article
2243. The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in
accordance with the Insolvency Law."

Rule
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale
(as in the case now before us) is not the proceeding contemplated by law for the enforcement of
preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute
priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro-rata dividend corresponding to each, because the rights of the other creditors likewise"
enjoying preference under Article 2242 can not be ascertained.

Held: There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not require
the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must
remain subordinate to the latter.

51. Phil Savings Bank vs Latin Facts: Involved in this case is a duplex-apartment at San Diego Street, Sampaloc, Manila, and owned by
the spouses Filomeno and Socorro Tabligan.

The duplex-apartment house was built for the spouses by private respondent Candido Ramos, a duly
licensed architect and building contractor, at a total cost of P32,927.00. The spouses paid private
respondent the sum of P7,139.00 only. Hence, the latter used his own money, P25,788.50 in all, to finish
the construction of the duplex-apartment. LibLex
In dec 1966 and feb 1967 spouses Tabligan obtained from Philippine Savings bank 3 loans in the total
amount of 35,000 to complete the construction of the duplex apartment. To secure the payment of the
loans, the spouses executed 3 PNs and 3 Deeds of REM over the property.

spouses later failed to pay their monthly amortizations so PSB foreclosed on the mortgage and was the
highest bidder at the public auction.

Lantin also filed an action against spouses to collect on unpaid cost of the construction and later
succeeded in OBTAINING A WRIT OF PREL ATTACHMENT over the property- later adverse claim
annotated at the back of the TCT. Trial court ruling: in favor of Architect but writ of exec unsatisfied

Architect wrote letter to PSB for the delivery to him of his pro-rata share over the property, but PSB refused
to pay.

Issue: whether or not the private respondent is entitled to claim a pro-rata share in the value of the property
in question.|||

Held:
Concurrence of credits occurs when the same specific property of the debtor or all of his property is
subjected to the claims of several creditors. The concurrence of credits raises no questions of consequence
were the value of the property or the value of all assets of the debtor is sufficient to pay in fall all the
creditors. However, it becomes material when said assets are insufficient for then some creditors of
necessity will not be paid or some creditors will not obtain the full satisfaction of their claims. In this
situation, the question of preference will then arise, that is to say who of the creditors will be paid the all of
the others|||

Under the system established by Article 2249 of the civil Code of the Philippines, only taxes and
assessments upon immovable property enjoy absolute preference. All the remaining specified classes of
preferred creditors under Article 2242 enjoy no priority among themselves. Their credits shall be satisfied
pro-rata, i.e., in proportion to the amount of the respective credits.|||

Under the De Barreto decision, the full application of Articles 2242 and 2249 demands that there must first
be some proceeding where the class of all the preferred creditors may be bindingly adjudicated, such as
 insolvency, the settlement of a decedent's estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.|||

In the case at bar, although the lower court found that "there were no known creditors other than the
plaintiff and the defendant herein," this cannot be conclusive. It will not bar other creditors in the event they
show up and present their claims State petitioner bank, claiming that they also have preferred liens against
the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the bank
which is supposed to be indefeasible would remain constantly unstable and questionable. Such could not
have been the intention of Article 2243 of the Civil Code although it considers claims and credits under
Article 2242 as statutory liens. Neither does the De Barreto case sanction such instability. In fact, an
annotation, as suggested above, would insure to the benefit of the public, particularly those who may
subsequently wish to buy the property in question or who have a business transaction in connection
therewith. It would facilitate the enforcement of a legal statutory right which cannot be barred by laches

52. DBP vs NLRC Facts: Philippine Smelters Corporation (PSC), a corporation registered under Philippine law, obtained a
loan in 1983 from the Development Bank of the Philippines (DBP), a government-owned financial institution
created and operated in accordance with Executive Order No. 81, to finance its iron smelting and steel
manufacturing business. To secure said loan, PSC mortgaged to DBP real properties with all the buildings
and improvements thereon and chattels, with its president, Jose T. Marcelo Jr. as co-obligor. By virtue of
the said loan agreement, DBP became the majority stockholder of PSC, with stock holdings in the amount
of Php31,000,000 of the total Php80,226,000 subscribed and paid up capital stock.Subsequently, it took
over the management of PSC. When PSC failed to pay its obligations with DBP, which amounted to
Php75,752,445.83 as of March 31, 1986, DBP foreclosed and acquired the mortgaged real properties and
chattels of PSC in the auction sale held on February 25, 1987 and March 4, 1987. PSC’s employees filed a
petition against herein petitioner for the unpaid wages and other benefits to which the labor arbiter ordered
DBP to pay.

Issue: Whether or not DBP, as foreclosing creditor can be held liable for the unpaid wages, 13th moth pay,
incentive leave pay, and separation pay of the employees of PSC.

Held:
A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first
ahead of other claims which may be established against the debtor. Logically, it becomes material only
when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is
amply able to pay his various creditors, if full, how can the necessity exist to determine which of his
creditors shall be paid first or whether they shall be paid out of the proceeds of the sale of the debtor’s
specific property? Indubitably, the preferential right of credit attains significance only after the properties of
 the debtor have been inventoried and liquidated, and the claims held by his various creditors have been
established.

A distinction should be made between a preference of credit and a lien. A preference applies only to claims
which do not attach to specific properties. A lien creates a charge on a particular property. The right of first
preference as regards unpaid wages recognized by article 110 does not constitute a lien on the property of
the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in
application. It is a method adopted to determine and specify the order in which credits should be paid in the
final distribution of the proceeds of the insolvent’s assets. It is a right to a preference in the discharge of
funds of the judgement debtor.
Article 110 of the labor code does not purport to create a lien in favor of workers or on employees for
unpaid wages either upon all of the properties or upon any particular property owned b their employer.
Claims for unpaid wages do not therefore fall within the category of specially preferred claims established
under articles 2241 and 2242 of the civil code, except to the extent that such claims for unpaid wages are
already covered by article 2241 number 6; claims for laborer’s wages, on the goods manufactured or the
work done; or by article 2242 number 3; claims of laborers and other workers engaged in the construction,
reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other works. To
the extent that claims for unpaid wages fall outside the scope of article 2241, number 6 and article 2242
number 3, they would come within the ambit of the category of ordinary preferred credits under article 2244.

53. AC Ransom vs NLRC Facts:

Respondent A. C. Ransom (Philippines) Corporation (RANSOM, for short) was established in 1933 by
Maximo C. Hernandez, Sr. It was a "family" corporation, the stockholders of which were/are members of
the Hernandez family.

2. On June 6, 1961, employees of RANSOM, most of them being members of petitioner Labor UNION,
went on strike and established a picket line which, however, was lifted on June 21st with most of the
strikers returning and being allowed to resume their work by RANSOM. Twenty-two (22) strikers were
refused reinstatement by the Company.

3. During 1969, the same Hernandez family organized another corporation, Rosario Industrial Corporation
(ROSARIO, for short) which also engaged, in the RANSOM Compound, in the business of manufacture of
ink and products associated with ink.

RANSOM filed an application for clearance to close or cease operations effective which was granted by the
Ministry of Labor and Employment
Back wages of the 22 strikers were subsequently computed at P164,984.00, probably in early 1974. The
exact date is not reflected in the record.

Issue: whether the heirs the late Maximo C. Hernandez must be the preferential creditors since they paid
from their own personal funds the balance of the amount owing by RANSOM to Comtrust.

Held:

"ART. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation
of an employer's business, his workers shall enjoy first preference as regards wages due them
for services rendered during the period prior to the bankruptcy or liquidation, any provision of law
to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may
establish any claim to a share in the assets of the employer."

"Section 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the
employees before the declaration of bankruptcy or judicial liquidation of the employer's business
shall be given first preference and shall be paid in full before other creditors may establish any
claim to a share in the assets of the employer." 13

The decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to cease operations
and terminate employment granted by the Secretary of Labor was made effective on May 1, 1973. The
right of the employees concerned to backwages awarded them, therefore, had already vested at the time
and even before clearance was granted. Note should also be taken of the fact that the clearance was
without prejudice to the right of subject employees to seek redress of grievances under existing laws and
decrees.

The worker preference applies even if the employer's properties are encumbered by means of a mortgage
contract, as in this case. So that, when machinery and equipment of RANSOM were sold to Revelations
Manufacturing Corporation for P2M in 1975, the right of the 22 laborers to be paid from the proceeds
should have been recognized, even though it is claimed that those proceeds were turned over to the
Commercial Bank and Trust Company (Comtrust) in payment of RANSOM obligations, since the workers'
preference is over and above the claim of other creditors.

The contention, therefore, of the heirs of the late Maximo C. Hernandez, Sr. that since they paid from their
own personal funds the balance of the amount owing by RANSOM to Comtrust they are the "preferential
 creditors" of RANSOM, is clearly without merit. Workers are to be paid in full before other creditors may
establish any claim to a share in the assets of the employer. LibLex

". . . even if the employer's properties are encumbered by means of a mortgage

contract, still the workers' wages which enjoy first preference in case of bankruptcy
or liquidation are duly protected by an automatic first lien over and above all other
earlier encumbrances on the said properties. Otherwise, workers' wages may be
imperilled by foreclosure of mortgages, and as a consequence, the aforecited
provision of the New Labor Code would be rendered meaningless." 14

54. PNB vs Cruz The focus of the instant petition for certiorari is the application of Article 110 of the Labor Code. The said
article provides that workers shall enjoy first preference with regard to wages due them in cases of
bankruptcy or liquidation of an employer's business.
Facts:
l AMEX laid off 70% of its employees because of business reverses
l 30% retained employees were not paid of their wages from 1980-1982 when AMEX completely
ceased operations and entered into an opearating agreement with T.M. San Andres Dev Corp for
leasing of equipment and machineries of AMEX
l Unpaid employees file a complaint wth the Labor Arbiter, ordered AMEX to pay the total amout of
more than 200k
l Necessary arrangement was made between respondents- AMEX, T.M. San Andres Dev Corp and
PNB; if AMEX cannot pay, will pay thru the proceeds of the machineries and equipement operated by
T.M. Amd thru lease of the same from PNB
l AMEX did not appeal the decision but PNB, as mortgagee-creditor of AMEX file an appeal with
NLRC because workers’ lien covers unpaid wages only and not the termination or severence pay
which the latter also claims they are entitled to
l NLRC denied appeal of PNB

Petitioner Grounds:
1. Art 110 of the Labor Code must be read in relation to Art 2241, 2242, 2243, 2244, and 2255 of Civil
Code concerning the classificationm concurrence and preference of credits?
2. Should apply on the workers’ unpaid wages and not included termination or severence pay cited in Sec
7, Rule 1, Book VI of Rules and Regulations of Labor Code, Art 283 of the Labor Code which states that he
separation from work of an employees for a just cause does not entitle him to termination pay.
ISSUE:
1. WON Art 110 should apply and workers’ lien should take precedence over any other claim?
2. WON even if workers’ lien apply to the instant case, the same should only cover the unpaid wages
excluding termination or severnce pay?

SC Ruling:

Petition is dismissed and affirmed decision of NLRC

For Issue Number 1:

l Petitioner barred from claiming that the workers’ lien applies only to the products of their labor and
not to the other properties of the employer which are encumbered by mortgage contracts or otherwise
due to failure of petitioner to question the same on appeal
l Art. 110. Worker preference in case of bankruptcy. In the event of bankcruptcy or liquidation of an
employer's business - his workers shall enjoy first preference as regards their unpaid wages and other
monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and
monetary claims, shall be paid in full before claims of the government and other creditors may be paid.
l In regards to Art 110, phrase “any provision of law to the contrary” indicates that such preference
shall prevail despite the order set forth in Arts 2241 to 2245 of the Civil Code because no exceptions
were provided under Art 110 so none shall be considered
l Labor Code was signed into law after Civil code took effect; when two statutes of different dates and
of contrary tenor are of theoretical application to a particular case the statute od later date must prevail
being a later expression of legislative will
l Reliance of petitioner on Republic v. Peralta is without basis; case involved tax claims of the State
which is of highest importance of the sovereign; Art 110 as amended, unpaid wages and monetary
claims of workers should be paid in full before the claims of the government and other creditors
l Art 110 of the Labor Code shall prevail because the purpose by which it was intended is for the
protection of the working class
l Indeed Article 110 of the Labor Code, as amended, aforecited, now provides that the workers'
preference covers not only unpaid wages but also other monetary claims.

For Issue Number 2:

l AMEX failed to convince Court that the financial reverses were indeed serious
 l “wages” shouls also include all benefits under CBA like severence pay, educ allowance, accrued vac
leave earned but not enjoyed, as well as compensation awards and unpaid salaries for services
rendered
l Termination pay forms part of the money benefits accruing to wprkers by reason of their having
previously rendered services

55. DBP vs Santos This petition calls for the interpretation of Article 110 of the Labor Code which gives the workers
preferences as regards wages in case of liquidation or bankruptcy of an employer's business.
FACTS:
On November 29,1984, in NLRC-NCR Case No. 2517-84 entitled "Philippine Association of Free Labor
Unions (PAFLU-RMC Chapter) and its Members v. Riverside Mills Corporation, et al.", Labor Arbiter
Manuel Caday awarded separation pay, wage and/or living allowance increases and 13th month pay to the
individual complainants who comprise some of the respondents in this case.
On March 18, 1985, Labor Arbiter Teodorico Dogelio likewise awarded separation pay, vacation and sick
leave pay and unpaid increases in the basic wage and allowances to the other private respondents
On March 29, 1985, after the judgment had become final and executory, Dogelio issued a writ of execution
directing NLRC Deputy Sheriff Juanita Atienza to collect the total sum of Eighty Five Million Nine Hundred
Sixty One thousand Fifty-Eight & 70/100 Pesos (P85,961,058.70). The Deputy Sheriff, however, failed to
collect the amount so he levied upon personal and real properties of RMC.
On April 25, 1985, a notice of levy on execution of certain real properties was annotated on the certificate
of title filed with the Register of Deeds
Meanwhile in the other development which led to this case, petitioner DBP obtained a writ of possession of
all the properties of RMC after having extra-judicially foreclosed the same at public auction earlier in 1983.
DBP subsequently leased the said properties to Egret Trading and Manufacturing Corporation, Rosario
Textile Mills and General Textile Mills. The writ of possession prevented the scheduled auction sale of the
RMC properties which were levied upon by the private respondents. As a result, on June 19, 1985, the
latter filed an incidental petition with the NLRC to declare their preference over the levied properties.
On October 31, 1985, Dogelio issued an order recognizing and declaring the respondents' first preference
as regards wages and other benefits due them over and above all earlier encumbrances on the aforesaid
properties/assets of said company, particulary those being asserted by respondent Development Bank of
the Philippines.'
Meanwhile, another set of complainants (who are also named as respondents herein) filed, on April 7,
1986, a complaint for separation pay, underpayment, damages, etc.
On March 31, 1987, public respondent Santos rendered the questioned decision, the dispositive portion of
which reads:
WHEREFORE, it is hereby declared that all the complainants in the above- entitled cases, as former
employees of respondent Riverside Mills Corporation, enjoy first preference as regards separation pay,
unpaid wages and other benefits due them over and above all earlier encumbrances on all of the
assets/properties of RMC specifically those being asserted by respondent DBP.
ISSUE:
w/n public respondent misinterpreted Article 110 of the Labor Code and Section 10, Rule VIII, Book III of
the Revised Rules and Regulations Implementing the Labor Code in that the said respondent upheld the
existence of the worker's preference over and above earlier encumbrances on the properties of RMC
despite the absence of any bankruptcy or liquidation proceeding instituted against the latter.
HELD:
No
Article 110 of the Labor Code and Section 10, Rule VIII, Book III of the Revised Rules and Regulations
Implementing the Labor Code provide:
Article 110. Worker preference in case of bankruptcy in the event of bankruptcy or liquidation of an
employer's business, his workers shall enjoy first preference as regards wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
Article 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the employee before the
declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference
and shall be paid in full before other creditors may establish any claim to the assets of the employer.
It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be present
before the worker's preference may be enforced. Thus, Article 110 of the Labor Code and its implementing
rule cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a
liquidation order. Following the rule in Republic v. Peralta, supra, to hold that Article 110 is also applicable
in extra-judicial proceedings would be putting the worker in a better position than the State which could only
assert its own prior preference in case of a judicial proceeding. Therefore, as stated earlier, Article 110
must not be viewed in isolation and must always be reckoned with the provisions of the Civil Code.
Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before the
concurrence and preference of credits may be applied was explained by this Court in the case of Philippine
Savings Bank v. Lantin (124 SCRA 476 [1983] ). We said:
The proceedings in the court below do not partake of the nature of the insolvency proceedings or
settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid cost of the
construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan
spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem which are
binding against the whole world. All persons having interest in the subject matter involved, whether they
were notified or not, are equally bound. Consequently, a liquidation of similar import or 'other equivalent
general liquidation must also necessarily be a proceeding in rem so that all interested persons whether
known to the parties or not may be bound by such proceeding.
In the case at bar, although the lower court found that 'there were no known creditors other than the plaintiff
 and the defendant herein', this can not be conclusive. It will not bar other creditors in the event they show
up and present their claim against the petitioner bank, claiming that they also have preferred liens against
the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the bank
which is supposed to be indefeasible would remain constantly unstable and questionable. Such could not
have been the intention of Article 2243 of the Civil Code although it considers claims and credits under
Article 2242 as statutory liens. Neither does the De Barreto case ... .
The claims of all creditors whether preferred or non-preferred, the identification of the preferred ones and
the totality of the employer's asset should be brought into the picture, There can then be an authoritative,
fair, and binding adjudication instead of the piece meal settlement which would result from the questioned
decision in this case.

56. Ong vs CA The jurisdiction of a regular court over a bank undergoing liquidation is the issue in this petition for review
of the decision of the Court of Appeals
FACTS:
On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender
of TCT Nos. 13769 and 13770 pursuant to the provisions of Secs. 63(b) and 107 of P.D. 1529 2 against
Rural Bank of Olongapo, Inc. (RBO), represented by its liquidator Guillermo G. Reyes, Jr. and deputy
liquidator Abel Allanigue. The RBO was the owner in fee simple of two parcels of land including the
improvements thereon situated in Tagaytay City
The RBO was the owner in fee simple of two parcels of land including the improvements thereon situated in
Tagaytay City
Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29, 1983 to
guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing liquidation proceedings
of its money market obligations to petitioner
Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter proceeded to
effect the extrajudicial foreclosure of said mortgages, such that issued a Certificate of Sale in favor of
petitioner . . . . issued a Certificate of Sale in favor of petitioner . . . .
Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has executed
an Affidavit of Consolidation of Ownership which, to date, has not been submitted to the Registry of Deeds
of Tagaytay City, in view of the fact that possession of the aforesaid titles or owner's duplicate certificates
of title remains with the RBO.
To date, petitioner has not been able to effect the registration of said parcels of land in his name in view of
the persistent refusal of respondents, despite demand, to surrender RBO's copies of its owner's certificates
of title for the parcels of land covered by TCT Nos. 13769 and 13770
Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier
sought a similar relief from Br. 18 of the Regional Trial Court of Tagaytay City, which case was dismissed
with finality on appeal before the Court of Appeals.
On 7 May 1991 the trial court denied the motion to dismiss because it found that the causes of action in the
previous and present cases were different although it was silent on the jurisdictional issue.
prompting the bank to elevate the case to respondent Court of Appeals by way of a petition for certiorari
and prohibition. On 12 February 1992 respondent court rendered a decision annulling the challenged order
of the court
ISSUE:
w/n that the liquidation court has no jurisdiction over subject parcels of land since they are no longer assets
of respondent RBO.
HELD:
The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank
and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of
such institution and to implement the liquidation plan approved by the Monetary Board. Hence, all claims
against the insolvent bank should be filed in the liquidation proceeding and it is not necessary that a claim
be initially disputed in a court or agency before it is filed with the liquidation court.
Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides
If the Monetary Board shall determine and confirm within (sixty days) that the bank . . . is insolvent or
cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public
interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan.
The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance 7 reciting the
proceedings which have been taken and praying the assistance of the court in the liquidation of such
institution. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against
the bank . . . . and enforce individual liabilities of the stockholders and do all that is necessary to preserve
the assets of such institution and to implement the liquidation plan approved by the Monetary Board
(emphasis supplied).
Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc., 8 this Court ruled
The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the
Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken with
judicial intervention means that, as far as lawful and practicable, all claims against the insolvent bank
should be filed in the liquidation proceeding (emphasis supplied).
We explained therein the rationale behind the provision, i.e., the judicial liquidation is intended to prevent
multiplicity of actions against the insolvent bank.
The phrase "(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed claims
against the bank" appears to have misled petitioner. He argues that to the best of his personal knowledge
there is no pending action filed before any court or agency which contests his right over subject properties.
Thus his petition before the Regional Trial Court of Quezon City cannot be considered a "disputed claim" as
contemplated by law.
It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation
court. As may be gleaned in the Hernandez case, the term "disputed claim" in the provision simply
connotes that
 [i]n the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be
required and legal issues would have to be resolved. Hence, it would be necessary in justice to all
concerned that a Court of First Instance (now Regional Trial Court) . . . assist and supervise the liquidation
and . . . . act as umpire or arbitrator in the allowance and disallowance of claims.

57. Banco Filipino vs NLRC FACTS:

After BANCO FILIPINO SAVINGS AND MORTGAGE BANK was placed under receivership, and later
ordered liquidated by the Monetary Board of the Central Bank, FORTUNATO M. DIZON. Jr., who was then
holding the position of Executive Vice President and Chief Operating Officer of the bank, received a letter
from the Central Bank appointed liquidator, MS. CARLOTA P. VALENZUELA, informing him that all
management authority in the bank had been assumed by the Central Bank appointed liquidators and that
his employment is being terminated.
Mr. Dizon filed with the liquidator a request for the payment to him of the cash equivalent of his vacation
and sick leave credits and unexpended/unused reimbursable allowance. His claims were not paid by the
liquidator upon counsel's advice that Dizon's claim should be treated as a claim of a creditor and should
therefore be processed pursuant to the liquidation plan as approved by the Monetary Board. Subsequent
demands for payment having been denied, Dizon filed on March 31, 1986 a complaint with the labor arbiter
against the bank for recovery of unpaid salary, the cash equivalent of his accumulated vacation and sick
leaves, termination pay under Article 283 of the Labor Code and moral damages and attorney's fees.
Representing the bank, the liquidator moved for the dismissal of the complaint refuting the legal and factual
bases thereof as well as the jurisdiction of the labor arbiter to entertain Dizon's money claims because such
pertains to the Regional Trial Court of Makati, Branch 146, acting as the liquidation court.
On November 14, 1986, the labor arbiter upheld her jurisdiction and promulgated a decision in favor of
Dizon but withheld his demand for payment of moral damages and attorney's fees.
ISSUE:
"[a]ll disputed claims against banks under liquidation pertain to the exclusive jurisdiction of the liquidation
court (pursuant to section 29 of the Central Bank Act) and may not be adjudicated by the Labor Arbiters
and the NLRC under Article 217 of the Labor Code,"
liquidator points out that "[t]he assailed decisions directing the payment of the claims outside of the
liquidation process amount to an undue preference in favor of a particular creditor."

HELD:
1
We are of the opinion that it is the NLRC which has jurisdiction over Dizon's money claims. Section 29 of
the Central Bank Act (Republic Act No. 265) before its amendment by Executive Order No. 289
(September, 1987,) reads, to wit:
Sec. 29. Proceedings upon insolvency. — ... If the Monetary Board shall determine and confirm within the
said period that the bank or non-bank financial intermediary performing quasi-banking functions is insolvent
or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the
public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation
plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance reciting
the proceedings which have been taken and praying the assistance of the court in the liquidation of such
institution. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against
the bank or non-bank financial intermediary performing quasibanking function and enforce individual
liabilities of the stockholders. and do all that is necessary to preserve the assets of such institution and to
implement the liquidation plan approved by the Monetary Board. ... The liquidator shall with all convenient
speed, convert the assets of the banking institution or non-bank financial intermediary performing quasi-
banking functions to money or sell, assign or otherwise dispose of the same to creditors and other parties
for the purpose of paying the debts of such institution and he may, in the name of the bank or non-bank
financial intermediary performing quasi-banking functions, institute such actions as may be necessary in
the appropriate court to collect and recover accounts and assets of such institution. [Emphasis supplied]
There is nothing in Section 29 which suggests that the jurisdiction of the liquidation court to adjudicate
claims against the insolvent bank is exclusive. On the other hand, Article 217 of the Labor Code explicitly
provides that labor arbiters have original and exclusive jurisdiction, over money claims of an employee
against his employer, thus:
ART. 217. Jurisdiction of the Labor Arbiter and the Commission. (a) The Labor Arbiter shall have the
original and exclusive jurisdiction to hear and decide ... the following cases involving all workers,...:
xxx xxx xxx
3. All money claims of workers, including those based on non-payment or underpayment of wages,
overtime compensation, separation pay and other benefits provided by law or appropriate agreement,
except claims for employee's compensation, social security, medicare and maternity benefits. [Emphasis
supplied]
2
We do not find the bank's foray on Dizon's money claims meritorious.
Article 2244 (14) (b) [of the Civil Code] does not apply to judgments for the payment of the deposits in an
insolvent savings bank which were obtained after the declaration of insolvency." Moreover, as in the other
cited case of Central Bank v. Court of Appeals, supra, the case involves recovery of deposits.
Under normal circumstances the decision of the NLRC is immediately executory (See Article 223, Labor
Code). The bank's liquidator, however, resists immediate payment to Dizon of his adjudicated money
claims on the ground that it would amount to undue preference of credit. Dizon countered that under Article
110 of the Labor Code unpaid wages of laborers are indeed preferred. Moreover, Dizon reminded, this
Court had temporarily enjoined the liquidation of the bank and, therefore, there is no liquidation proceeding
where his claims may be paid.
Article 110 of the Labor Code before its amendment by Republic Act No. 6715 (March 2, 1989) reads as
follows:
ART. 110. Worker Preference in case of Bankruptcy — In the event of bankruptcy or liquidation of an
employer's business, his workers shall enjoy first preference as regards wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
Not being an absolutely preferred credit, as taxes are under Articles 2241 (1) and 2242 (1), Dizon's claims
cannot be paid ahead of other credits and outside of the liquidation proceeding because the "free property"
or the property left after the creditors mentioned in Articles 2241 and 2242 are paid has not yet been
determined

It is the banks interpretation of the law that when an institution is closed due to serious business losses or
financial reverses its workers are not entitled to separation pay. We disagree. We instead quote with
approval the opinion of respondent Labor Arbiter, thus:
Article 283 (Art. 282) of the Labor Code enumerated the just causes for an employer to terminate an
employee. If an employee is dismissed for just cause, he is not entitled to termination pay. However, in
Article 284 (Art. 283), in case of closure of establishment, the employee is always given termination pay.
The reason for the closure is taken into consideration only to determine whether to give one month or one-
half month pay for every year of service. This provision is based on social justice and equity... (p. 41, Rollo)
Such was Our ruling in International Hardware, Inc. v. NLRC, G.R. No. 80770, August 10, 1989. As regards
the commutation to cash of Dizon's accumulated vacation and sick leaves, both the Labor Arbiter and the
NLRC found that this was authorized by the Collective Bargaining Agreement then existing before the
bank's closure and which CBA the liquidators manifested to honor.