3rd Exam Case Rulings

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sem 1
DEVELOPMENT BANK OF THE PHILIPPINES VS. COURT OF and an obligation is not secured by a mortgage unless it comes fairly within
APPEALS, CELEBRADA MANGUBAT AND ABNER MANGUBAT the terms of the mortgage. In this case, the mortgage contract provides
that it secures notes and other evidences of indebtedness.
Short facts:
A land was mortgaged to DBP to secure a loan but it was later found that SPS CUYCO VS CUYCO
the land was timberland. Annulment of the sale was later sought.
1. As a general rule, a mortgage liability is usually limited to the amount
RULING: mentioned in the contract. However, the amounts named as consideration
in a contract of mortgage do not limit the amount for which the mortgage
In its legal context, the contract of loan executed between the parties is may stand as security if from the four corners of the instrument the intent
entirely different and discrete from the deed of sale they entered into. to secure future and other indebtedness can be gathered. This stipulation is
valid and binding between the parties and is known in American
THE ANNULMENT OF THE SALE WILL NOT HAVE AN EFFECT ON Jurisprudence as the "blanket mortgage clause," also known as a "dragnet
THE EXISTENCE AND DEMANDABILITY OF THE LOAN. One who has clause."
received money as a loan is bound to pay to the creditor an equal
amount of the same kind and quality. 23 2. A "dragnet clause" operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their having to
The fact that the annulment of the sale will also result in the invalidity of execute additional security documents, thereby saving time, travel, loan
the mortgage does not have an effect on the validity and efficacy of the closing costs, costs of extra legal services, recording fees, et cetera.33
principal obligation, for even an obligation that is unsupported by any
security of the debtor may also be enforced by means of an ordinary 3. While a real estate mortgage may exceptionally secure future loans or
action. advancements, these future debts must be sufficiently described in the
mortgage contract. An obligation is not secured by a mortgage unless it
Where a mortgage is not valid, as where it is executed by one who is not comes fairly within the terms of the mortgage contract.
the owner of the property, or the consideration of the contract is
simulated or false, the principal obligation which it guarantees is not 4. In order to constitute a legal mortgage, it must be executed in a public
thereby rendered null and void. That obligation matures and becomes document, besides being recorded. A PROVISION IN A PRIVATE
demandable in accordance with the stipulations pertaining to it. DOCUMENT, ALTHOUGH DENOMINATING THE AGREEMENT AS ONE
OF MORTGAGE, CANNOT BE CONSIDERED AS IT IS NOT
UNDER THE FOREGOING CIRCUMSTANCES, WHAT IS LOST IS SUSCEPTIBLE OF INSCRIPTION IN THE PROPERTY REGISTRY. A
ONLY THE RIGHT TO FORECLOSE THE MORTGAGE AS A SPECIAL mortgage in legal form is not constituted by a private document, even if
REMEDY FOR SATISFYING OR SETTLING THE INDEBTEDNESS such mortgage be accompanied with delivery of possession of the mortgage
WHICH IS THE PRINCIPAL OBLIGATION. In case of nullity, the property.
mortgage deed remains as evidence or proof of a personal obligation of a) Besides, by express provisions of Section 127 of Act No. 496, a
the debtor, and the amount due to the creditor may be enforced in an mortgage affecting land, whether registered under said Act or
ordinary personal action. not registered at all, is not deemed to be sufficient in law nor
may it be effective to encumber or bind the land unless made
substantially in the form therein prescribed. It is required,
SPS VIOLA VS EQUITABLE among other things, that the document be signed by the
mortgagor executing the same, in the presence of two
Short facts: witnesses, and acknowledged as his free act and deed before a
Sps viola obtained a loan which was secured by a mortgage. notary public. A mortgage constituted by means of a private
document obviously does not comply with such legal
In the loan agreement - loan would bear interest at the "prevailing PCI requirements.
Bank lending rate" per annum on the principal obligation and a "penalty
fee of three percent (3%) per month on the outstanding amount." What the parties could have done in order to bind the realty for the
additional loans was to execute a new real estate mortgage or to amend the
In the mortgage agreement it was stipulated that it shall be for the old mortgage conformably with the form prescribed by the law. Failing to do
purpose of securing the payment thereof, including the interest so, the realty cannot be bound by such additional loans, which may be
and bank charges accruing thereon, the costs of collecting the recovered by the respondents in an ordinary action for collection of sums of
same and of taking possession of and keeping the mortgaged money.
propert[ies], and all other expenses to which the Mortgagee may be
put. STATE IVESTMENT VS CA
An unrecorded sale is preferred in this case for teh reason that if the original
The mortgage was later foreclosed and sps viola wanted to redeem the owner Sol;id had parted with ownership of the thing sold, he would no
property but the price for redeeming included the penalty fee. Should the longer have free disposal of it and would no longer be able to mortgage it.
penalty fee be included? NO Registration of teh mortgage is not important as it is understood to be
without prejudice to the rights of 3rd persons.
RULING:
The provision of the mortgage contract does not specifically mention When the mortgagee has knowledge of a defect or lack of title on the part
that, aside from the principal loan obligation, it also secures the of the vendore or is aware that there are sufficient facts to induce a
payment of "a penalty fee of three percent (3%) per month of reasonably prudent man to inquire further.
the outstanding amount to be computed from the day deficiency
is incurred up to the date of full payment thereon," which penalty General Rule: When there is nothing in the Certificate of Title to indicate
as the above-quoted portion of the Credit Line Agreement expressly any vice or cloud in the ownership of the property or any encumbrance
stipulates. thereon, the purchaser is not required to explore further than what the
Torrens Title upon its face indicates in quest for any legal defect or inchoate
SINCE AN ACTION TO FORECLOSE "MUST BE LIMITED TO THE right that may subsequently defeat his right thereto.
AMOUNT MENTIONED IN THE MORTGAGE" AND THE PENALTY
FEE OF 3% PER MONTH OF THE OUTSTANDING OBLIGATION IS Here, when State entered into a mortgage with Solid, nothing was indicated
NOT MENTIONED IN THE MORTGAGE, IT MUST BE EXCLUDED in the title.
FROM THE COMPUTATION OF THE AMOUNT SECURED BY THE Exception: When the purchaser or mortgagee has knowledge of the defect
MORTGAGE. or lack of title in the vendor or he was aware of sufficient facts that would
induce a reasonably prudent man to inquire into the status of the property
Penalty Fee Bank Charges in litigation.
is likened to a compensation for is normally understood to refer to
damages in case of breach of the compensation for services. State investment was well aware that it was dealing with SOLID, a business
obligation. Being penal in nature, entity engaged in the business of selling subdivision lots. In fact, at the time
such fee must be specific and fixed the lot was mortgaged, respondent State Investment House Inc., had been
by the contracting parties, unlike in aware of the lot's location and that the said lot formed part of Capital
the present case which slaps a 3% Park/Homes Subdivision.
penalty fee per month of the
State investment, being a financing institution, it cannot simply rely on an
outstanding amount of the
examination of a Torrens certificate to determine what the subject property
obligation.
looks like as its condition is not apparent in the document. The land might
be in a depressed area. There might be squatters on it. It might be easily
Moreover, the "penalty fee" does not belong to the species of obligation
inundated. It might be an interior lot, without convenient access.
enumerated in the mortgage contract, namely: "loans, credit and other
banking facilities obtained x x x from the Mortgagee, . . . including the State Investment therefore cannot be considered a mortgagee in good
interest and bank charges, . . . the costs of collecting the same and of faith.
taking possession of and keeping the mortgaged properties, and all
other expenses to which the Mortgagee may be put in connection with or It is a settled rule that a purchaser or mortgagee cannot close its eyes to
as an incident to this mortgage . . ." facts which should put a reasonable man upon his guard, and then claim
that he acted in good faith under the belief that there was no defect in the
JURISPRUDENCE: title of the vendor or mortgagor. Petitioner's constructive knowledge of the
Indeed, a mortgage must sufficiently describe the debt sought to be defect in the title of the subject property, or lack of such knowledge due to
secured, which description must not be such as to mislead or deceive,
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its negligence, takes the place of registration of the rights of

respondents-spouses. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their
SPOUSES FLANCIA VS CA expiration.28 Verily, the redemption price comprises not only the total
amount due under the mortgage deed, but also with interest at the rate
SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO THE specified in the mortgage, and all the foreclosure expenses incurred by the
CONTRACT TO SELL? mortgagee bank.
The ruling in State Investment House, Inc. v. Court of Appeals to the CANLAS VS CA
effect that an unregistered sale is preferred over a registered mortgage
over the same property. The citation is misplaced. The degree of diligence required of banks is more than that of a good father
of a family;12 in keeping with their responsibility to exercise the necessary
This Court in that case explained the rationale behind the rule: care and prudence in dealing even on a registered or titled property. The
business of a bank is affected with public interest, holding in trust the
The unrecorded sale between respondents-spouses and SOLID is money of the depositors, which bank deposits the bank should guard
preferred for the reason that if the original owner xxx had parted with his against loss due to negligence or bad faith, by reason of which the bank
ownership of the thing sold then he no longer had ownership and free would be denied the protective mantle of the land registration law,
disposal of that thing as to be able to mortgage it again. accorded only to purchasers or mortgagees for value and in good faith.
State Investment House is completely inapplicable to the case at bar. A In the case under consideration, from the evidence on hand it can be
contract of sale and a contract to sell are worlds apart. gleaned unerringly that respondent bank did not observe the requisite
diligence in ascertaining or verifying the real identity of the couple who
STATE INVESTMENT SPOUSES FLANCIA introduced themselves as the spouses Osmundo Canlas and Angelina
Contract of sale (it was a CTS but Contract to sell. Thus oakland Canlas.
it was later fully paid) Thus it was (seller) still had teh right to
already owned by sps oreta mortgage despite being in a Under the doctrine of last clear chance, which is applicable here, the
contract with sps flancia respondent bank must suffer the resulting loss. In essence, the doctrine of
The unregistered sale was Registered mortgae was deemed last clear chance is to the effect that where both parties are negligent but
deemed superior over the superior over the CTS the negligent act of one is appreciably later in point of time than that of the
registered mortgage other, or where it is impossible to determine whose fault or negligence
Not a mortgagee in good faith as Mortgagee in GF brought about the occurrence of the incident, the one who had the last clear
it had knowledge and was aware. opportunity to avoid the impending harm but failed to do so, is chargeable
The mortgagee is a financial Mortgagee is a natural person with the consequences arising therefrom. Stated differently, the rule is that
institution the antecedent negligence of a person does not preclude recovery of
damages caused by the supervening negligence of the latter, who had the
RELIANCE ON WHAT APPEARS IN THE TITLE last fair chance to prevent the impending harm by the exercise of due
diligence.
Just as an innocent purchaser for value may rightfully rely on what
appears in the certificate of title, a mortgagee has the right to rely on Settled is the rule that a contract of mortgage must be constituted only by
what appears in the title presented to him. In the absence of anything to the absolute owner on the property mortgaged;26 a mortgage, constituted
arouse suspicion, he is under no obligation to look beyond the certificate by an impostor is void.
and investigate the title of the mortgagor appearing on the face of the
said certificate. AGRICULTURAL VS YUSAY
PNB VS CORPUZ Registration is a mere ministerial act by which a deed, contract or

instrument is sought to be inscribed in the records of the Office of the
As a rule, the Court would not expect a mortgagee to conduct an Register of Deeds and annotated at the back of the certificate of title
exhaustive investigation of the history of the mortgagor’s title before he covering the land subject of the deed, contract or instrument.
extends a loan.
The registration of a lease or mortgage, or the entry of a memorial of a
BUT PETITIONER PNB IS NOT AN ORDINARY MORTGAGEE; IT IS lease or mortgage on the register, is not a declaration by the state that such
A BANK. an instrument is a valid and subsisting interest in land; it is merely a
declaration that the record of the title appears to be burdened with the
Banks are expected to be more cautious than ordinary lease or mortgage described, according to the priority set forth in the
individuals in dealing with lands, even registered ones, since the certificate.
business of banks is imbued with public interest
The mere fact that a lease or mortgage was registered does not stop any
It is of judicial notice that the standard practice for banks before party to it from setting up that it now has no force or effect
approving a loan is to send a staff to the property offered as collateral
and verify the genuineness of the title to determine the real owner or ROS VS PNB
owners.
There is no doubt that the subject property was acquired during Ros and
PNB was informed of the previous TCTs covering the subject property.5 Aguete’s marriage. Ros and Aguete were married on 16 January 1954,
And the PNB has not categorically contested this finding. It is evident while the subject property was acquired in 1968.
from the faces of those titles that the ownership of the land changed
from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the The husband cannot alienate or encumber any conjugal real property
Palaganases to the Songcuans in less than three months and mortgaged without the consent, express or implied, of the wife. Should the husband do
to PNB within four months of the last transfer. so, then the contract is voidable. Article 173 of the Civil Code allows Aguete
to question Ros’ encumbrance of the subject property. However, the same
The above information in turn should have driven the PNB to look at the article does not guarantee that the courts will declare the annulment of the
deeds of sale involved and would have seen anomalies. Anyone who contract. Annulment will be declared only upon a finding that the wife did
deliberately ignores a significant fact that would create suspicion in an not give her consent. In the present case, we follow the conclusion of the
otherwise reasonable person cannot be considered as an innocent appellate court and rule that Aguete gave her consent to Ros’ encumbrance
mortgagee for value. of the subject property.
CASTILLO VS SECURITY BANK The application for loan shows that the loan would be used exclusively "for
additional working [capital] of buy & sell of garlic & virginia tobacco."23 In
True, banks and other financing institutions, in entering into mortgage her testimony, Aguete confirmed that Ros engaged in such business, but
contracts, are expected to exercise due diligence. The ascertainment of claimed to be unaware whether it prospered. Aguete was also aware of
the status or condition of a property offered to it as security for a loan loans contracted by Ros, but did not know where he "wasted the money."
must be a standard and indispensable part of its operations. Debts contracted by the husband for and in the exercise of the industry or
profession by which he contributes to the support of the family cannot be
In this case, however, no evidence was presented to show that SBC was deemed to be his exclusive and private debts.25
remiss in the exercise of the standard care and prudence required of it or
that it was negligent in accepting the mortgage. If the husband himself is the principal obligor in the contract, i.e., he
directly received the money and services to be used in or for his own
SBC could not likewise befaulted for relying on the presumption of business or his own profession, that contract falls within the term "x x x x
regularity of the notarized SPA when it entered into the subject obligations for the benefit of the conjugal partnership."
mortgage agreement.
Here, no actual benefit may be proved. It is enough that the benefit to the
Notwithstanding Act 3135, juridical persons whose property is being sold family is apparent at the signing of the contract. From the very nature of
pursuant to an extrajudicial foreclosure, shall have the right to redeem the contract of loan or services, the family stands to benefit from the loan
the property in accordance with this provision until, but not after, the facility or services to be rendered to the business or profession of the
registration of the certificate of foreclosure sale with the applicable husband. It is immaterial, if in the end, his business or profession fails or
Register of Deeds which in no case shall be more than three (3) months does not succeed. Simply stated, where the husband contracts obligations
after foreclosure, whichever is earlier.
on behalf of the family business, the law presumes, and rightly so, that Is one which is specifically phrased to subsume all debts of past and future
such obligation will redound to the benefit of the conjugal partnership. origins. Such clauses are "carefully scrutinized and strictly construed."
Mortgages of this character enable the parties to provide continuous
SORIANO VS GALIT 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
What was mortgaged here was a parcel of land however upon default of security on each new transaction.
the loan what was levied upon was the parcel of land plus the
store/house constructed upon it including the bodega. The petitioner A "dragnet clause" operates as a convenience and accommodation to the
sought to nullify the writ of possession because it included the properties borrowers as it makes available additional funds without their having to
not part of the mortgage. execute additional security documents, thereby saving time, travel, loan
closing costs, costs of extra legal services, recording fees, et cetera.
Art 415 enumerates (in a separate enumeration) land and buildigns
separately. This can only mean that a building is by itself, considered an ON LACHES
immovable. Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty
of laches and cannot at this point in time question the foreclosure of the
While it is true that a mortgage of land necessarily includes, in the subject properties. Defendant bank made demands against the plaintiff for
absence of stipulation of the improvements thereon, buildings, still a the payment of plaintiff’s outstanding loans and advances with the
building by itself may be mortgaged apart from the land on which it has defendant as early as July 1997. Plaintiff acknowledged such outstanding
been built. Such mortgage would be still a real estate mortgage for the loans and advances to the defendant bank and committed to liquidate the
building would still be considered immovable property even if dealt with same.
separately and apart from the land.
For failure of the plaintiff to pay its obligations on maturity, defendant bank
In this case, considering that what was sold by virtue of the writ of foreclosed the mortgage on subject properties on January 5, 1988 the
execution issued by the trial court was merely the storehouse and certificate of sale was annotated on March 24, 1988 and there being no
bodega constructed on the parcel of land covered by Transfer Certificate redemption made by the plaintiff, title to said properties were consolidated
of Title No. T-40785, which by themselves are real properties of in the name of defendant in July 1989.
respondents spouses, the same should be regarded as separate and
distinct from the conveyance of the lot on which they stand. PCSO VS NEW DAGUPAN METRO GAS CORPORATION
MENDOZA VS CA
As a general rule, a mortgage liability is usually limited to the amount
A stipulation in the mortgage, extending its scope and effect to mentioned in the contract. However, the amounts named as consideration
after-acquired property is valid and binding where the after-acquired in a contract of mortgage do not limit the amount for which the mortgage
property is in renewal of, or in substitution for, goods on hand when the may stand as security if from the four corners of the instrument the intent
mortgage was executed, or is purchased with the proceeds of the sale of to secure future and other indebtedness can be gathered.
such goods.30 As earlier pointed out, the petitioner did not present any
proof as to when the subject movables were acquired. Alternatively, while a real estate mortgage may exceptionally secure future
loans or advancements, these future debts must be specifically described in
More importantly, respondent bank makes a valid argument for the the mortgage contract. An obligation is not secured by a mortgage unless it
retention of the subject movables. Respondent PNB asserts that those comes fairly within the terms of the mortgage contract.
movables were in fact "immovables by destination" under Art. 415 (5) of
the Civil Code. The stipulation extending the coverage of a mortgage to advances or loans
other than those already obtained or specified in the contract is valid and
It is an established rule that a mortgage constituted on an immovable has been commonly referred to as a "blanket mortgage" or "dragnet"
includes not only the land but also the buildings, machinery and clause.
accessories installed at the time the mortgage was constituted as well as
the buildings, machinery and accessories belonging to the mortgagor, A mortgage that provides for a dragnet clause is in the nature of a
installed after the constitution thereof. continuing guaranty and constitutes an exception to the rule than an action
to foreclose a mortgage must be limited to the amount mentioned in the
PNB VS REYES mortgage contract. Its validity is anchored on Article 2053 of the Civil Code
and is not limited to a single transaction, but contemplates a future course
The real estate mortgage over a conjugal property is void if the of dealing, covering a series of transactions, generally for an indefinite time
non-contracting spouse did not give consent. or until revoked. It is prospective in its operation and is generally intended
to provide security with respect to future transactions within certain limits,
It is not disputed that the Reyes Spouses were married in 1973,31 and contemplates a succession of liabilities, for which, as they accrue, the
before the Family Code took effect. Under the Family Code, their guarantor becomes liable. In other words, a continuing guaranty is one that
property regime is Conjugal Partnership of Gains; thus, Article 124 is the covers all transactions, including those arising in the future, which are
applicable provision regarding the administration of their conjugal within the description or contemplation of the contract of guaranty, until
property. the expiration or termination thereof.30
“Art. 124. The administration and enjoyment of the conjugal partnership In this case, PCSO claims the subject mortgage is a continuing guaranty.
shall belong to both spouses jointly. According to PCSO, the intent was to secure Galang’s ticket purchases
other than those outstanding at the time of the execution of the Deed of
These powers do not include disposition or encumbrance without Undertaking with First Real Estate Mortgage on March 8, 1989 such that it
authority of the court or the written consent of the other spouse. In the can foreclose the subject mortgage for Galang’s non-payment of her ticket
absence of such authority or consent, the disposition or encumbrance purchases in 1992.
shall be void.
Since the subject mortgage in this case is not in the nature of a continuing
However, the transaction shall be construed as a continuing offer on the guaranty and given the automatic termination thereof, PCSO cannot claim
part of the consenting spouse and the third person” that Galang’s ticket purchases in 1992 are also secured. From the time the
amount of P450,000.00 was fully settled, the subject mortgage had already
Any disposition or encumbrance of a conjugal property by one spouse been cancelled such that Galang’s subsequent ticket purchases are
must be consented to by the other; otherwise, it is void. unsecured. Simply put, PCSO had nothing to register, much less, foreclose.
NOTE: The lower courts may have declared the mortgage void, but the Consequently, PCSO’s registration of its non-existent mortgage lien and
principal obligation is not affected. It remains valid. subsequent foreclosure of a mortgage that was no longer extant cannot
defeat New Dagupan’s title over the subject property.
What the lower courts declared void was the real estate mortgage
attached to the conjugal property of the Reyes Spouses. Since the real PRUDENTIAL BANK VS ALVIAR
estate mortgage was an encumbrance attached to a conjugal property
without the consent of the other spouse, it is void and legally inexistent. A "blanket mortgage clause," also known as a "dragnet clause" in American
Although petitioner cannot foreclose the mortgage over the conjugal jurisprudence, is one which is specifically phrased to subsume all debts of
property in question, it can still recover the loan amount from the past or future origins.
conjugal partnership.
Such clauses are "carefully scrutinized and strictly construed."
PRODUCERS BANK VS EXCELSA
A "dragnet clause" operates as a convenience and accommodation to the
What the lower courts declared void was the real estate mortgage borrowers as it makes available additional funds without their having to
attached to the conjugal property of the Reyes Spouses. Since the real execute additional security documents, thereby saving time, travel, loan
estate mortgage was an encumbrance attached to a conjugal property closing costs, costs of extra legal services, recording fees, et cetera. Indeed,
without the consent of the other spouse, it is void and legally inexistent. it has been settled in a long line of decisions that mortgages given to secure
Although petitioner cannot foreclose the mortgage over the conjugal future advancements are valid and legal contracts, and the amounts named
property in question, it can still recover the loan amount from the as consideration in said contracts do not limit the amount for which the
conjugal partnership. mortgage may stand as security if from the four corners of the instrument
the intent to secure future and other indebtedness can be gathered.
Nature of a dragnet clause
A mortgage with a dragnet clause will not secure a note that expresses CHARGED IN PROMISSORY NOTE NO. 0143, AN OBLIGATION
on its face that it is otherwise secured as to its entirety, at least to ALLEGEDLY COVERED BY THE TERMS OF THE CONTRACT.
anything other than a deficiency after exhausting the security specified
therein,45 such deficiency being an indebtedness within the meaning of Neither can the bank use the consummated contract to collect on the rest of
the mortgage, in the absence of a special contract excluding it from the the obligations, which were not included when it earlier instituted the
arrangement. foreclosure proceedings. It cannot be allowed to use the same security to
collect on the other loans. To do so would be akin to foreclosing an already
The parties having conformed to the "blanket mortgage clause" or foreclosed property.
"dragnet clause," it is reasonable to conclude that they also agreed to an
implied understanding that subsequent loans need not be secured by Rather than relying on an expired contract, the bank should have collected
other securities, as the subsequent loans will be secured by the first on the excluded loans by instituting the proper actions for recovery of sums
mortgage. In other words, the sufficiency of the first security is a of money. Simply put, petitioner should have run after Tuble separately,
corollary component of the "dragnet clause." But of course, there is no instead of hostaging the same property to cover all of his liabilities.
prohibition, as in the mortgage contract in issue, against contractually Reiteration
requiring other securities for the subsequent loans. As we have held in Prudential Bank v. Alviar,36 in the absence of clear and
supportive evidence of a contrary intention, a mortgage containing a
Thus, when the mortgagor takes another loan for which another dragnet clause will not be extended to cover future advances, unless the
security was given it could not be inferred that such loan was document evidencing the subsequent advance refers to the mortgage as
made in reliance solely on the original security with the "dragnet providing security therefor.
clause," but rather, on the new security given. This is the "RELIANCE
ON THE SECURITY TEST." VEGA VS SSS
In this case, it was concluded that the "offer" was not accepted by the When a mortgagor sells the mortgaged property to a third person, the
bank when a subsequent advance was made because creditor may demand from such third person the payment of the principal
(1) the second note was secured by a chattel mortgage on certain obligation. The reason for this is that the mortgage credit is a real right,
vehicles, and the clause therein stated that the note was secured by such which follows the property wherever it goes, even if its ownership changes.
chattel mortgage;
(2) there was no reference in the second note or chattel mortgage Article 2129 of the Civil Code gives the mortgagee, here the SSS, the option
indicating a connection between the real estate mortgage and the of collecting from the third person in possession of the mortgaged property
advance; in the concept of owner.
(3) the mortgagor signed the real estate mortgage by her name alone,
whereas the second note and chattel mortgage were signed by the More, the mortgagor-owner’s sale of the property does not affect the right
mortgagor doing business under an assumed name; and of the registered mortgagee to foreclose on the same even if its ownership
(4) there was no allegation by the bank, and apparently no proof, that it had been transferred to another person. The latter is bound by the
relied on the security of the real estate mortgage in making the advance. registered mortgage on the title he acquired.1awphi1
PNB VS ALONDAY
After the mortgage debt to SSS had been paid, however, the latter had no
In this case, there are 2 loans: further justification for withholding the release of the collateral and the
1. An agricultural loan + REM registered title to the party to whom Reyes had transferred her right as
2. A commercial loan owner. Under the circumstance, the Vegas had the right to sue for the
conveyance to them of that title, having been validly subrogated to Reyes’
Does the REM on the agricultural loan include the commercial loan? NO rights.
The petitioner had the opportunity to include some form of PINEDA VS CA

acknowledgement of the previously subsisting agricultural loan in the If the title itself is not lost and a petition is filed to which a new title was
terms of the second mortgage contract The mere fact that the mortgage issued, when it was not actually lost, the court had actually no jurisdiction
constituted on the property covered by TCT No. T-66139 made no over the case; over the issuance of the new title and that new title is void.
mention of the pre-existing loan could only strongly indicate that each of
the loans of the Spouses Alonday had been treated separately by the Now, however, take note that what is void is only the TCT; the title. But not
parties themselves, and this sufficiently explained why the loans had the sale, not the transfer of ownership over the property. Title refers to the
been secured by different mortgages. ownership of the property covered by the TCT while the TCT merely
evidences that ownership. So the certificate of title is not equivalent to title.
Another indication that the second mortgage did not extend to the So for those who had Sales, we had to make a distinction as to the title
agricultural loan was the fact that the second mortgage was entered into itself.
in connection only with the commercial loan.
Mortgage is valid in favor of Pineda and Sayoc. Title was in possession of
To reiterate, in order for the all-embracing or dragnet clauses to secure Pineda and Sayoc but they did not register their mortgage. Now, Benitez,
future and other loans, the loans thereby secured must be sufficiently being still the owner of the property, can validly sell it to other persons. And
described in the mortgage contract. in this case, he sold it in favor of Mojica. Although it is true that Mojica had
knowledge of the previous mortgage, the sale in favor of Mojica is still
Considering that the agricultural loan had been pre-existing when the considered as valid. There was a valid transfer of ownership because they
mortgage was constituted on the property covered by TCT No. T-66139, executed a deed of sale (constructive delivery). Now, ito namang si Moijica,
it would have been easy for the petitioner to have expressly incorporated in bad faith, filed a petition for a lost title and to which a new title was issued
the reference to such agricultural loan in the mortgage contract covering in his name, to which he mortgaged the same property when he borrowed
the commercial loan. money from Gonzales. Now, Gonzales here had no knowledge of the
mortgage in favor of Pineda and Sayoc. Again, while it is true that a
But the petitioner did not. Being the party that had prepared the contract mortgage is attached to the property itself, it will only bind 3rd persons if
of mortgage, its failure to do so should be construed that it did not at all the same is registered. Pero dito, hindi registered. Wala ring actual
contemplate the earlier loan when it entered into the subsequent knowledge si Gonzales of the said mortgage.
mortgage.
While it is true that there was a notice of lis pendens filed by Pineda, in
ASIA TRUST DEVT BANK VS TUBLE relation to his subsequent titles after the sale in favor of Gonzales. So still,
Gonzales is considered as a mortgagee in good faith. So what does that
The Remedy of Foreclosure mean? The title was validly transferred from Mojica and subsequently to
Gonzales.
In reviewing the bank’s additional charges on the redemption price as a
result of the foreclosure, this Court will first clarify certain vital points of What is the remedy here of Pineda and Sayoc? Obviously, they cannot
fact and law that both parties and the courts a quo seem to have missed. foreclose the property anymore because of their negligence for having
failed to register the property. But they can still file a collection for sum of
In this case, the Real Estate Mortgage Contract on the secured property money as against Benitez with regard to his or their remaining obligations.
is already extinguished.
NOTE: So again, take note na perfectly valid ang sale even if the property
In foreclosures, the mortgaged property is subjected to the proceedings is mortgaged and take note when a mortgagee or subsequent purchaser
for the satisfaction of the obligation. As a result, payment is effected by can be considered in good faith. Consider if it is registered, or if there is
abnormal means whereby the debtor is forced by a judicial proceeding to actual knowledge of the sale.
comply with the presentation or to pay indemnity.
SPS ROSALES VS SUBA
ONCE THE PROCEEDS FROM THE SALE OF THE PROPERTY ARE
APPLIED TO THE PAYMENT OF THE OBLIGATION, THE Since the parties’ transaction is an equitable mortgage and that the trial
OBLIGATION IS ALREADY EXTINGUISHED. court ordered its foreclosure, execution of judgment is governed by
Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure, as amended,
Consequently, since the Real Estate Mortgage Contract is already quoted as follows:
extinguished, petitioner can no longer rely on it or invoke its provisions,
including the dragnet clause stipulated therein. IT FOLLOWS THAT SEC. 2. Judgment on foreclosure for payment or sale. – If upon the trial in
THE BANK CANNOT REFER TO THE 18% ANNUAL INTEREST such action the court shall find the facts set forth in the complaint to be true,
it shall ascertain the amount due to the plaintiff upon the mortgage debt or
obligation, including interest and other charges as approved by the court, In the present case, the foreclosing sheriffs failed to execute the certificate
and costs, and shall render judgment for the sum so found due and order of posting of the auction sale notices. However, this fact alone does not
that the same be paid to the court or to the judgment obligee within a prove that the sheriffs failed to post the required notices. As held in
period of not less that ninety (90) days nor more than one hundred Bohanan, "the fact alone that there is no certificate of posting attached to
twenty (120) days from the entry of judgment, and that in default of the sheriff's records is not sufficient to prove the lack of posting."
such payment the property shall be sold at public auction to satisfy the
judgment. In Ouano v. Court of Appeals, it was held that republication in the manner
prescribed by Act No. 3135 is necessary for the validity of a postponed
SEC. 3. Sale of mortgaged property, effect. – When the defendant, after extrajudicial foreclosure sale. Another publication is required in case the
being directed to do so as provided in the next preceding section, fails to auction sale is rescheduled, and the absence of such republication
pay the amount of the judgment within the period specified therein, the invalidates the foreclosure sale.
court, upon motion, shall order the property to be sold in the manner and
under the provisions of Rule 39 and other regulations governing sales of 1. If publication requirement may be waived by parties,
real estate under execution. Such sale shall not effect the rights of SAME RULING IN OUANO.
persons holding prior encumbrances upon the property or a part thereof,
and when confirmed by an order of the court, also upon motion, it shall 2. Is it possible to only have ONE PUBLISHED NOTICE OF
operate to divest the rights in the property of all the parties to the action SALE, but the subsequent RESCHEDULED sale will be valid
and to vest their rights in the purchaser, subject to such rights of without need of another publication?
redemption as may be allowed by law.
YES. If the first notice of sale EXPRESSLY STATES AND ALLOWS the
x x x." holding of a rescheduled auction sale without reposting or republication of
the notice. However, the rescheduled auction sale will only be valid if
"The right of redemption in relation to a mortgage–understood in the the rescheduled date of auction is clearly specified in the prior
sense of a prerogative to re-acquire mortgaged property after notice of sale. The rescheduled dates must be SPECIFIED. The
registration of the foreclosure sale–exists only in the case of the absence of this information in the prior notice of sale will render the
extrajudicial foreclosure of the mortgage. No such right is recognized in rescheduled auction sale void for lack of reposting or republication. If the
a judicial foreclosure except only where the mortgagee is the Philippine notice of auction sale contains this particular information, whether or not
National bank or a bank or a banking institution. the parties agreed to such rescheduled date, there is no more need for the
reposting or republication of the notice of the rescheduled auction sale.
"Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the
mortgagor the right of redemption within one (1) year from the Moreover, In the instant case, there is no information in the notice of
registration of the sheriff’s certificate of foreclosure sale. auction sale of any date of a rescheduled auction sale. Even if such
information were stated in the notice of sale, the reposting and
"Where the foreclosure is judicially effected, however, no equivalent republication of the notice of sale would still be necessary because Circular
right of redemption exists. The law declares that a judicial foreclosure No. 7-2002 took effect only on 22 April 2002. There were no such guidelines
sale, ‘when confirmed by an order of the court, x x x shall operate in effect during the questioned foreclosure.
to divest the rights of all the parties to the action and to vest
their rights in the purchaser, subject to such rights of Clearly, DBP failed to comply with the publication requirement under Act No.
redemption as may be allowed by law.’ 3135. There was no publication of the notice of the rescheduled auction sale
of the real properties. Therefore, the extrajudicial foreclosure of the real
Such rights exceptionally ‘allowed by law’ (i.e., even after the estate mortgage is void.
confirmation by an order of the court) are those granted by the charter of
the Philippine National Bank (Act Nos. 2747 and 2938), and the General DBP, however, complied with the mandatory posting of the notices of the
Banking Act (R.A.337). auction sale of the personal properties. Under the Chattel Mortgage Law,27
the only requirement is posting of the notice of auction sale. There was no
These laws confer on the mortgagor, his successors in interest or postponement of the auction sale of the personal properties and the
any judgment creditor of the mortgagor, the right to redeem the foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of
property sold on foreclosure–after confirmation by the court of the chattel mortgage in the instant case suffers from no procedural
the foreclosure sale–which right may be exercised within a infirmity.
period of one (1) year, counted from the date of registration of
the certificate of sale in the Registry of Property. OUANO VS CA
"But, to repeat, NO SUCH RIGHT OF REDEMPTION EXISTS IN CASE The governing law for extrajudicial foreclosures is Act No. 3135 as amended
OF JUDICIAL FORECLOSURE OF A MORTGAGE IF THE by Act No. 4118. The provision relevant to this case is Section 3, which
MORTGAGEE IS NOT THE PNB OR A BANK OR BANKING provides:
INSTITUTION.
SEC. 3. Notice shall be given by posting notices of the sale for not less than
In such a case, the foreclosure sale, ‘when confirmed by an order of the twenty (20) days in at least three public places of the municipality or city
court, x x x shall operate to divest the rights of all the parties to the where the property is situated, and if such property is worth more than four
action and to vest their rights in the purchaser.’ hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in the
THERE THEN EXISTS ONLY WHAT IS KNOWN AS THE EQUITY OF municipality of city.
REDEMPTION. This is simply the right of the defendant mortgagor to
extinguish the mortgage and retain ownership of the property by paying The republication in the manner prescribed by Act No. 3135 is necessary for
the secured debt within the 90-day period after the judgment becomes the validity of a postponed extrajudicial foreclosure sale.
final, in accordance with Rule 68, or even after the foreclosure sale but
prior to its confirmation. Publication is required to give the foreclosure sale a reasonably wide
publicity such that those interested might attend the public sale.
xxx
To allow the parties to waive this jurisdictional requirement would result in
"This is the mortgagor’s equity (not right) of redemption which, as above converting into a private sale what ought to be a public auction.
stated, may be exercised by him even beyond the 90-day period ‘from
the date of service of the order,’ and even after the foreclosure sale itself, ISSUE:
provided it be before the order of confirmation of the sale. After such Whether or not Julieta’s act of requesting the postponement and repeatedly
order of confirmation, no redemption can be effected any longer." signing the Agreements (WAIVER) had placed her under estoppel, barring
(Italics supplied) her from challenging the lack of publication of the auction sale.
GENERAL RULE, there is no right of redemption in a judicial foreclosure NO. The waiver being void for being contrary to the express mandate of Act
of mortgage. The only exemption is when the mortgagee is the Philippine No. 3135, such cannot be ratified by estoppel. Estoppel cannot give validity
National Bank or a bank or a banking institution. Since the mortgagee in to an act that is prohibited by law or one that is against public policy.
this case is not one of those mentioned, no right of redemption exists in Neither can the defense of illegality be waived.
favor of petitioners. They merely have an equity of redemption, which, to
reiterate, is simply their right, as mortgagor, to extinguish the mortgage 3.Whether or not there is laches when Julieta filed her complaint with the
and retain ownership of the property by paying the secured debt prior to trial court after almost two years from the May 29, 1981 auction sale
the confirmation of the foreclosure sale. However, instead of exercising
this equity of redemption, petitioners chose to delay the proceedings by NO. An action or defense for the declaration of the inexistence of a contract
filing several manifestations with the trial court. Thus, they only have does not prescribe under Article 1410 of the Civil Code.
themselves to blame for the consequent loss of their property.
RAMIREZ VS MANILA BANKING
DBP VS CA
Paragraph N of the deed of mortgage provides the following:
A certificate of posting is NOT REQUIRED, MUCH LESS CONSIDERED
INDISPENSABLE FOR THE VALIDITY OF AN EXTRAJUDICIAL N) All correspondence relative to this MORTGAGE, including demand letters,
FORECLOSURE SALE OF REAL PROPERTY UNDER ACT NO. 3135. summons, subpoenas or notifications of any judicial or extrajudicial actions
shall be sent to the MORTGAGOR at the address given above or at the
address that may hereafter be given in writing by the MORTGAGOR to the
MORTGAGEE, and the mere act of sending any correspondence by mail governing extra-judicial foreclosure of real estate mortgages only requires
or by personal delivery to the said address shall be valid and effective the
notice to the MORTGAGOR for all legal purposes and the fact that any 1) posting of the notice of extrajudicial foreclosure sale in three public
communication is not actually received by the MORTGAGOR, or that it places; and
has been returned unclaimed to the MORTGAGEE, or that no person was 2) publication of the said notice in a newspaper of general circulation.
found at the address given, or that the address is fictitious or cannot be
located, shall not excuse or relieve the MORTGAGOR from the effects of The exception to the rule is when the parties stipulate that personal notice
such notice is additionally required to be given the mortgagor. Failure to abide by the
general rule, or its exception, renders the foreclosure proceedings null and
What is the effect of violating this paragraph? void.
When respondent failed to send the notice of extrajudicial foreclosure The provisions of Act No. 3135 notwithstanding, under paragraph 12 of the
sale to Ramirez, it COMMITTED A CONTRACTUAL BREACH OF SAID real estate mortgage contracts signed by the parties, Planters Bank
PARAGRAPH N SUFFICIENT TO RENDER THE EXTRAJUDICIAL obligated itself to notify Lubiya of any judicial or extrajudicial action it may
FORECLOSURE SALE ON SEPTEMBER 8, 1994 NULL AND VOID. resort to with respect to the mortgages.
Unless the parties stipulate, personal notice to the mortgagor in PARADIGM VS BPI
extrajudicial foreclosure proceedings is not necessary because
Section 3 of Act No. 3135 only requires the posting of the notice Registration of the REM contract is not essential to its validity.
of sale in three public places and the publication of that notice in
a newspaper of general circulation. Hence, even assuming that the parties indeed agreed to register only one of
the two REMs, the subsequent registration of both REMs did not affect an
In this case, the parties stipulated in paragraph N of the real estate already validly executed REM if there was no other basis for the declaration
mortgage that all correspondence relative to the mortgage including of its nullity.
notifications of extrajudicial actions shall be sent to mortgagor Ramirez
at his given address. Respondent had no choice but to comply with FEBTC's failure to send personal notice to the mortgagor is fatal to the
this contractual provision it has entered into with Ramirez. The validity of the foreclosure proceedings
contract is the law between them. Hence, we cannot agree with the
bank that paragraph N of the real estate mortgage does not impose an Indeed, FEBTC's failure to comply with its contractual obligation to send
additional obligation upon it to provide personal notice of the notice to PDCP of the foreclosure sale is fatal to the validity of the
extrajudicial foreclosure sale to the mortgagor Ramirez. foreclosure proceedings. In Metropolitan Bank v. Wong,54 the Court ruled
that while as a rule, personal notice to the mortgagor is not required, such
Section 3, Act No. 3135 reads: notice may be subject of a contractual stipulation, the breach of which is
sufficient to nullify the foreclosure sale.
"Sec. 3. Notice shall be given by posting notices of the sale for not less
than twenty days in at least three public places of the municipality or city The Sec 3 act 3135 only requires (1) the posting of notices of sale in three
where the property is situated, and if such property is worth more than public places, and (2) the publication of the same in a newspaper of general
four hundred pesos, such notice shall also be published once a week for circulation. Personal notice to the mortgagor is not necessary. Nevertheless,
at least three consecutive weeks in a newspaper of general circulation in the parties to the mortgage contract are not precluded from exacting
the municipality and city." additional requirements. In this case, petitioner and respondent in entering
into a contract of [REM].
The Act only requires (1) the posting of notices of sale in three public
places, and (2) the publication of the same in a newspaper of general CU LAI CHU VS LAQUI
circulation. Personal notice to the mortgagor is not necessary.
Nevertheless, the parties to the mortgage contract are not precluded Possession may then be obtained under a writ which may be applied for ex
from exacting additional requirements. parte pursuant to Section 7 of Act No. 3135,24 as amended by Act No.
4118,25 thus:
CENTURY SAVINGS BANK VS SAMONTE
SEC. 7. In any sale made under the provisions of this Act, the purchaser
Foreclosure proceedings have in their favor the presumption of may petition the Court of First Instance of the province or place where the
regularity and the burden of evidence to rebut the same is on the property or any part thereof is situated, to give him possession thereof
petitioners. during the redemption period, furnishing bond in an amount equivalent to
the use of the property for a period of twelve months, to indemnify the
There is a basis for presuming that official duty has been regularly debtor in case it be shown that the sale was made without violating the
performed by the sheriff. Being a disputable presumption, the same is mortgage or without complying with the requirements of this Act. Such
valid unless controverted by evidence. The presumption has not been petition shall be made under oath and filed in form of an ex parte motion x
rebutted by any convincing and substantial evidence by the appellee who x x and the court shall, upon approval of the bond, order that a writ of
has the onus to present evidence that appellant has not complied with possession issue, addressed to the sheriff of the province in which the
the posting requirement of the law. In the absence therefore of any proof property is situated, who shall execute said order immediately. (Emphasis
to the contrary, the presumption that official duty has been regularly supplied)
performed stays."
Petitioners cannot oppose or appeal the court’s order granting the writ of
Respondents insist that the phrase "on the 15st day of November 1999, possession in an ex parte proceeding. The remedy of petitioners is to have
I have caused the posting of three (3) copies of Notice of Sale" in the the sale set aside and the writ of possession cancelled in accordance with
Certificate of Posting meant that Notary Public Magpantay posted the Section 8 of Act No. 3135, as amended, to wit:
notices for only one day, i.e., on November 15, 1999. This is a rather
specious interpretation of the aforequoted phrase. It is more logical and SEC. 8. The debtor may, in the proceedings in which possession was
reasonable to understand the same phrase as to mean that the notices requested, but not later than thirty days after the purchaser was given
were posted beginning November 15, 1999 until the issuance of the possession, petition that the sale be set aside and the writ of possession
certificate on December 9, 1999. There is also no basis to require the cancelled, specifying the damages suffered by him, because the mortgage
notary public’s certificate to exactly state that the notices of sale were was not violated or the sale was not made in accordance with the provisions
posted at "public places." Notary Public Magpantay’s use of the words hereof. x x x
"conspicuous places" in his certificate already satisfactorily complies
with the legal requirement for posting. The adjective "public" may Any question regarding the validity of the extrajudicial foreclosure sale and
refer to that which is "exposed to general view," and the resulting cancellation of the writ may be determined in a subsequent
"conspicuous" is a synonym thereof proceeding as outlined in Section 8 of Act No. 3135, as amended. Such
question should not be raised as a justification for opposing the issuance of
The object of a notice of sale is to inform the public of the nature and a writ of possession since under Act No. 3135, as amended, the proceeding
condition of the property to be sold, and of the time, place and terms of for this is ex parte.
the sale. Notices are given for the purpose of securing bidders and to
prevent a sacrifice of the property. If these objects are attained, Further, the right to possession of a purchaser at an extrajudicial
immaterial errors and mistakes will not affect the sufficiency of the foreclosure sale is not affected by a pending case questioning the validity of
notice; but if mistakes or omissions occur in the notices of sale, which the foreclosure proceeding. The latter is not a bar to the former. Even
are calculated to deter or mislead bidders, to depreciate the value of the pending such latter proceeding, the purchaser at a foreclosure sale is
property, or to prevent it from bringing a fair price, such mistakes or entitled to the possession of the foreclosed property.
omissions will be fatal to the validity of the notice, and also to the sale
made pursuant thereto. MALLARI VS GSIS
In the instant case, the AFORESAID OBJECTIVE WAS ATTAINED A writ of possession, which commands the sheriff to place a person in
SINCE THERE WAS SUFFICIENT PUBLICITY OF THE SALE possession of real property, may be issued in:
THROUGH THE NEWSPAPER PUBLICATION. 1) land registration proceedings under Section 17 of Act No. 496;
2) judicial foreclosure, provided the debtor is in possession of the
PLANTERS DEVT BANK VS AGRO mortgaged property, and no third person, not a party to the foreclosure suit,
had intervened;
As a general rule, personal notice to the mortgagor in extrajudicial 3) extrajudicial foreclosure of a real estate mortgage, pending redemption
foreclosure proceedings is not necessary. Section 3 of Act No. 313514 under Section 7 of Act No. 3135, as amended by Act No. 4118; and
4) execution sales, pursuant to the last paragraph of Section 33, Rule 39

of the Rules of Court. NOTE:
Upon the expiration of the right of redemption, the purchaser or
The redemption period envisioned under Act 3135 is RECKONED FROM redemptioner shall besubstituted to and acquire all the rights, title, interest
THE DATE OF THE REGISTRATION OF THE SALE, NOT FROM AND and claim of the judgment debtor to the property, and its possession shall
AFTER THE DATE OF THE SALE although the Revised Rules of Court be given to the purchaser or last redemptioner unless a third party is
(effective on January 1, 1964) continued to provide in Section 30 of Rule actually holding the property adversely to the judgment debtor. In which
39 that the redemption be made from the purchaser "at any time within case, the issuance of the writ of possession ceases to be ex-parte and
twelve (12) months after the sale, the 12-month period of redemption non-adversarial. THUS, WHERE THE PROPERTY LEVIED UPON ON
came to be held as beginning "TO RUN NOT FROM THE DATE OF THE EXECUTION IS OCCUPIED BY A PARTY OTHER THAN A JUDGMENT
SALE BUT FROM THE TIME OF REGISTRATION OF THE SALE IN DEBTOR, THE PROCEDURE IS FOR THE COURT TO CONDUCT A
THE OFFICE OF THE REGISTER OF DEEDS." HEARING to determine the nature of said possession, i.e., whether or not
he is in possession of the subject property under a claim adverse to that of
Accordingly, the mortgagor or his successor-in-interest must redeem the the judgment debtor.
foreclosed property within one year from the registration of the sale with
the Register of Deeds in order to avoid the title from consolidating in the The remedy of a writ of possession, a remedy that is available to the
purchaser. By failing to redeem thuswise, the mortgagor loses all mortgagee-purchaser to acquire possession of the foreclosed property from
interest over the foreclosed property. the mortgagor, is made available to a subsequent purchaser, butonly after
hearing and after determining that the subject property is still in the
The purchaser, who has a right to possession that extends beyond the possession of the mortgagor.
expiration of the redemption period, becomes the absolute owner of the
property when no redemption is made,39 that it is no longer necessary Unlike if the purchaser is the mortgagee or a third party during the
for the purchaser to file the bond required under Section 7 of Act No. redemption period, a writ of possession may issue ex-parte or without
3135, as amended, considering that the possession of the land becomes hearing.
his absolute right as the land’s confirmed owner.
When there must be a hearing When it is ministerial
The consolidation of ownership in the purchaser’s name and the issuance if the purchaser is a third party If the property is in the
to him of a new TCT then entitles him to demand possession of the who acquired the property after possession of the mortgagor, a
property at any time, and the issuance of a writ of possession to him the redemption period, a hearing writ of possession could thus be
becomes a matter of right upon the consolidation of title in his name. must be conducted to determine issued
whether possession over the
The court can neither halt nor hesitate to issue the writ of possession. It subject property is still with the Otherwise, the remedy of a writ
cannot exercise any discretion to determine whether or not to issue the mortgagor or is already in the of possession is no longer
writ, for the issuance of the writ to the purchaser in an extrajudicial possession of a third party available to such purchaser, but
foreclosure sale becomes a ministerial function. holding the same adversely to he can wrest possession over the
the defaulting debtor or property through an ordinary
SPS DULNUAN VS METROBANK mortgagor. action of ejectment.
A writ of possession may be issued in favor of a purchaser in a DARCEN VS GONZALES

foreclosure sale either
(1) within the one-year redemption period, upon the filing of a bond; or The established rule is that the purchaser in an extrajudicial foreclosure
(2) after the lapse of the redemption period, without need of a bond. sale becomes the absolute owner of the property if no redemption is made
Within the one-year redemption period, the purchaser may apply for a within one (1) year from the registration of the certificate of sale by those
writ of possession by filing a petition in the form of an ex parte motion who are entitled to redeem.27 Possession being a recognized essential
under oath, in the registration or cadastral proceedings of the registered attribute of ownership,28 after consolidation of title the purchaser may
property. demand possession as a matter of right.29 Under Section 7 of Act No. 3135,
as amended by Act No. 4118, the issuance of the writ is merely a ministerial
THE LAW REQUIRES ONLY THAT THE PROPER MOTION BE FILED, function of the RTC, which the new owner may obtain through an ex parte
THE BOND APPROVED AND NO THIRD PERSON IS INVOLVED. motion.
After the consolidation of title in the buyer’s name for failure of the
mortgagor to redeem the property, entitlement to the writ of possession The possession may be granted to the buyer either (a) within the one-year
becomes a matter of right. In the latter case, the right of possession redemption period, upon the filing by the purchaser of a bond, or (b) after
becomes absolute because the basis thereof is the purchaser’s the lapse of the redemption period, without need of a bond.
ownership of the property.
Not even a pending action for annulment of mortgage or foreclosure sale
It is an established rule that the purchaser in an extra-judicial will stay the issuance of the writ of possession
foreclosure sale is entitled to the possession of the property and can
demand that he be placed in possession of the same either during (with Nonetheless, the ministerial duty of the court to issue an ex parte writ of
bond) or after the expiration (without bond) of the redemption period possession ceases once it appears that there is a third party in possession
therefor.20 The non-expiration of the period of redemption shall not of the property, who is a stranger to the mortgage and who claims a right
preclude the purchaser from taking possession of the property provided adverse to that of the debtor/ mortgagor.
that the necessary is posted. The buyer can in fact demand possession of
the land even during the redemption period except that he has to post a in China Banking Corporation v. Lozada, the Supreme Court clarified that it
bond in accordance with Section 721 of Act No. 3135, as amended. is not enough that the property be possessed by a third party, but the same
must also held by the third party adversely to the debtor/mortgagor
Second. The pendency of the action assailing the validity of the
mortgage should not bar the issuance of the writ of possession.1âwphi1 Meaning of 3rd party
A pending action for annulment of mortgage or foreclosure does not stay a situation in which a third party holds the property by adverse title or right,
the issuance of a writ of possession.22 Regardless of the pendency of such as that of a co-owner, tenant or usufructuary. The co-owner,
such suit, the purchaser remains entitled to a writ of possession, without agricultural tenant, and usufructuary possess the property in their own
prejudice, of course, to the eventual outcome of the pending annulment right, and they are not merely the successor or transferee of the right of
case. possession of another co-owner or the owner of the property.
Lastly, we agree with the CA that any question regarding the regularity SPS GATUSLAO VS YANSON
and validity of the mortgage or its foreclosure cannot be raised as a
justification for opposing the petition for the issuance of the writ of A pending action for annulment of mortgage or foreclosure sale does not
possession. The said issues may be raised and determined only after the stay the issuance of the writ of possession because this is minsterial.
issuance of the writ of possession.
Sec & provides for teh availment and issuance of a writ of possession in
OKABE VS SATURNINO cases of extrajudicial sale within teh requried period for redemption. But it
also appleis to a situation where a purchaser is seeking possession of the
The buyer in a foreclosure sale becomes the absolute owner of the foreclosed property bought at the public auction sale afterthe redemption
property purchased if it is not redeemed during the period of one year period has expired without redemption having been made.30 The only
after the registration of the sale. As such, he is entitled to the possession difference is that in the latter case, no bond is required.
of the said property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him of a new It is thus settled that the buyer in a foreclosure sale becomes the absolute
transfer certificate oftitle. owner of the property purchased if it is not redeemed during the period of
one year after the registration of the sale. Assuch, he is entitled to the
THE BUYER CAN IN FACT DEMAND POSSESSION OF THE LAND possession of the said property and can demand it at any time following the
EVEN DURING THE REDEMPTION PERIOD EXCEPT THAT HE HAS consolidation of ownership in his name and the issuance to him of a new
TO POST A BOND in accordance with Section 7 of Act No. 3135, as transfer certificate of title. The buyer can in fact demand possession of the
amended. No such bond is required after the redemption period if the land even during the redemption period except that he has to post a bond
property is not redeemed. Possession of the land then becomes an inaccordance with Section 7 of Act No. 3135, as amended. No such bond is
absolute right of the purchaser as confirmed owner. Upon proper required after the redemption period if the property is not redeemed.
application and proof of title, the issuance of the writ of possession
becomes a ministerial duty of the court.
Upon the expiration of the period to redeem and no redemption was of foreclosure sale, and expires upon registration of the certificate of sale or
made, the purchaser, as confirmed owner, has the absolute right to three months after foreclosure, whichever is earlier.
possess the land and the issuance of the writ of possession becomes a
ministerial duty of the court upon proper application and proof of title.33 There is likewise no retroactive application of the new redemption period
because Section 47 exempts from its operation those properties foreclosed
Nevertheless, where the extrajudicially foreclosed real property is in the prior to its effectivity and whose owners shall retain their redemption rights
possession of a third party who is holding the same adversely to the under Act No. 3135.
judgment debtor or mortgagor, the RTC’s duty to issue a writ of
possession in favor of the purchaser of said real property ceases to be THE DIFFERENCE IN THE TREATMENT OF JURIDICAL PERSONS AND
ministerial and, as such, may no longer proceed ex parte. NATURAL PERSONS WAS BASED ON THE NATURE OF THE
PROPERTIES FORECLOSED – whether these are used as residence, for
In such a case, the trial court must order a hearing to determine the which the more liberal one-year redemption period is retained, or used for
nature of the adverse possession. industrial or commercial purposes, in which case a shorter term is deemed
NECESSARY TO REDUCE THE PERIOD OF UNCERTAINTY IN THE
For this exception to apply, however, it is not enough that the property is OWNERSHIP OF PROPERTY AND ENABLE MORTGAGEE-BANKS TO
in the possession of a third party, the property must also be held by the DISPOSE SOONER OF THESE ACQUIRED ASSETS.
third party adversely to the judgment debtor or mortgagor, such as a
co-owner, agricultural tenant or usufructuary. The SC ruled that under the General Banking Law, juridical persons w/c in
this case is a corporation; only have a specific or a shorter period of time in
NOTE: The mortgagor’s heirs are not 3rd parteis holding teh property order to redeem foreclosed properties w/c is 3 months after the foreclosure
adversely. sale (actual sale) or the date of registration, whichever is earlier.
SPS LANDRITO VS CA SPS GUEVARRA VS THE COMMONER LENDING
"Sec. 6. In all cases in which an extrajudicial sale is made under the In an extra-judicial foreclosure of registered LAND ACQUIRED UNDER A
special power hereinbefore referred to, the debtor, his successors in FREE PATENT, THE MORTGAGOR MAY REDEEM THE PROPERTY:
interest or any judicial creditor or judgment creditor of said debtor, or A. WITHIN TWO (2) YEARS FROM THE DATE OF FORECLOSURE if the
any person having a lien on the property subsequent to the mortgage or land is mortgaged to a rural bank under Republic Act No. (RA) 720,
deed of trust under which the property is sold, may redeem the same at as amended, otherwise known as the Rural Banks Act, or
any time within the term of one year from and after the date of the sale; B. WITHIN ONE (1) YEAR FROM THE REGISTRATION OF THE
xxx" CERTIFICATE OF SALE IF THE LAND IS MORTGAGED TO PARTIES
OTHER THAN RURAL BANKS PURSUANT TO ACT NO. 3135
In a long line of cases , this Court has consistently ruled that the
ONE-YEAR REDEMPTION PERIOD SHOULD BE COUNTED NOT If the mortgagor fails to exercise such right, he or his heirs may still
FROM THE DATE OF FORECLOSURE SALE, BUT FROM THE TIME repurchase the property within five (5) years from the expiration of the
THE CERTIFICATE OF SALE IS REGISTERED WITH THE REGISTER aforementioned redemption period pursuant to Section 119 of the Public
OF DEEDS. Land Act, which states:
And under Article 13 of the New Civil Code, A YEAR IS UNDERSTOOD SEC. 119. Every conveyance of land acquired under the free patent or
TO HAVE THREE HUNDRED SIXTY-FIVE (365) DAYS EACH. homestead provisions, when proper, shall be subject to repurchase by the
applicant, his widow, or legal heirs, within a period of five years from the
From the foregoing, it is clear as day that even the complaint filed by the date of the conveyance.
petitioners with the trial court on 09 November 1994 was instituted
beyond the 1-year redemption period. In fact, petitioners no less IN THIS CASE,
acknowledged that their complaint for annulment of extrajudicial 1. the subject property was mortgaged to and foreclosed by TCLC, WHICH
foreclosure and auction sale was filed about eleven (11) days after the IS A LENDING OR CREDIT INSTITUTION, AND NOT A RURAL BANK;
redemption period had already expired on 29 October 19947 . They a) hence, THE REDEMPTION PERIOD IS ONE (1) YEAR FROM
merely harp on the alleged increase in the redemption price of the THE REGISTRATION OF THE CERTIFICATE OF SALE ON
mortgaged property as the reason for their failure to redeem the same. AUGUST 25, 2000, or until August 25, 2001.
However, and as already pointed out herein, they chose not, despite
notice, to appear during the foreclosure proceedings. b) Given that Sps. Guevarra failed to redeem the subject property
within the aforestated redemption period, TCLC WAS
It is only where, by voluntary agreement of the parties, consisting of ENTITLED, AS A MATTER OF RIGHT, TO CONSOLIDATE
extensions of the redemption period, followed by commitment by the ITS OWNERSHIP AND TO POSSESS THE SAME.
debtor to pay the redemption price at a fixed date, will the concept of tender of the repurchase price is not necessary for the preservation of the
legal redemption be converted into one of conventional redemption. right of repurchase, BECAUSE THE FILING OF A JUDICIAL ACTION
FOR SUCH PURPOSE WITHIN THE FIVE-YEAR PERIOD UNDER
It must be remembered that the period of redemption is not a SECTION 119 OF THE PUBLIC LAND ACT IS ALREADY EQUIVALENT
prescriptive period but a condition precedent provided by law to restrict TO A FORMAL OFFER TO REDEEM. On this premise, consignation of the
the right of the person exercising redemption. Correspondingly, if a redemption price is equally unnecessary.
person exercising the right of redemption has offered to redeem the
property within the period fixed, he is considered to have complied with CASE LAW HAS EQUATED A RIGHT OF REPURCHASE OF
the condition precedent prescribed by law and may thereafter bring an FORECLOSED PROPERTIES UNDER SECTION 119 OF THE PUBLIC
action to enforce redemption. If, on the other hand, the period is allowed LAND ACT AS A "RIGHT OF REDEMPTION" AND THE REPURCHASE
to lapse before the right of redemption is exercised, then the action to PRICE AS A "REDEMPTION PRICE."
enforce redemption will not prosper, even if the action is brought within
the ordinary prescriptive period. Moreover, the period within which to As regards the redemption price, applying Sec. 30 of Rule 39 of the [Rules],
redeem the property sold at a sheriff’s sale is not suspended by the the petitioners should reimburse the private respondent the amount of the
institution of an action to annul the foreclosure sale. purchase price at the public auction plus interest at the rate of one per
centum per month up to November 17, 1983, together with the amounts of
GOLDENWAY VS EQUITABLE PCI BANK assessments and taxes on the property that the private respondent might
have paid after purchase and interest on the last named amount at the
The law governing cases of extrajudicial foreclosure of mortgage is Act same rate as that on the purchase price.
No. 3135,14 as amended by Act No. 4118. Section 6 thereof provides:
PHILBANCOR VS CA
SEC. 6. In all cases in which an extrajudicial sale is made under the
special power hereinbefore referred to, the debtor, his Republic Act No. 3844, Section 12, provides as follows:
successors-in-interest or any judicial creditor or judgment creditor of
said debtor, or any person having a lien on the property subsequent to In case the landholding is sold to a third person without the knowledge of
the mortgage or deed of trust under which the property is sold, MAY the agricultural lessee, the latter shall have the right to redeem the same at
REDEEM THE SAME AT ANY TIME WITHIN THE TERM OF ONE a reasonable price and consideration.
YEAR FROM AND AFTER THE DATE OF THE SALE; and such
redemption shall be governed by the provisions of sections four hundred Provided, that the entire landholding sold must be redeemed. Provided
and sixty-four to four hundred and sixty-six, inclusive, of the Code of further, that where there are two or more agricultural lessees, each shall be
Civil Procedure, in so far as these are not inconsistent with the provisions entitled to said right of redemption only to the extent of the area actually
of this Act. cultivated by him.
THE ONE-YEAR PERIOD OF REDEMPTION IS COUNTED FROM THE THE RIGHT OF REDEMPTION UNDER THIS SECTION MAY BE
DATE OF THE REGISTRATION OF THE CERTIFICATE OF SALE. EXERCISED WITHIN TWO (2) YEARS FROM THE REGISTRATION OF
THE SALE AND SHALL HAVE PRIORITY OVER ANY OTHER RIGHT OF
SECTION 47 DID NOT DIVEST JURIDICAL PERSONS OF THE LEGAL REDEMPTION.
RIGHT TO REDEEM THEIR FORECLOSED PROPERTIES BUT ONLY
MODIFIED THE TIME FOR THE EXERCISE OF SUCH RIGHT BY QUEZON CITY MAYOR VS RCBC
REDUCING THE ONE-YEAR PERIOD ORIGINALLY PROVIDED IN
ACT NO. 3135. The new redemption period commences from the date R.A. NO. 7160 REPEALED P.D. NO. 464.
Consequently, as regards redemption of tax delinquent properties sold Bangis' possession being in bad faith is two years shy of the requisite
at public auction, the pertinent provision is Section 261 of R.A. No. 7160, 30-year uninterrupted adverse possession required under Article 1137 of
which provides: the Civil Code.
Section 261. Redemption of Property Sold. – Within one (1) year from For a contract of antichresis to be valid, Article 2134 provides that the
the date of sale, the owner of the delinquent real property or person amount of the principal as well as the interest should be written. The heirs
having legal interest therein, or his representative, shall have the right of Adolfo were unable to produce any document to show that the contract
to redeem the property upon payment to the local treasurer of the was an antichresis. There could have been no contract of sale as well as
amount of delinquent tax, including the interest due thereon, and the there must be proof that the parties really intended to transfer ownership of
expenses of sale from the date of delinquency to the date of sale, plus the property, here the certificate of title remained with Adolfo. Since there
interest of not more than two percent (2%) per month on the purchase was no sale or antichresis, at the very least what we have here is a contract
price from the date of sale to the date of redemption. Such payment shall of mortgage. The mortgage continued to exist despite the lapse of a
invalidate the certificate of sale issued to the purchaser and the owner of considerable number of years from the time it was constituted because the
the delinquent real property or person having legal interest therein shall obligation was not satisfied. The non-compliance with 2134 will invalidate
be entitled to a certificate of redemption which shall be issued by the the contract of antichresis but it will not affect the validity of the principal
local treasurer or his deputy. obligation.
From the date of sale until the expiration of the period of redemption, the BARRETTO VS BARRETTO
delinquent real property shall remain in the possession of the owner or
person having legal interest therein who shall remain in the possession Although creditor does not acquire the ownership of the real property
of the owner or person having legal interest therein who shall be entitled delivered by virtue of an antichresis, for failure to pay the debt, the debtor
to the income and other fruits thereof. cannot recover the use of the real property given in antichresis to the
creditor, without previously fully paying the creditor.
The local treasurer or his deputy, upon receipt from the purchaser of the
certificate of sale, shall forthwith return to the latter the entire amount NOTE: It was only under the New CivilCode under Article 2134 (n) that
paid by him plus interest of not more than two percent (2%) per month. required antichresis to be in writinq, before, it can be oral.
Thereafter, the property shall be free from all lien of such delinquent tax,
interest due thereon and expenses of sale. The verbal stipulation between the parties in this case gave rise to a
perfected contract of antichresis because there was still no prohibition
From the foregoing, the owner of the delinquent real property or person under 2134 that it must be in writinq to be valid Before, under the old
having legal interest therein, or his representative, has the right to Civil Code, a verbal or oral aqreement for antichresis was valid
redeem the property within one (1) year from the date of sale upon
payment of the delinquent tax and other fees. In antichresis there is no transfer of ownership. However, this does
not mean that the debtor or his heirs can regain possession of the
VERILY, THE PERIOD OF REDEMPTION OF TAX DELINQUENT propertv at anv time.
PROPERTIES SHOULD BE COUNTED NOT FROM THE DATE OF
REGISTRATION OF THE CERTIFICATE OF SALE, AS PREVIOUSLY In order for any property under antichresis to be released from such
PROVIDED BY SECTION 78 OF P.D. NO. 464, BUT RATHER ON THE contract, the debtors must pay the principal obligation either by
DATE OF SALE OF THE TAX DELINQUENT PROPERTY, AS applying the fruits to the interest and obligation or to fully pay the
EXPLICITLY PROVIDED BY SECTION 261 OF R.A. NO. 7160. agreed price and releasing the property from the antichresis. In case
of insolvency, they can ask for the sale of the property and apply the
However since in the case at bar, there is an ordinance involved. proceeds to the obligation due to the creditor.
To harmonize the provisions of the two laws and to maintain the policy of In no case shall the property subject of the antichresis be released
the law to aid rather than to defeat the owner’s right to redeem his until payment of the obligation. As a contract of security, the
property, Section 14 (a), Paragraph 7 of City Ordinance No. SP-91, S-93 antichresis is only extinguished when the principal obligation has been
should be construed as to define the phrase "one (1) year from the date extinguished.
of sale" as appearing in Section 261 of R.A. No. 7160, to mean "one (1)
year from the date of the annotation of the sale of the property at the On the part of the creditor, just because he has actual possession of
proper registry." the property and the use and enjoyment of the fruits, does not mean
that he can obtain ownership over the property.
Consequently, THE COUNTING OF THE ONE (1) YEAR REDEMPTION
PERIOD OF PROPERTY SOLD AT PUBLIC AUCTION FOR ITS TAX Acquisitive prescription does not apply in this case, no matter how
DELINQUENCY SHOULD BE COUNTED FROM THE DATE OF long the period of possession is because what the creditor has is
ANNOTATION OF THE CERTIFICATE OF SALE IN THE PROPER merely the right to possess the property and apply the fruits to the
REGISTER OF DEEDS. Applying the foregoing to the case at bar, from obligation and not the right to own the same.
the date of registration of the Certificate of Sale of Delinquent Property
on February 10, 2004, respondent had until February 10, 2005 to In antichresis the creditor is given possession over the property only
redeem the subject properties. as a form of security for the debt or obligation and once the grincigal
obliqation is extinguished, so must the antichresis. The property has
Hence, ITS TENDER OF PAYMENT OF THE SUBJECT PROPERTIES’ to be released and possession given back to the debtor who retains
TAX DELINQUENCIES AND OTHER FEES ON JUNE 10, 2004, WAS ownership over it.
WELL WITHIN THE REDEMPTION PERIOD, AND IT WAS
MANIFEST ERROR ON THE PART OF PETITIONERS TO HAVE MACAPINLAC VS REPILDE
REFUSED SUCH TENDER OF PAYMENT.
Under the Civil Code (arts. 1881-1884), it was held that while non-payment
ALOJADO VS SIONGCO of the debt does not vest the ownership of the property in the creditor,
nevertheless the debtor cannot recover the enjoyment of the property
WHAT CHARACTERIZES A CONTRACT OF ANTICHRESIS is that the without first paying in full what he owes to his creditor. At the same time,
creditor acquires the right to receive the fruits of the property of his however, the creditor is under obligation to apply the fruits derived from
debtor with the obligation to apply them to the payment of interests, if the estate in satisfaction, first, of the interest on the debt, if any, and,
any is due, and then to the principal of his credit. secondly, to the payment of the principal. From this is necessarily deduced
the obligation of the creditor to account to the debtor for said fruits and the
IN THIS CASE corresponding right of the debtor to have the same applied in satisfaction of
Nowhere in the contract in question does this character of a contract of the mortgage debt.
antichresis appear. The only substantial thing agreed upon
between the parties was that Juana Mabaquiao could repurchase The respective rights and obligations of the parties to a contract of
the land when she had the means. antichresis, under the Civil Code, may be taken to be established, namely,
that if the mortgagee acquires possession in any lawful manner, he is
BANGIS VS HEIRS OF SERAFIN entitled to retain such possession until the indebtedness is satisfied and the
property redeemed; that the non-payment of the debt within the term
For the contract of antichresis to be valid, Article 2134 of the Civil Code agreed does not vest the ownership of the property in the creditor; that the
requires that "THE AMOUNT OF THE PRINCIPAL AND OF THE general duty of the mortgagee in possession towards the premises is that of
INTEREST SHALL BE SPECIFIED IN WRITING; OTHERWISE THE the ordinary prudent owner' that the mortgagee must account for the rents
CONTRACT OF ANTICHRESIS SHALL BE VOID." and profits of the land, or its value for purposes of use and occupation, any
amount thus realized going towards the discharge of the mortgage debt;
IN THIS CASE, the Heirs of Adolfo were indisputably unable to produce that if the mortgagee remains in possession after the mortgage debt has
any document in support of their claim that the contract between Adolfo been satisfied, he becomes a trustee for the mortgagor as to the excess of
and Bangis was an antichresis, HENCE, THE CA PROPERLY HELD the rents and profits over such debt; and, lastly, that the mortgagor can
THAT NO SUCH RELATIONSHIP EXISTED BETWEEN THE only enforce his rights to the land by an equitable action for an account and
PARTIES. to redeem.
SETTLED IS THE RULE THAT NO TITLE IN DEROGATION OF THAT SPS REYES VS MALANCE
OF THE REGISTERED OWNER CAN BE ACQUIRED BY
PRESCRIPTION OR ADVERSE POSSESSION. Moreover, even if Art. 2132. By the contract of antichresis the creditor acquires the right to
acquisitive prescription can be appreciated in this case, the Heirs of receive the fruits of an immovable of his debtor, with the obligation to apply
them to the payment of the interest, if owing, and thereafter to the In the first place, THE PROVISIONS OF THE REVISED MOTOR
principal of his credit. VEHICLES LAW ON REGISTRATION ARE NOT INCONSISTENT WITH
DOES OF THE CHATTEL MORTGAGE LAW.
THUS, ANTICHRESIS INVOLVES AN EXPRESS AGREEMENT
BETWEEN PARTIES WHEREBY : In the second place, implied repeals are not favored; implied repeals are
(a) the creditor will have possession of the debtor's real property given permitted only in cases of clear and positive inconsistency.
as security;
(b) such creditor will apply the fruits of the said property to the interest We have, therefore, an additional requirements in the Revised Motor
owed by the debtor, if any, then to the principal amount Vehicles Law, aside from the registration of a chattel mortgage, which is to
(c) the creditor retains enjoyment of such property until the debtor has report a mortgage to the Motor Vehicles Office, if the subject of the
totally paid what he owes; and mortgage is a motor vehicle; the report merely supplements or
(d) should the obligation be duly paid, then the contract is automatically complements the registration.
extinguished proceeding from the accessory character of the agreement.
THE RECORDING PROVISIONS OF THE REVISED MOTOR VEHICLES
WHILE THE KASULATAN DID NOT PROVIDE FOR THE TRANSFER LAW, THEREFORE, ARE MERELY COMPLEMENTARY TO THOSE OF
OF POSSESSION OF THE SUBJECT LAND, THE THE CHATTEL MORTGAGE LAW.
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PARTIES
SHOW THAT SUCH POSSESSION WAS INTENDED TO BE A MORTGAGE IN ORDER TO AFFECT THIRD PERSONS SHOULD NOT
TRANSFERRED. ONLY BE REGISTERED IN THE CHATTEL MORTGAGE REGISTRY, BUT
THE SAME SHOULD ALSO BE RECORDED IN THE MOTOR VEHICLES
Atty. Navarro testified that while the Kasulatan only shows that the OFFICE AS REQUIRED BY SECTION 5 (E) OF THE REVISED MOTOR
harvest and the fruits shall answer for Benjamin's indebtedness, THE VEHICLES LAW.
PARTIES AGREED AMONG THEMSELVES THAT THE LENDERS
WOULD BE THE ONE TO TAKE POSSESSION OF THE SUBJECT And the failure of the respondent mortgage to report the mortgage
LAND IN ORDER FOR THEM TO GET THE HARVEST. executed in its favor had the effect of making said mortgage
ineffective against Borlough, who had his purchase registered in the
Indeed, such arrangement would be the most reasonable under the said Motor Vehicles Office.
premises since at that time, Benjamin's medical condition necessitated
hospitalization, hence, his physical inability to cultivate and harvest the On failure to comply with the statute, the transferee's title is rendered
fruits thereon. invalid as against a subsequent purchaser from the transferor, who
is enabled by such failure of compliance to retain the indicia of
As antichretic creditors, the Magtalas sisters are entitled to ownership, such as a subsequent purchaser in good faith, or a purchaser
retain enjoyment of the subject land until the debt has been from a conditional buyer in possession; and the lien of a chattel mortgage
totally paid given by the buyer to secure a purchase money loan never becomes
effective in such case as against an innocent purchaser.
RAMIREZ VS CA
The holder of a lien who is derelict in his duty to comply and require
THE ANTICHRETIC CREDITOR CANNOT ORDINARILY ACQUIRE compliance with the statutory provisions acts at his own peril, and must
BY PRESCRIPTION THE LAND SURRENDERED TO HIM BY THE suffer the consequence of his own negligence; and accordingly, HE IS NOT
DEBTOR. ENTITLED TO THE LIEN AS AGAINST A SUBSEQUENT INNOCENT
RAMIREZ SPOUSES ARE NOT POSSESSORS IN THE CONCEPT OF PURCHASER FILED AS PROVIDED BY OTHER CHATTEL MORTGAGE
OWNER BUT MERE HOLDERS PLACED IN POSSESSION OF THE STATUTES.
LAND BY ITS OWNERS.
The rule is otherwise, however, as against claimants not occupying the
Thus, their possession cannot serve as a title for acquiring dominion. position of innocent purchaser, such as a judgment creditor, or one
However, under Article 2136 of the Civil Code, the debtor cannot acquiring title with actual notice of an unregistered lien, and the statutes do
reacquire the enjoyment of the immovable without first having totally not protect a purchaser holding under registered title if a link in the title is
paid what he owes the creditor. Thus, respondents may reacquire the forgery. MOREOVER, SUCH STATUTE WILL NOT IMPAIR VESTED
land after paying the still existing debt. RIGHTS OF A MORTGAGE UNDER A CHATTEL MORTGAGE DULY
RECORDED
FILIPINAS MARBLE VS IAC
STANDARD OIL VS JARAMILLO
A MORTGAGE IS A MERE ACCESSORY CONTRACT AND, THUS, ITS
VALIDITY WOULD DEPEND ON THE VALIDITY OF THE LOAN It the ROD’s duty to accept the proper fee and place the instrument on
SECURED BY IT. record. THE DUTIES OF A REGISTER OF DEEDS IN RESPECT TO THE
REGISTRATION OF CHATTEL MORTGAGE ARE OF A PURELY
We, however, reject the petitioner's argument that since the chattel MINISTERIAL CHARACTER; and no provision of law can be cited which
mortgage involved was not registered, the same is null and void. confers upon him any judicial or quasi-judicial power to determine the
nature of any document of which registration is sought as a chattel
mortgage.
NON REGISTRATION DOES NTO MAKE THE MORTGAGE NULL AND
VOID The original provisions touching this matter are contained in section 15 of
the Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but
Article 2125 of the Civil Code clearly provides that the non-registration of these have been transferred to section 198 of the Administrative Code,
the mortgage does not affect the immediate parties. It states: where they are now found.
Art. 2125. In addition to the requisites stated in article 2085, it is There is nothing in any of these provisions conferring upon the
indispensable, in order that a mortgage may be validly constituted that register of deeds any authority whatever in respect to the
the document in which it appears be recorded in the Registry of Property. "qualification," as the term is used in Spanish law, of chattel mortgage.
IF THE INSTRUMENT IS NOT RECORDED, THE MORTGAGE IS
NEVERTHELESS BINDING BETWEEN THE PARTIES. His duties in respect to such instruments are ministerial only. The
efficacy of the act of recording a chattel mortgage consists in the
BORLOUGH VS FORTUNE fact that it operates as constructive notice of the existence of the
contract, and the legal effects of the contract must be discovered in
Two recording laws are here being invoked, one by each contending the instrument itself in relation with the fact of notice. Registration
party — the Chattel Mortgage Law (Act No. 1508), by the mortgagor and adds nothing to the instrument, considered as a source of title, and affects
the Revised Motor Vehicles Law (Act No. 3992), by a purchaser in nobody's rights except as a specifies of notice.
possession.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
REVISED MOTOR VEHICLES LAW CHATTEL MORTGAGE LAW discriminating between real property and personal property for purpose of
is a special legislation enacted to is a general law covering the application of the Chattel Mortgage Law.
"amend and compile the laws mortgages of all kinds of
relative to motor vehicles," personal property. Those articles state rules which, considered as a general doctrine, are law in
the latest attempt to assemble and this jurisdiction; but it must not be forgotten that under given conditions
compile the motor vehicle laws of property may have character different from that imputed to it in said
the Philippines, all the earlier laws articles.
on the subject having been found
to be very deficient in form as well Parties to a contract can agree on the treatment of a property --
as in substance IT IS UNDENIABLE THAT THE PARTIES TO A CONTRACT MAY BY
AGREEMENT TREAT AS PERSONAL PROPERTY THAT WHICH BY
it had been designed primarily to NATURE WOULD BE REAL PROPERTY; AND IT IS A FAMILIAR
control the registration and PHENOMENON TO SEE THINGS CLASSED AS REAL PROPERTY FOR
operation of motor vehicles PURPOSES OF TAXATION WHICH ON GENERAL PRINCIPLE MIGHT
BE CONSIDERED PERSONAL PROPERTY.
LILIUS VS MANILA ROAD

Under section 5 of Act No. 1507 as amended by Act No. 2496, a chattel A CHATTEL MORTGAGE, AS HEREINBEFORE SO INTIMATED, MUST
does not have to be acknowledged before a notary public. As against COMPLY SUBSTANTIALLY WITH THE FORM PRESCRIBED BY THE
creditors and subsequent encumbrances, the law does require an CHATTEL MORTGAGE LAW ITSELF.
affidavit of good faith appended to the mortgage and recorded with it. A
chattel mortgage may, however, be valid as between the parties without One of the requisites, under Section 5 thereof, is an affidavit of good faith.
such an affidavit of good faith. While it is not doubted that if such an affidavit is not appended to the
agreement, the chattel mortgage would still be valid between the parties
In Corpus Juris, 482, the rule is expressly stated that as between the (not against third persons acting in good faith), the fact, however, that the
parties and as to third persons who have no rights against the mortgagor, statute has provided that the parties to the contract must execute an oath
NO AFFIDAVIT OF GOOD FAITH IS NECESSARY. It will thus be seen that —
that under the law, a valid mortgage may exist between the parties
without its being evidenced by a public document. . . . (the) mortgage is made for the purpose of securing the obligation
specified in the conditions thereof, and for no other purpose, and that the
CEBU FINANCE INTERNATIONAL VS CA same is a just and valid obligation, and one not entered into for the purpose
The prevailing jurisprudence is that A MORTGAGEE HAS A RIGHT TO of fraud.
RELY IN GOOD FAITH ON THE CERTIFICATE OF TITLE OF THE
MORTGAGOR TO THE PROPERTY GIVEN AS SECURITY AND IN . . . A MORTGAGE THAT CONTAINS A STIPULATION IN REGARD TO
THE ABSENCE OF ANY SIGN THAT MIGHT AROUSE SUSPICION, FUTURE ADVANCES IN THE CREDIT WILL TAKE EFFECT ONLY FROM
HAS NO OBLIGATION TO UNDERTAKE FURTHER THE DATE THE SAME ARE MADE AND NOT FROM THE DATE OF THE
INVESTIGATION. MORTGAGE.
Hence, EVEN IF THE MORTGAGOR IS NOT THE RIGHTFUL OWNER MARQUEZ VS ELISAN CREDIT
OF OR DOES NOT HAVE A VALID TITLE TO THE MORTGAGED While a pledge, real estate mortgage, or antichresis may exceptionally
PROPERTY, THE MORTGAGEE OR TRANSFEREE IN GOOD FAITH IS secure after-incurred obligations so long as these future debts are
NONETHELESS ENTITLED TO PROTECTION. accurately described, A CHATTEL MORTGAGE, HOWEVER, CAN ONLY
COVER OBLIGATIONS EXISTING AT THE TIME THE MORTGAGE IS
Although this rule generally pertains to real property, particularly CONSTITUTED.
registered land, it may also be applied by analogy to personal property,
in this case specifically, since shipowners are, likewise, required by law Although a promise expressed in a chattel mortgage to include debts that
to register their vessels with the Philippine Coast Guard. are yet to be contracted can be a binding commitment that can be
compelled upon, the security itself, however, does not come into
THE SPECIAL AFFIDAVIT OF GOOD FAITH, ON THE OTHER HAND, existence or arise until after a chattel mortgage agreement
IS REQUIRED ONLY FOR THE PURPOSE OF TRANSFORMING AN covering the newly contracted debt is executed either by
ALREADY VALID MORTGAGE INTO A "PREFERRED MORTGAGE." concluding a fresh chattel mortgage or by amending the old contract
Thus, the affidavit is not necessary for the validity of the chattel conformably with the form prescribed by the Chattel Mortgage Law.
mortgage itself but only to give it a preferred status.
Refusal on the part of the borrower to execute the agreement so as to cover
SALDANA VS PHILIPPINE GUARANTY the after-incurred obligation can constitute an act of default on the part of
Section 7 of Act No. 1508, commonly and better known as the Chattel the borrower of the financing agreement whereon the promise is written
Mortgage Law, does not demand a minute and specific description of but, of course, the remedy of foreclosure can only cover the debts extant at
every chattel mortgaged in the deal of mortgage but only requires that the time of constitution and during the life of the chattel mortgage sought
the description of the properties be such "as to enable the parties in the to be foreclosed."
mortgage, or any other person, after reasonable inquiry and
investigation to identify the same". Gauged by this standard, general We noted that the Chattel Mortgage Law requires the parties to the contract
description have been held by this Court. to attach an affidavit of good faith and execute an oath that -
The specifications in the chattel mortgage contract in the instant case, " x x x (the) mortgage is made for the purpose of securing the obligation
we believe, in substantial compliance with the "REASONABLE specified in the conditions thereof, and for no other purposes, and that the
DESCRIPTION RULE" fixed by the chattel Mortgage Act. same is a just and valid obligation, and one not entered into for the
purposes of fraud."
NOTE THAT THE LIMITATION FOUND IN THE LAST PARAGRAPH It is obvious therefore that the debt referred in the law is a current, not an
OF SECTION 7 OF THE CHATTEL MORTGAGE LAW ON "LIKE OR obligation that is yet merely contemplated.
SUBSITUATED PROPERTIES" MAKE REFERENCE TO THOSE
"THEREAFTER ACQUIRED BY THE MORTGAGOR AND PLACED IN NORTHERN MOTORS VS COQUIA
THE SAME DEPOSITORY AS THE PROPERTY ORIGINALLY The essence of the chattel mortgage is that the mortgaged chattels should
MORTGAGED", not to those already existing and originally included at answer for the mortgage credit and not for the judgment credit of the
the date of the constitution of the chattel mortgage. mortgagor's unsecured creditor.
ACME SHOE VS CA 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
Contracts of security are either personal or real. In contracts of personal his lien and would defeat the purpose of the chattel mortgage which is to
security, such as a guaranty or a suretyship, the faithful performance of give him preference over the mortgaged chattels for the satisfaction of his
the obligation by the principal debt or is secured by the personal credit.
commitment of another (the guarantor or surety). In contracts of real
security, such as a pledge, a mortgage or an antichresis, that fulfillment Registration is an effective and binding notice to its existence and since it is
is secured by an encumbrance of property — in pledge, the placing of a mortgage, it creates a real right - right attahced to the property itself and
movable property in the possession of the creditor; in chattel mortgage, follows the chattel wherever it goes, even if there would be subsequent sale,
by the execution of the corresponding deed substantially in the form as long as it has already been registered.
prescribed by law; in real estate mortgage, by the execution of a public
instrument encumbering the real property covered thereby; and in The mortgagee has a better right over the thing mortgaged than the
antichresis, by a written instrument granting to the creditor the right to judgment creditors of the mortgagor.
receive the fruits of an immovable property with the obligation to apply
such fruits to the payment of interest, if owing, and thereafter to the CABRAL VS EVANGELISTA
principal of his credit — upon the essential condition that if the obligation "the mortgagee ... may after thirty days from the time of condition
becomes due and the debtor defaults, then the property encumbered broken, cause the mortgaged property, or any part thereof, to be
can be alienated for the payment of the obligation, 7 but that should the sold at public auction."
obligation be duly paid, then the contract is automatically extinguished It does not follow from this provision, as wrongly contended by appellants,
proceeding from the accessory character 8 of the agreement. AS THE that failure on the part of plaintiff to immediately foreclose their chattel
LAW SO PUTS IT, ONCE THE OBLIGATION IS COMPLIED WITH, mortgage within the 30-day period from February 12, 1960 (when the
THEN THE CONTRACT OF SECURITY BECOMES, IPSO FACTO, promisory note matured) to March 12, 1960, resulted in the prescription of
NULL AND VOID. plaintiff's mortgage right and action.
While a pledge, real estate mortgage, or antichresis may exceptionally THIS THIRTY-DAY PERIOD IS THE MINIMUM PERIOD AFTER
secure after-incurred obligations so long as these future debts are VIOLATION OF THE MORTGAGE CONDITION FOR THE MORTGAGE
accurately described, A CHATTEL MORTGAGE, HOWEVER, CAN CREDITOR TO CAUSE THE SALE AT PUBLIC AUCTION OF THE
ONLY COVER OBLIGATIONS EXISTING AT THE TIME THE MORTGAGED CHATTELS, WITH AT LEAST TEN DAYS NOTICE TO THE
MORTGAGE IS CONSTITUTED. Although a promise expressed in a MORTGAGOR AND POSTING OF PUBLIC NOTICE OF THE TIME,
chattel mortgage to include debts that are yet to be contracted can be a PLACE AND PURPOSE OF SUCH SALE, AND IS A PERIOD OF GRACE
binding commitment that can be compelled upon, the security itself, FOR THE MORTGAGOR, WHO HAS NO RIGHT OF REDEMPTION
however, does not come into existence or arise until after a chattel AFTER THE SALE IS HELD, TO DISCHARGE THE MORTGAGE
mortgage agreement covering the newly contracted debt is executed OBLIGATION.
either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage THE PRESCRIPTION PERIOD FOR RECOVERY OF MOVABLES FOR
Law. FORECLOSURE PURPOSES SUCH AS IN THE PRESENT CASE IS
EIGHT YEARS AS PROVIDED IN ARTICLE 1140 OF THE CIVIL CODE,
6 AND HERE PLAINTIFFS HAD TIMELY FILED THEIR ACTION

WITHIN 8 MONTHS FROM THE MORTGAGE DEBTOR'S DEFAULT. Petitioner’s right of action against Philfinance was a "claim" properly to be
litigated in the liquidation proceedings.23 In Finasia Investments and
BETWEEN TWO MORTGAGEES, WE HELD THAT "AS BETWEEN THE Finance Corporation v. CA, we discussed the definition of "claims" in the
FIRST AND SECOND MORTGAGEES, THEREFORE, THE SECOND context of liquidation proceedings:
MORTGAGEE HAS AT MOST ONLY HE RIGHT TO REDEEM, AND
EVEN WHEN THE SECOND MORTGAGEE GOES THROUGH THE The word "claim" is also defined as:
FORMALITY OF AN EXTRAJUDICIAL FORECLOSURE, THE
PURCHASER ACQUIRES NO MORE THAN THE RIGHT OF Right to payment, whether or not such right is reduced to judgment,
REDEMPTION FROM THE FIRST MORTGAGEE." liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; or right to an equitable
The superiority of the mortgagee's lien over that of a subsequent remedy for breach of performance if such breach gives rise to a right to
judgment creditor is now expressly provided in Rule 39, section 16 of the payment, whether or not such right to an equitable remedy is reduced to
Revised Rules of Court, which states with regard to the effect of levy on judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
execution as to third persons that "The levy on execution shall create a secured, unsecured.26
lien in favor of the judgment creditor over the right, title and interest of
the judgment debtor in such property at the time of the levy, subject to Undoubtedly, petitioner had a right to the payment of the value of his
liens or incumbrances then existing." shares. His demand was of a pecuniary nature since he was claiming the
monetary value of his shares. It was in this sense (i.e. as a claimant) that
PAMECA VS CA he was a creditor of Philfinance.
Sec. 14 of Act No. 1508, as amended, or the chattel Mortgage Law, The Civil Code provisions on concurrence and preference of credits are
states: applicable to the liquidation proceedings.27 The next question is, was
petitioner a preferred or ordinary creditor under these provisions?
xxx xxx xxx
Petitioner argues that he was a preferred creditor because private
The officer making the sale shall, within thirty days thereafter, make in respondents illegally withdrew his CSPI shares from the custodian banks
writing a return of his doings and file the same in the office of the and sold them without his knowledge and consent and without authority
Registry of Deeds where the mortgage is recorded, and the Register of from the SEC. He quotes Article 2241 (2) of the Civil Code:
Deeds shall record the same. The fees of the officer for selling the
property shall be the same as the case of sale on execution as provided With reference to specific movable property of the debtor, the following
in Act Numbered One Hundred and Ninety, and the amendments thereto, claims or liens shall be preferred:
and the fees of the Register of Deeds for registering the officer's return
shall be taxed as a part of the costs of sale, which the officer shall pay to (2) Claims arising from misappropriation, breach of trust, or malfeasance
the Register of Deeds. by public officials committed in the performance of their duties, on the
movables, money or securities obtained by them;
The return shall particularly describe the articles sold, and state the
amount received for each article, and shall operate as a discharge of the Article 2241 refers only to specific movable property. His claim was for the
lien thereon created by the mortgage. payment of money, which, as already discussed, is generic property and
not specific or determinate.
The proceeds of such sale shall be applied to the payment,
1. First , of the costs and expenses of keeping and sale, and Considering that petitioner did not fall under any of the provisions
2. then to the payment of the demand or obligation secured by such applicable to preferred creditors, he was deemed an ordinary creditor under
mortgage, and Article 2245:
3. the residue shall be paid to persons holding subsequent mortgages in
their order, and the balance, after paying the mortgage, shall be paid to Credits of any other kind or class, or by any other right or title not
the mortgagor or persons holding under him on demand. (Emphasis comprised in the four preceding articles, shall enjoy no preference.
supplied).
This being so, Article 2251 (2) states that:
It is clear from the above provision that THE EFFECTS OF
FORECLOSURE UNDER THE CHATTEL MORTGAGE LAW RUN Common credits referred to in Article 2245 shall be paid pro rata regardless
INCONSISTENT WITH THOSE OF PLEDGE UNDER ARTICLE 2115. of dates.
WHEREAS, IN PLEDGE, THE SALE OF THE THING PLEDGED Like all the other ordinary creditors or claimants against Philfinance, he was
EXTINGUISHES THE ENTIRE PRINCIPAL OBLIGATION, SUCH entitled to a rate of recovery of only 15% of his money claim.
THAT THE PLEDGOR MAY NO LONGER RECOVER PROCEEDS OF
THE SALE IN EXCESS OF THE AMOUNT OF THE PRINCIPAL BARRETTO VS VILLANUEVA
OBLIGATION, SECTION 14 OF THE CHATTEL MORTGAGE LAW
EXPRESSLY ENTITLES THE MORTGAGOR TO THE BALANCE OF Article 2242 of the new Civil, Code enumerates the claims, mortgage and
THE PROCEEDS, UPON SATISFACTION OF THE PRINCIPAL liens that constitute an encumbrance on specific immovable property, and
OBLIGATION AND COSTS. among them are: .
Since the Chattel Mortgage Law bars the creditor-mortgagee (2) For the unpaid price of real property sold, upon the immovable sold;
from retaining the excess of the sale proceeds there is a corollary and
obligation on the part of the debtor-mortgagee to pay the
deficiency in case of a reduction in the price at public auction. (5) Mortgage credits recorded in the Registry of Property."
While it is true that section 3 of Act No. 1508 provides that "a chattel Article 2249 of the same Code provides that "if there are two or more
mortgage is a conditional sale", it further provides that it "is a credits with respect to the same specific real property or real rights, they
conditional sale of personal property as security for the payment shall be satisfied pro-rata after the payment of the taxes and assessment
of a debt, or for the performance of some other obligation upon the immovable property or real rights.
specified therein." The lower court overlooked the fact that the
chattels included in the chattel mortgage are only given as security and Note must be taken of the fact that article 2242 of the new Civil Code
not as a payment of the debt, in case of a failure of payment. enumerating the preferred claims, mortgages and liens on immovables,
specifically requires that . unlike the unpaid price of real property sold .
THE MERE FACT THAT RESPONDENT BANK WAS THE SOLE mortgage credits, in order to be given preference, should be recorded in the
BIDDER FOR THE MORTGAGED PROPERTIES IN THE PUBLIC SALE Registry of Property.
DOES NOT WARRANT THE CONCLUSION THAT THE
TRANSACTION WAS ATTENDED WITH FRAUD. The law, does not make any distinction between registered and
CORDOVA VS REYES unregistered vendor's lien, which only goes to show that any lien of that
kind enjoys the preferred credit status.
Certainly, petitioner had the right to demand the return of his CSPI
shares.19 He in fact filed a complaint in the liquidation proceedings in Appellants also argue that to give the unrecorded vendor's lien the same
the SEC to get them back but was confronted by an impossible situation standing as the registered mortgage credit would be to nullify the principle
as they had already been sold. Consequently, he sought instead to in land registration system that prior unrecorded interests cannot prejudice
recover their monetary value. persons who subsequently acquire interests over the same property. The
Land Registration Act itself, however, respects without reserve or
Petitioner’s CSPI shares were specific or determinate movable qualification the paramount rights of lien holders on real property. Thus,
properties.20 But after they were sold, the money raised from the sale section 70 of that Act provides that .
became generic21 and were commingled with the cash and other assets
of Philfinance. Unlike shares of stock, money is a generic thing. It is Registered land, and ownership therein shall in all respects be subject to
designated merely by its class or genus without any particular the same burdens and incidents attached by law to unregistered land.
designation or physical segregation from all others of the same class.22 Nothing contained in this Act shall in any way be construed to relieve
This means that once a certain amount is added to the cash balance, one registered land or the owners thereof from any rights incident to the
can no longer pinpoint the specific amount included which then becomes relation of husband and wife, or from liability to attachment on mesne
part of a whole mass of money. process or levy, on execution, or from liability to any lien of any description
established by law on land and the buildings thereon, or the interest of (a) an action to recover possession of real estate;
the owners of such land or buildings, or to change the laws of descent, or (b) an action for partition; and
the rights of partition between co-owners, joint tenants and other (c) any other court proceedings that directly affect the title to the land or
co-tenants or the right to take the same by eminent domain, or to relieve the building thereon or the use or the occupation thereof.
such land from liability to be appropriated in any lawful manner for the
payment of debts, or to change or affect in any other way any other Additionally, this Court has held that resorting to lis pendens is not
rights or liabilities created by law and applicable to unregistered land, necessarily confined to cases that involve title to or possession of real
except as otherwise expressly provided in this Act or in the amendments property. This annotation also applies to suits seeking to establish a right to,
thereof, or an equitable estate or interest in, a specific real property; or to enforce
a lien, a charge or an encumbrance against it.
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, Apparently, petitioner proceeds on the premise that its money claim
suffice it to say that nothing in the law shows any such limitation. If we involves the enforcement of a lien. Since the money claim is for the
are to interpret this portion of the Code as intended only for insolvency nonpayment of materials and labor used in the construction of townhouses,
cases, then other creditor-debtor relationships where there are the lien referred to would have to be that provided under Article 2242 of the
concurrence of credits would be left without any rules to govern them, Civil Code. This provision describes a contractor's lien over an immovable
and it would render purposeless the special laws an insolvency. property as follows:
PHILIPPINE SAVINGS VS LANTIN "Art. 2242. With reference to specific immovable property and real rights of
the debtor, the following claims, mortgages and liens shall be preferred,
Concurrence of credits occurs when the same specific property of the and shall constitute an encumbrance on the immovable or real right:
debtor or all of his property is subjected to the claims of several creditors.
The concurrence of credits raises no questions of consequence where the "(3) Claims of laborers, masons, mechanics and other workmen, as well as
value of the property or the value of all assets of the debtor is sufficient of architects, engineers and contractors, engaged in the construction,
to pay in full all the creditors. However, it becomes material when said reconstruction or repair of buildings, canals or other works, upon said
assets are insufficient for then some creditors of necessity will not be buildings, canals or other works;
paid or some creditors will not obtain the full satisfaction of their claims.
"(4) Claims of furnishers of materials used in the construction,
In this situation, the question of preference will then arise, that is to say reconstruction, or repair of buildings, canals or other works, upon said
who of the creditors will be paid ahead of the others. buildings, canals or other works[.]" (Emphasis supplied)
Under the system established by Article 2249 of the Civil Code of the However, a careful examination of petitioner's Complaint, as well as the
Philippines, only taxes and assessments upon immovable property enjoy reliefs it seeks, reveals that no such lien or interest over the property was
absolute preference. All the remaining specified classes of preferred ever alleged. The Complaint merely asked for the payment of construction
creditors under Article 2242 enjoy no priority among themselves. Their services and materials plus damages, without mentioning -- much less
credits shall be satisfied pro-rata, i.e., in proportion to the amount of the asserting -- a lien or an encumbrance over the property. Verily, it was a
respective credits. purely personal action and a simple collection case. It did not contain any
material averment of any enforceable right, interest or lien in connection
Under the De Barreto decision, the full application of Articles 2242 and with the subject property.
2249 demands that there must first be some proceeding where the
claims of all the preferred creditors may be bindingly adjudicated, such As it is, petitioner's money claim cannot be characterized as an action that
as insolvency, the settlement of a decedent’s estate under Rule 87 of the involves the enforcement of a lien or an encumbrance, one that would thus
Rules of Court, or other liquidation proceedings of similar import. warrant the annotation of the Notice of Lis Pendens. Indeed, the nature of
an action is determined by the allegations of the complaint.
Insolvency proceedings and settlement of a decedent’s estate are both
proceedings in rem which are binding against the whole world. All Even assuming that petitioner had sufficiently alleged such lien or
persons having interest in the subject matter involved, whether they encumbrance in its Complaint, the annotation of the Notice of Lis Pendens
were notified or not, are equally bound. Consequently, a liquidation of would still be unjustified, because a complaint for collection and damages is
similar import or "other equivalent general liquidation’ must also not the proper mode for the enforcement of a contractor's lien.
necessarily be a proceeding in rem so that all interested persons whether
known to the parties or not may be bound by such proceeding. Neither Article 2242 of the Civil Code nor the enforcement of the lien
thereunder is applicable here, because petitioner's Complaint failed to
JL BERNARDO VS CA satisfy the foregoing requirements. Nowhere does it show that
respondent's property was subject to the claims of other creditors or was
Art.'s 2241 and 2242 of the Civil Code enumerates certain credits which insufficient to pay for all concurring debts. Moreover, the Complaint did not
enjoy preference with respect to specific personal or real property of the pertain to insolvency proceedings or to any other action in which the
debtor. Specifically, the contractor's lien claimed by petitioners is adjudication of claims of preferred creditors could be ascertained.
granted under the third paragraph of Article 2242 which provides that
the claims of contractors engaged in the construction, reconstruction or DBP VS NLRC
repair of buildings or other works shall be preferred with respect to the Art. 110 should not be treated apart from other laws but applied in
specific building or other immovable property constructed.13 conjunction with the pertinent provisions of the Civil Code and the
Insolvency Law to the extent that piece-meal distribution of the assets of
However, Article 2242 only finds application when there is a concurrence the debtor is avoided. Art. 110, then prevailing, provides:
of credits, i.e. when the same specific property of the debtor is subjected
to the claims of several creditors and the value of such property of the Art. 110. Worker preference in case of bankruptcy. — In the event of
debtor is insufficient to pay in full all the creditors. In such a situation, bankruptcy or liquidation of an employer's business, his workers shall enjoy
the question of preference will arise, that is, there will be a need to first preference as regards wages due them for services rendered during
determine which of the creditors will be paid ahead of the others.14 the period prior to the bankruptcy or liquidation, any provision to the
Fundamental tenets of due process will dictate that this statutory lien contrary notwithstanding. Unpaid wages shall be paid in full before other
should then only be enforced in the context of some kind of a proceeding creditors may establish any claim to a share in the assets of the employer.
where the claims of all the preferred creditors may be bindingly
adjudicated, such as insolvency proceedings.15 Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules
and Regulations Implementing the Labor Code provides:
This is made explicit by Article 2243 which states that the claims and
liens enumerated in articles 2241 and 2242 shall be considered as Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned
mortgages or pledges of real or personal property, or liens within the by the employees before the declaration of bankruptcy or judicial
purview of legal provisions governing insolvency.16 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
The action filed by petitioners in the trial court does not partake of the in the assets of the employer.
nature of an insolvency proceeding. It is basically for specific
performance and damages.17 Thus, even if it is finally adjudicated that A declaration of bankruptcy or a judicial liquidation must be present before
petitioners herein actually stand in the position of unpaid contractors and the worker's preference may be enforced. Thus, Article 110 of the Labor
are entitled to invoke the contractor's lien granted under Article 2242, Code and its implementing rule cannot be invoked by the respondents in
such lien cannot be enforced in the present action for there is no way of this case absent a formal declaration of bankruptcy or a liquidation order.
determining whether or not there exist other preferred creditors with
claims over the San Antonio Public Market. The records do not contain A preference applies only to claims which do not attach to specific
any allegation that petitioners are the only creditors with respect to such properties. A lien creates a charge on a particular property. The right of first
property. The fact that no third party claims have been filed in the trial preference as regards unpaid wages recognized by Article 110 does not
court will not bar other creditors from subsequently bringing actions and constitute a lien on the property of the insolvent debtor in favor of workers.
claiming that they also have preferred liens against the property It is but a preference of credit in their favor, a preference in application.
involved.
A mortgage directly and immediately subjects the property upon which it is
ATLANTIC VS HERBAL COVE imposed, whoever the possessor may be, to the fulfillment of the obligation
for whose security it was constituted (Article 2176, Civil Code). It creates a
As a general rule, the only instances in which a notice of lis pendens may real right which is enforceable against the whole world. It is a lien on an
be availed of are as follows: identified immovable property, which a preference is not. A recorded
mortgage credit is a special preferred credit under Article 2242 (5) of the owned by the Insolvent. And even in respect of such tobacco and tobacco
Civil Code on classification of credits. The preference given by Article 1l0, products produced by the Insolvent, the claims of the Unions may be given
when not falling within Article 2241 (6) and Article 2242 (3), of the Civil effect only after the Bureau of Internal Revenue's claim for unpaid tobacco
Code and not attached to any specific property, is all ordinary preferred inspection fees shall have been satisfied out of the products so
credit although its impact is to move it from second priority to first manufactured by the Insolvent.
priority in the order of preference established by Article 2244 of the Civil
Code. Article 2242, number 3, also creates a lien or encumbrance upon a building
or other real property of the Insolvent in favor of workmen who constructed
REPUBLIC VS PERALTA or repaired such building or other real property. Article 2242, number 3,
does not however appear relevant in the instant case, since the members of
It should be emphasized in this connection that "duties, taxes and fees the Unions to whom separation pay is due rendered services to the
due [on specific movable property of the insolvent] to the State or any Insolvent not (so far as the record of this case would show) in the
subdivision thereof" (Article 2241 [1]) and "taxes due upon the construction or repair of buildings or other real property, but rather, in the
[insolvent's] land or building (2242 [1])"stand first in preference in regular course of the manufacturing operations of the Insolvent. The
respect of the particular movable or immovable property to which the tax Unions' claims do not therefore constitute a lien or encumbrance upon any
liens have attached. Article 2243 is quite explicit: immovable property owned by the Insolvent, but rather, as already
indicated, upon the Insolvent's existing inventory (if any of processed
"[T]axes mentioned in number 1, Article 2241 and number 1, Article tobacco and tobacco products.
2242 shall first be satisfied. " The claims listed in numbers 2 to 13 in
Article 2241 and in numbers 2 to 10 in Articles 2242, all come after taxes Article 110 of the Labor Code did not sweep away the overriding preference
in order of precedence; accorded under the scheme of the Civil Code to tax claims of the
government or any subdivision thereof which constitute a lien upon
Put succintly, Articles 2241 and 2242 jointly with Articles 2246 to 2249 properties of the Insolvent. It is frequently said that taxes are the very
establish a two-tier order of preference. The first tier includes only taxes, lifeblood of government. The effective collection of taxes is a task of highest
duties and fees due on specific movable or immovable property. All other importance for the sovereign.
special preferred credits stand on the same second tier to be satisfied,
pari passu and pro rata, out of any residual value of the specific property It is critical indeed for its own survival. It follows that language of a much
to which such other credits relate. higher degree of specificity than that exhibited in Article 110 of the Labor
Code is necessary to set aside the intent and purpose of the legislator that
Credits which are specially preferred because they constitute liens (tax shines through the precisely crafted provisions of the Civil Code. It cannot
or non-tax) in turn, take precedence over ordinary preferred credits so be assumed simpliciter that the legislative authority, by using in Article 110
far as concerns the property to which the liens have attached. The the words "first preference" and "any provision of law to the contrary
specially preferred credits must be discharged first out of the proceeds of notwithstanding" intended to disrupt the elaborate and symmetrical
the property to which they relate, before ordinary preferred creditors structure set up in the Civil Code.
may lay claim to any part of such proceeds.
Neither can it be assumed casually that Article 110 intended to subsume
If the value of the specific property involved is greater than the sum total the sovereign itself within the term "other creditors" in stating that "unpaid
of the tax liens and other specially preferred credits, the residual value wages shall be paid in full before other creditors may establish any claim to
will form part of the "free property" of the insolvent — i.e., property not a share in the assets of employer." Insistent considerations of public policy
impressed with liens by operation of Articles 2241 and 2242. If, on the prevent us from giving to "other creditors" a linguistically unlimited scope
other hand, the value of the specific movable or immovable is less than that would embrace the universe of creditors save only unpaid employees.
the aggregate of the tax liens and other specially preferred credits, the
unsatisfied balance of the tax liens and other such credits are to the METROBANK VS NAGUIAT
treated as ordinary credits under Article 2244 and to be paid in the order
of preference there set up. 10 The special preferred credits enumerated in Articles 2241 (with respect to
movable property) and 2242 (with respect to immovable property) are
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on considered as mortgages or pledges of real or personal property, or liens
determinate property which follow such property. What Article 2244 within the purview of Act No. 1956.66 These credits, which enjoy
creates are simply rights in favor of certain creditors to have the cash preference with respect to a specific movable or immovable property,
and other assets of the insolvent applied in a certain sequence or order exclude all others to the extent of the value of the property.67 If there are
of priority. two or more liens on the same specific property, the lienholders divide the
value of the property involved pro rata, after the taxes on the same
In this sequence, certain taxes and assessments also figure but these do property are fully paid.68
not have the same kind of overriding preference that Articles 2241 No. 1
and 2242 No. I create for taxes which constituted liens on the taxpayer's "Credits which are specially preferred because they constitute liens (tax or
property. Under Article 2244, non-tax) in turn, take precedence over ordinary preferred credits so far as
concerns the property to which the liens have attached. The specially
(a) taxes and assessments due to the national government, excluding preferred credits must be discharged first out of the proceeds of the
those which result in tax liens under Articles 2241 No. 1 and 2242 No. 1 property to which they relate, before ordinary preferred creditors may lay
but including the balance thereof not satisfied out of the movable or claim to any part of such proceeds."69
immovable property to which such liens attached, are ninth in priority;
"In contrast with Articles 2241 and 2242, Article 2244 creates no liens on
(b) taxes and assessments due any province, excluding those impressed determinate property which follow such property. What Article 2244
as tax liens under Articles 2241 No. 1 and 2242 No. 1, but including the creates are simply rights in favor of certain creditors to have the cash and
balance thereof not satisfied out of the movable or immovable property other assets of the insolvent applied in a certain sequence or order of
to which such liens attached, are tenth in priority; and priority."70
(d) taxes and assessments due any city or municipality, excluding those (5)Credits and advancements made to the debtor for support of himself or
impressed as tax liens under Articles 2241 No. I and 2242 No. 2 but herself, and family, during the last year preceding the insolvency;
including the balance thereof not satisfied out of the movable or
immovable property to which such liens attached, are eleventh in (6)Support during the insolvency proceedings, and for three months
priority. thereafter;
To the extent that claims for unpaid wages fall outside the scope of (7)Fines and civil indemnification arising from a criminal offense;
Article 2241, number 6 and 2242, number 3, they would come within the
ambit of the category of ordinary preferred credits under Article 2244. (8)Legal expenses, and expenses incurred in the administration of the
insolvent’s estate for the common interest of the creditors, when properly
Article 110 of the Labor Code does not purport to create a lien in favor of authorized and approved by the court;
workers or employees for unpaid wages either upon all of the properties
or upon any particular property owned by their employer. Claims for (9)Taxes and assessments due the national government, other than those
unpaid wages do not therefore fall at all within the category of specially mentioned in articles 2241, No. 1, and 2242, No. 1;
preferred claims established under Articles 2241 and 2242 of the Civil
Code, except to the extent that such claims for unpaid wages are already (10)Taxes and assessments due any province, other than those referred to
covered by Article 2241, number 6. "claims for laborers' wages, on the in articles 2241, No. 1, and 2242, No. 1;
goods manufactured or the work done;" or by Article 2242, number 3:
"claims of laborers and other workers engaged in the construction, (11)Taxes and assessments due any city or municipality, other than those
reconstruction or repair of buildings, canals and other works, upon said indicated in articles 2241, No. 1, and 2242, No. 1;
buildings, canals or other works." To the extent that claims for unpaid
wages fall outside the scope of Article 2241, number 6 and 2242, (12)Damages for death or personal injuries caused by a quasi-delict;
number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244. (13)Gifts due to public and private institutions of charity or beneficence;
Applying Article 2241, number 6 to the instant case, the claims of the (14)Credits which, without special privilege, appear in (a) a public
Unions for separation pay of their members constitute liens attaching to instrument; or (b) in a final judgment, if they have been the subject of
the processed leaf tobacco, cigars and cigarettes and other products litigation.
produced or manufactured by the Insolvent, but not to other assets
These credits shall have preference among themselves in the order of

priority of the dates of the instruments and of the judgments,
respectively.
It was held that concurrence and preference of credits can only be

ascertained in the context of a general liquidation proceeding that is in
rem, such as an insolvency proceeding, where properties of the debtor
are inventoried and liquidated and the claims of all the creditors may be
bindingly adjudicated.71 The application of this order of priorities
established under the Civil Code in insolvency proceedings assures that
priority of claims are respected and credits belonging to the same class
are equitably treated.
With the declaration of insolvency of the debtor, insolvency courts

"obtain full and complete jurisdiction over all property of the insolvent
and of all claims by and against [it.]"94 It follows that the insolvency
court has exclusive jurisdiction to deal with the property of the insolvent.
Consequently, after the mortgagor-debtor has been declared insolvent

and the insolvency court has acquired control of his estate, a mortgagee
may not, without the permission of the insolvency court, institute
proceedings to enforce its lien. In so doing, it would interfere with the
insolvency court’s possession and orderly administration of the
insolvent’s properties.
---- THE END -----

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CREDIT TRANSACTIONS | 3RD EXAM CASE RULINGS| Evayne’s notes in isolation | Is there gonna be an exam| See you next

its negligence, takes the place of registration of the rights of

PNB VS CORPUZ Registration is a mere ministerial act by which a deed, contract or

The petitioner had the opportunity to include some form of PINEDA VS CA

4) execution sales, pursuant to the last paragraph of Section 33, Rule 39

A writ of possession may be issued in favor of a purchaser in a DARCEN VS GONZALES

SPS LANDRITO VS CA SPS GUEVARRA VS THE COMMONER LENDING

LILIUS VS MANILA ROAD

6 AND HERE PLAINTIFFS HAD TIMELY FILED THEIR ACTION

These credits shall have preference among themselves in the order of

It was held that concurrence and preference of credits can only be

With the declaration of insolvency of the debtor, insolvency courts

Consequently, after the mortgagor-debtor has been declared insolvent

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