CREDIT TRANSACTIONS

Case Assignment No. 5

Real Estate Mortgage:

1. Prudential Bank vs. Panis

G.R. No. 50008, August 31, 1987

FACTS:
Spouses Magcale secured a loan from Prudential Bank. To secure payment, they executed a real
estate mortgage over a residential building. The mortgage included also the right to occupy the lot
and the information about the sales patent applied for by the spouses for the lot to which the
building stood. After securing the first loan, the spouses secured another from the same bank. To
secure payment, another real estate mortgage was executed over the same properties.

The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land which was
later on mortgaged to the bank.

The spouses then failed to pay for the loan and the REM was extrajudicially foreclosed and sold
in public auction despite opposition from the spouses. The respondent court held that the REM
was null and void.

ISSUE:
Whether or not a valid RE mortgage can be constituted on the building erected on the lot
belonging to another. YES

HELD:
A real estate mortgage can be constituted on the building erected on the land belonging to
another.

The inclusion of building distinct and separate from the land in the Civil Code can only mean that
the building itself is an immovable property.

While it is true that a mortgage of land necessarily includes in the absence of stipulation
of the improvements thereon, buildings, still a building in itself may be mortgaged by itself
apart from the land on which it is built. Such a mortgage would still be considered as a
REM for the building would still be considered as immovable property even if dealt with
separately and apart from the land.

The original mortgage on the building and right to occupancy of the land was executed
before the issuance of the sales patent and before the government was divested of title to
the land. Under the foregoing, it is evident that the mortgage executed by private
respondent on his own building was a valid mortgage.

As to the second mortgage, it was done after the sales patent was issued and thus prohibits
pertinent provisions of the Public Land Act.

2. Dionisio Mojica vs. Court of Appeals

G.R. No. 94247, September 11, 1991

Facts:
                Leonardo Mojica contracted a loan of P20,000.00 from defendant Rural Bank of
Kawit, Inc.  This loan was secured by a real estate mortgage executed on the same date by the
plaintiffs spouses Leonardo Mojica and Marina Rufido. 
The real estate mortgage contract states among others:
... agreement for the payment of the loan of P20,000.00 and such other loans or other
advances already obtained or still to be obtained by the mortgagors ..
 ... but if the mortgagors shall well and truly fulfill the obligation above stated according
to the terms thereof then this mortgage shall become null and void.
The spouses mortgaged to the Rural Bank of Kawit, a parcel of land consisting of
218,794 square meters, located in Naic, Cavite. The loan of P20,000.00 by the plaintiffs spouses
was fully and completely paid. On March 5, 1974, a new loan in the amount of P18,000.00 was
obtained by plaintiffs spouses from the defendant Rural Bank which loan matured on March 5,
1975. No formal deed of real mortgage was constituted over any property of the borrowers,
although the top of the promissory note dated March 5, 1974, contained the following
notation.
This promissory note is secured by a Real Estate Mortgage which guaranteed the
already paid loan of P20,000.00. 
The spouses Leonardo Mojica and Marina Rufido failed to pay their obligation after its
maturity on March 5, 1975. Respondent rural bank extrajudicially foreclosed the real estate
mortgage on the justification that it was adopted as a mortgage for the new loan of
P18,000.00.  The subject property was set for auction sale by the Provincial Sheriff of Cavite for
June 27, 1979. In that auction sale, defendant rural bank was the highest bidder, and its bid
corresponded to the total outstanding obligation of plaintiffs spouses Mojica and Rufido.
The refusal of the same bank to allow Dionisio Mojica to pay the unpaid balance of the
loan as per the "Computation Slip" amounting to P21,272.50, resulted in the filing of a
complaint. 
 
Issue:
                Whether or not the foreclosure sale by the Sheriff on June 27, 1979, had for its basis, a
valid and subsisting mortgage contract.
 
Held:
                YES. It has long been settled by a long line of decisions that mortgages given to secure
future advancements are valid and legal contracts; that the amounts named as consideration
in said contract do not limit the amount for which the mortgage may stand as security if from
the four corners of the instrument the intent to secure future and other indebtedness can be
gathered.

A mortgage given to secure advancements is a continuing security and is not discharged by

repayment of the amount named in the mortgage, until the full amount of the advancements
are paid.
In fact, it has also been held that where the annotation on the back of a certificate of title
about a first mortgage states "that the mortgage secured the payment of a certain amount of
money plus interest plus other obligations arising there under' there was no necessity for any
notation of the later loans on the mortgagors' title.

It was incumbent upon any subsequent mortgagee or encumbrances of the property in question
to the books and records of the bank, as first mortgagee, regarding the credit standing of the
debtors.

3. Claudio vs. Spouses Saraza

G.R. No. 213286, August 26, 2015

The petitioners filed before the RTC a complaint for annulment of sale, power
of attorney and mortgage with prayer for damages against the respondents
Spouses Federico and Norma Saraza (Spouses Saraza).

The complaint alleged that Porfirio Claudio, and his wife, Mamerta, during their
marriage, acquired ten (10) parcels of land in Pasay City, including the property
covered by TCT No. 142989. Florentino made it appear that his parents,
Porfirio and Mamerta Claudio, sold the lot covered by TCT No. 142989 to him
through a Deed of Absolute Sale.

However, it was alleged that the deed of sale was void because the signatures
of the vendors were forged and there was no consideration for the sale.
Likewise, the signatures of petitioners Fermin and Asuncion appearing in the same
deed of sale were likewise forged. Subsequently, Florentino sought the
registration of the said property in his name.

Thereafter, on June 22, 2004, Florentino executed a deed of REM over the
subject lot with special power to sell the mortgaged property without judicial
proceedings, in favor of Spouses Saraza to secure the payment of a loan in the
amount of P1,000,000.00.

It was alleged that Spouses Saraza were mortgagees in bad faith, knowing fully
well that Florentino could not have acquired the subject property from his
parents since Porfirio had long been deceased while Mamerta was in the USA
at the time of the alleged sale.

Further, the petitioners argued that Spouses Saraza did not ascertain the
validity of Florentino’s title and his authority to mortgage the subject lot. As
such, the REM was void because it emanated from a falsified deed of absolute
sale and void title.

The registration of the REM before the Register of Deeds was procured through
fraud, and that it was only on June 28, 2004 or six (6) days after the execution of the
mortgage, that TCT No. 142989 was cancelled and, in lieu thereof, TCT No. 145979
was issued in the name of Florentino. Thus, for failure of mortgagor Florentino to
redeem the subject property, it was consolidated in the name of Spouses
Saraza. The RTC dismissed the Complaint.

The CA, on the other hand, ruled that Spouses Saraza had the right to rely in
good faith on TCT No. 145979, which covered the lot given as security by
Florentino, considering that there was no showing of any sign to excite
suspicion. Thus, they were under no obligation to look beyond what appeared
on the face of the certificate of title and investigate it. The CA deemed Spouses
Saraza as innocent mortgagees for value and as such, the petitioners had
shown no right to relief against them.

ISSUE: Whether the respondents are mortgagees in good faith. (NO)

RULING: The Court finds that Spouses Saraza are not mortgagees in good faith.
Based on the doctrine of "the mortgagee in good faith," all persons dealing
with property covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the face of the
title. The public interest in upholding the indefeasibility of a certificate of title,
as evidence of the lawful ownership of the land or of any encumbrance
thereon, protects a buyer or mortgagee who, in good faith, relied upon what
appears on the face of the certificate of title.

Verily, a mortgagee has a right to rely in good faith on the certificate of title of
the mortgagor and, in the absence of any sign that might arouse suspicion, has
no obligation to undertake further investigation. Accordingly, even if the
mortgagor is not the rightful owner of, or does not have a valid title to, the
mortgaged property, the mortgagee in good faith is entitled to protection. This
doctrine presupposes, however, that the mortgagor, who is not the rightful
owner of the property, has already succeeded in obtaining a Torrens title over
the property in his name and that, after obtaining the said title, he succeeds in
mortgaging the property to another who relies on what appears on the said
title.

In this case, evidence shows that the REM, constituted on the subject property,
was executed on June 22, 2004, while TCT No. 145979, in the name of
Florentino, was issued by the Register of Deeds only six (6) days later or on
June 28, 2004. Evidently, the property, offered as collateral to the loan of P1
Million, was not in Florentino's name yet when he entered into a mortgage
agreement with Spouses Saraza.

Further, the Court finds it unusual that Florentino did not indicate the TCT
number in the mortgage contract, if indeed, one had already been issued in his
favor. The TCT number is essential to identify the title covering the mortgaged
land.

Notwithstanding the said omission, Spouses Saraza still allowed the loan and
entered into a mortgage agreement with Florentino. Considering the
substantial loan involved in the agreement, Spouses Saraza should have
undertaken the necessary steps to ascertain any flaw in the title of Florentino
or to check his capacity to transfer any interest in the mortgaged land. Instead,
Spouses Saraza closed their eyes on a fact which should put a reasonable man
on guard as to the ownership of the property being presented as security for a
loan.

A person who deliberately ignores a significant fact that would create

suspicion in an otherwise reasonable person is not an innocent purchaser
(mortgagee) for value.

The doctrine of mortgagee in good faith only applies when the mortgagor has
already obtained a certificate of title in his or her name at the time of the
mortgage. Such was not the situation of Spouses Saraza. They cannot claim the
protection accorded by law to innocent mortgagees for value considering that
there was no certificate of title yet in the name of Florentino to rely on when
the mortgaged contract was executed.

Besides, the evidence proffered by the petitioners tends to show that the deed of
absolute sale was a forgery because the alleged vendor, Porfirio, was already dead at
the time of the purported sale. It is a well-entrenched rule that a forged or
fraudulent deed is a nullity and conveys no title. Moreover, where the deed of sale
states that the purchase price has been paid but, in fact, has never been paid, the
deed of sale is void ab initio for lack of consideration. Consequently, the purported
buyer, Florentino, could not have validly mortgaged the subject property.

In a real estate mortgage contract, it is essential that the mortgagor be the

absolute owner of the property to be mortgaged; otherwise, the mortgage is
void.

4. Maybank Phils., Inc. vs. Spouses Tarrosa

G.R. No. 213014, October 14, 2015

Facts:
- Sps. Tarrosa obtained a loan from then PNB-Republic Bank, now
Maybank Philippines, Inc. (Maybank),
- After paying the said loan, or sometime in March 1983, Sps. Tarrosa
obtained another loan from Maybank payable on March 11, 1984.
- However, Sps. Tarrosa failed to settle the second loan upon maturity.
- Sometime in April 1998, Sps. Tarrosa received a Final Demand Letter]
dated March 4, 1998 (final demand letter) from Maybank requiring them
to settle their outstanding loan.
- They offered to pay a lesser amount, which Maybank refused.
- Maybank commenced extrajudicial foreclosure proceedings of which
The subject property was eventually sold in a public auction
- Sps. Tarrosa filed a complaint for declaration of nullity and invalidity of
the foreclosure of real estate and of public auction sale proceedings on
the ground that Maybank's right to foreclose had prescribed.
- RTC held that the second loan was subject to the continuing security
provision in the real estate mortgage. 24 However, it ruled that
Maybank's right to foreclose, reckoned from the time the mortgage
indebtedness became due and payable on March 11, 1984, had already
prescribed, considering the lack of any timely judicial action, written extrajudicial
demand or written acknowledgment by the debtor of his debt that could interrupt the
prescriptive period.25 Accordingly, it declared the extrajudicial foreclosure
proceedings affecting the subject property as null and void, and ordered
Maybank to pay Sps. Tarrosa moral and exemplary damages, as well as
attorney's fees and litigation expenses.
- CA affirmed the RTC ruling that Maybank's right to foreclose the real
estate mortgage over the subject property is already barred by
prescription.

- Issue: whether or not the CA committed reversible error in finding that

Maybank's right to foreclose the real estate mortgage over the subject
property was barred by prescription.

- Ruling: Yes. In the absence of showing that demand is unnecessary for

the loan obligation to become due and demandable, Maybank's right to
foreclose the real estate mortgage accrued only after the lapse of the
period indicated in its final demand letter for Sps. Tarrosa to pay, i.e.,
after the lapse of five (5) days from receipt of the final demand letter
dated March 4, 1998.

- An action to enforce a right arising from a mortgage should be

enforced within ten (10) years from the time the right of action
accrues, i.e., when the mortgagor defaults in the payment of his
obligation to the mortgagee; otherwise, it will be barred by
prescription and the mortgagee will lose his rights under the
mortgage.34 However, mere delinquency in payment does not necessarily
mean delay in the legal concept. To be in default is different from mere
delay in the grammatical sense, because it involves the beginning of a
special condition or status which has its own peculiar effects or results.

- In order that the debtor may be in default, it is necessary that: (a) the
obligation be demandable and already liquidated; (b)the debtor delays
performance; and (c) the creditor requires the performance judicially
or extrajudicially, unless demand is not necessary - i.e., when there is
an express stipulation to that effect; where the law so provides; when
the period is the controlling motive or the principal inducement for the
creation of the obligation; and where demand would be useless.
 - Moreover, it is not sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the period lapses,
default will commence. Thus, it is only when demand to pay is unnecessary in
case of the aforementioned circumstances, or when required, such demand is
made and subsequently refused that the mortgagor can be considered in
default and the mortgagee obtains the right to file an action to collect the
debt or foreclose the mortgage.

5. Serfino vs. C.A.

G.R. No. 40868, September 15, 1987

Facts:
- On 25 August 1937, a parcel of land was patented in the name of Pacifico
Casamayor (OCT 1839).
- On 14 December 1945, he sold said land in favor of Nemesia D. Balatazar
(TCT No. 57-N, 18 January 1946).
- OCT 1839 was lost during the war and upon petition of Nemesia
Baltazar, the Court of First Instance of Negros Occidental ordered the
reconstitution thereof.
- Pursuant thereto, OCT 14-R (1839) was issued on 18 January 1946 in
the name of Pacifico Casamayor.
- On that same day, TCT 57-N was issued in the name of Nemesia Baltazar
but after the cancellation of OCT 14-R (1839).
- On 15 August 1951, Nemesia Baltazar, sold said property to Lopez Sugar
Central Mill Co., and the latter did not present the documents for
registration until 17 December 1964 to the Office of the Registry of
Deeds.
- Said office refused registration upon its discovery that the same
property was covered by another certificate of title, TCT 38985, in the
name of Federico Serfino.
- On 19 November 1964, the spouses Serfinos mortgaged the land to the
Philippine National Bank (PNB) to secure a loan in the amount of
P5,000.00; which was inscribed in TCT No. 38985.
- The Lopez Sugar Central instituted an action to recover said land; and
the lower court rendered a decision ordering the cancellation of TCT
No. 38985; issuance of a new TCT in the name of plaintiff; and the
payment of the plaintiff PNB the loan of spouses Serfinos secured by
said land.
- Both parties appealed from this decision of the trial court. Ruling on the
assignment of errors, the appellate court affirmed the judgment of the
trial court with modification in its decision setting aside the decision of
the trial court declaring plaintiff liable to PNB for payment, however,
ordering the plaintiff to reimburse the Serfino spouses of the sum
P1,839.49, representing the unpaid taxes and penalties paid by the
latter when they repurchased the property.
- Hence, the appeal by the spouses Serfino and PNB to the Supreme Court.

Issue: Whether the auction sale of the disputed property was null and void.

- Held: YES. Notice of sale to the delinquent land owners and to the public
in general is an essential and indispensable requirement of law, the
non-fulfillment of which vitiates the sale.
 - In the case at bar, there is no evidence that Nemesia Baltazar, who had
obtained a transfer certificate of title in her name on January 18, 1946, was
notified of the auction sale which was scheduled on October 30, 1956. Neither
was she furnished as the owner of the delinquent real property with the
certificate of sale as prescribed by Sec. 37 of Commonwealth Act No. 470.
These infirmities are fatal. Worth mentioning also is the fact that Lopez Sugar
Central was not entirely negligent in its payment of land taxes. The record
shows that taxes were paid for the years 1950 to 1953 and a receipt therefor
was obtained in its name. The sale therefore by the Province of Negros
Occidental of the land in dispute to the spouses Serfinos was void since the
Province of Negros Occidental was not the real owner of the property thus
sold. In turn, the spouses Serfinos title which has been derived from that of the
Province of Negros Occidental is likewise void. A purchaser of real estate at
the tax sale obtains only such title as that held by the taxpayer, the principle
of caveat emptor applies. Where land is sold for delinquency taxes under the
provisions of the Provincial Assessment Law, rights of registered but
undeclared owners of the land are not affected by the proceedings and the sale
conveys only such interest as the person who has declared the property for
taxation has therein.

- In the present case, Lopez Sugar Central was not entirely negligent in its
payment of land taxes. The record shows that taxes were paid for the
years 1950 to 1953 and a receipt therefor was obtained in its name. The
sale therefore by the Province of Negros Occidental of the land in
dispute to the spouses Serfinos was void since the Province of Negros
Occidental was not the real owner of the property thus sold. In turn, the
spouses Serfinos title which has been derived from that of the Province
of Negros Occidental is likewise void.

- However, the fact that the public auction sale of the disputed property was
not valid cannot in any way be attributed to the mortgagee’s fault. The
inability of the Register of Deeds to notify the actual owner or Lopez Sugar
Central of the scheduled public auction sale was partly due to the failure of
Lopez Sugar Central to declare the land in its name for a number of years and
to pay the complete taxes thereon. PNB is therefore entitled to the payment
of the mortgage loan as ruled by the trial court and exempted from the
payment of costs. The Supreme Court affirmed the assailed decision, with
modification that PNB mortgage credit must be paid by Lopez Sugar Central.

WON Petitioner is mortgagee in good faith.

YES. Petitioner Philippine National Bank relied on TCT No. 38985, the genuineness of
which is not in issue as it was really issued by the Register of Deeds of Negros Occidental.
Philippine National Bank had every right to rely on TCT No. 38985 as it was sufficient
evidence of ownership of the mortgagor. The Philippine National Bank at that time had no
way of knowing of the existence of another genuine title covering the same land in question.

The fact that the public auction sale of the disputed property was not valid (for lack of notice
of the auction sale to the actual owner) can not in any way be attributed to the mortgagee's
(PNB's) fault. The fact remains that in spite of the lack of notice to the actual registered
owner at that time (who was Nemesia Baltazar) the Register of Deeds issued a TCT in the
name of Federico Serfino married to Lorna Bachar which title was relied upon by petitioner
Philippine National Bank. The Register of Deeds disowned liability and negligence or
connivance claiming that existence of TCT No. 57-N in the name of Nemesia Baltazar was
not found in the records of the Register of Deeds for the reason that it did not exist in the
index card as the land was not designated by cadastral lot number. Thus the discrepancy
was due to the faulty system of indexing the parcels of land. Be it noted that the inability of
the Register of Deeds to notify the actual owner or Lopez Sugar Central of the scheduled
public auction sale was partly due to the failure of Lopez Sugar Central to declare the land in
its name for a number of years and to pay the complete taxes thereon. Petitioner Philippine
National Bank is therefore entitled to the payment of the mortgage loan as ruled by the trial
court and exempted from the payment of costs.

6. GE Money Bank, Inc. vs. Spouses Dizon

G.R. No. 184301, March 23, 2015

7. Pedro Dimasacat and Ernesto Robles vs. CA

G.R. No. 26575, February 27, 1969

8. BPI vs. Spouses Co

G.R. No. 171172, November 9, 2015

9. Philippine National Bank vs. Tan Dee

G.R. No. 182128, February 19, 2014

10. Robles vs. Yapcinco

G.R. No. 169568, October 22, 2014

11. Spouses Jonsay vs. Solidbank Corp.

G.R. No. 206459, April 6, 2016

12. Vitug vs. ABuda

G.R. No. 201264, January 11, 2016

13. Metropolitan Bank and Trust Company vs. Tan

G.R. No. 202176, August 1, 2016

14. H and H Company Agricultural Corporation vs. Adriano Perlas

G.R. No. 217095, February 12, 2020

15. BPI Family and Savings Bank vs. Spouses Jacinto and Rosita
Soriano, et. al.
G.R. No. 214931, June 8, 2020

16. Panacan Lumber Company vs. Solidbank Corporation

G.R. No. 226272, September 16, 2020

Chattel Mortgage:
1. Marquez vs. Elisan Credit Corp.
G.R. No. 194642, April 06, 2015

2. Northern Motors, Inc vs. Jorge Coquia

G.R. No. L-40018, August 29, 1975

Read:

Articles 2124-2131; 2140-2141

Act No. 3135