1 Rayo vs.

Metropolitan Bank and Trust Company

FACTS:

Midas Diversified Export Corp. (Midas), thru its president, Mr. Samuel U. Lee, obtained six (6)
loans from private respondent Metrobank, amounting to P588,870,000 as evidenced by
promissory notes. To secure the payment of an P8,000,000 loan, Louisville Realty &
Development Corporation (Louisville), thru its president, Mr. Samuel U. Lee, executed in favor
of Metrobank, a real estate mortgage over three parcels of land, with all the buildings and
improvements thereon.

When the debtor-mortgagor failed to pay, Metrobank extra-judicially foreclosed the real estate
mortgage in accordance with Act No. 3135, as amended. Thereafter, in a public auction,
Metrobank was the highest bidder. A Certificate of Sale was duly registered with the Registry of
Deeds of Quezon City. When Louisville refused to turn over the real properties, Metrobank filed
before the Regional Trial Court (RTC), an ex parte petition for the issuance of a writ of
possession. After presentation of evidence ex parte, the RTC granted the petition in favor of the
petitioner, Metrobank, placing them in possession over the parcels of land with all its
improvements.

Eduardo L. Rayo filed a complaint against Metrobank for Nullification of Real Estate Mortgage
Contract(s) and Extrajudicial Foreclosure Sale. Rayo also filed with the CA a Petition for
Annulment of Judgment on the ground of “absolute lack of due process.” Petitioner alleged that
his predecessor, Louisville, was not notified of the proceedings and that Section 712 (ex parte
motion or petition for the issuance of a writ of possession) of Act No. 3135 is unconstitutional.

The CA denied the petition for lack of merit.

ISSUE:

W/N Rayo has the legal personality in the annulment of judgment proceedings of the issuance
of the writ of possession.

HELD:

The Court found that petitioner has no present substantial interest to institute the annulment of
judgment proceedings and nullify the order granting the writ of possession. In the deed of
assignment, Rayo acknowledged that the subject real properties were already sold at various
extrajudicial foreclosure sales and bought by Metrobank. Clearly, petitioner recognized the prior
existing right of Metrobank as the mortgagee-purchaser over the subject real properties. Actual
knowledge of a prior mortgage with Metrobank is equivalent to notice of registration in
accordance with Article 2125 of the Civil Code. Conformably with Articles 1312 and 2126 of the
Civil Code, a real right or lien in favor of Metrobank had already been established, subsisting
over the properties until the discharge of the principal obligation, whoever the possessor(s) of
the land might be. As Rayo is not a party whose interest is adverse to that of Louisville, there
was no bar to the issuance of a writ of possession to Metrobank. It does not matter that
petitioner was not specifically named in the writ of possession nor notified of such proceedings.
2 PCSO vs New Dagupan
Facts:

 Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of land located at
Bonuan Blue Beach Subdivision, Dagupan City under TCT No. 52135. In1989, a real estate
mortgage was constituted over such property in favor of PCSO to secure the payment of
the sweepstakes tickets purchased by one of its provincial distributors, Patricia P. Galang
(Galang)
 Peralta sold the property to New Dagupan and coveyance is upon full payment of
P800,000. Peralta showed to New Dagupan a photocopy of TCT No. 52135, which bore no
liens and encumbrances, and undertook to deliver the owner’s duplicate within three (3)
months from the execution of the contract
 New Dagupan withheld payment of the last instalment in view of Peralta’s failure to deliver
the owner’s duplicate of TCT No. 52135 and to execute a deed of absolute sale in its favor.
Due to Peralta’s failure to deliver the title, New Dagupan filed an action for specific
performance with the RTC
 PCSO registered the mortgage during the pendency of New Dagupan’s complaint Because
Galang was unable to pay, PCSO filed to extrajudicially foreclose the property, and the
certificate title was given to PCSO for being the higest bidder
 The TCT New Dagupan obtained for the case reflected the mortgage lien
 New Dagupan, claiming that it is only then that it was informed of the subject mortgage,
sent a letter to PCSO on October 28, 1993, notifed PCSO of its complaint against Peralta
and its claim over the subject property and suggesting that PCSO intervene and participate
in the case
 The RTC approved the compromise agreement bewteen New Dagupan and Peralta and
New Dagupan demanded the title again, and in a letter demanded the owner’s duplicate
title from PCSO but PCSO replied that it has already foreclosed the property
ISSUE

 Who has a better right between New Dagupan and PCSO over the property?
RULING

 Petition is denied, owing to the following

a) At the time of PCSO’s registration of its mortgage lien on May 20, 1992, the
subject mortgage had already been discharged by Galang’s full payment of P450,000.00, the
amount specified in the Deed of Undertaking with First Real Estate Mortgage;
b) There is nothing in the Deed of Undertaking with First Real Estate Mortgage that
would indicate that it is a continuing security or that there is an intent to secure Galang’s future
debts;
c) Assuming the contrary, New Dagupan is not bound by PCSO’s mortgage lien
and was a purchaser in good faith and for value; and
d) While the subject mortgage predated the sale of the subject property to New
Dagupan, the absence of any evidence that the latter had knowledge of PCSO’s mortgage lien
at the time of the sale and its prior registration of an adverse claim created a preference in its
favor
1. As a general rule, a mortgage liability is usually limited to the amount mentioned in the
contract. However, 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 has been commonly
referred to as a "blanket mortgage" or "dragnet" clause, and is in the nature of a continuing
guaranty
 a continuing guaranty is one that covers all transactions, including those arising in the
future, which are within the description or contemplation of the contract of guaranty, until the
expiration or termination thereof
 PCSO claims that the mortgage is a continuing guaranty intended to secure beyond the
amount of the ticket purchase and is therefore not discharged
 The court disagrees. The provisions of the mortgage contract do not show that it is a
continuing guaranty, the use of the terms "outstanding" and "unpaid" militates against
PCSO’s claim that future ticket purchases are likewise secured.
 By Galang’s payment of the debt in 1992, before the mortgage was registered, the
mortgage was discharged and PCSO had registered a non-existent mortgage and had
nothing to foreclose
 This cannot defeat New Dagupan’s title over the property.
2. Sections 51 and 53 of P.D. No. 1529 and Art. 2125 construed together provide that third
persons are not bound by an unregistered mortgage. The law does not require a person dealing
with the owner of registered land to go beyond the certificate of title as he may rely on the
notices of the encumbrances on the property annotated on the certificate of title or absence of
any annotation
New Dagupan had already bought the property when PCSO registered it. New Dagupan is a
purhcaser in good faith and for value and not bound by the mortgage lien
3 Spouses PADERES v. CA

Facts:

On 1982, Manila International Construction Corporation (MICC) executed a real estate

mortgage over 21 registered parcels of land including the improvements thereon in favor of
Banco Filipino Savings and Mortgage Bank.

Subsequently, MICC sold a lot among the 21, together with the house thereon, to the petitioners
in the first case, the Paderes spouses. MICC sold the house built on another lot to the
petitioners in the second case, the Bergado spouses. Neither sale was registered, however.

For failure of MICC to settle its obligations, Banco Filipino filed a verified Petition for the
extrajudicial foreclosure of MICC's mortgage. At the auction sale of the foreclosed properties,
Banco Filipino was declared the highest bidder. No redemption of the foreclosed mortgage
having been made within the reglementary period, the then Liquidator of Banco Filipino, filed a
Petition for the issuance of a Writ of Possession of the foreclosed properties with the RTC. After
hearing, the Petition was granted. Copies of the Writ of Possession, together with a notice
addressed to MICC "and/or All persons claiming rights under them" to voluntarily vacate the
premises within 7 days from receipt thereof, were served on petitioners.1

Instead of vacating the two lots, however, petitioners filed separate petitions before the Court of
Appeals, which were later consolidated, assailing the validity of the Writ of Possession. The
Court of Appeals dismissed the consolidated petitions for lack of merit and upheld the validity of
the Writ of Possession.

Issue: Whether or not having purchased their respective properties in good faith from MICC,
they are third parties whose right thereto are superior to that of Banco Filipino; whether or not
they are still entitled to redeem the properties; whether or not the writ of possession had lost its
validity and efficacy and should therefore be declared null and void.

Ruling:

In extra-judicial foreclosures of real estate mortgages, the issuance of a writ of possession,

which is an order commanding the sheriff to place a person in possession of the foreclosed
property, is governed by Section 7 of Act No. 3135 (an act to regulate the sale of property under
special powers inserted in or annexed to real estate mortgages).

Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court
of First Instance of the province or place where the property or any part thereof is situated, to
give him possession thereof 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 debtor in
case it be shown that the sale was made without violating the mortgage or without complying
with the requirements of this Act. Such petition shall be made under oath and filed in form of an
ex parte motion in the registration or cadastral proceedings if the property is registered, or in
special proceedings in the case of property registered under the Mortgage Law or under section
one hundred and ninety-four of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in accordance
with any existing law, and in each case the clerk of the court shall, upon the filing of such
petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of
Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight
hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the property is situated, who
shall execute said order immediately.

That petitioners purchased their properties from MICC in good faith is of no moment. The
purchases took place after MICC's mortgage to Banco Filipino had been registered accordingly.
As such, under Articles 1312 and 2126 of the Civil Code, a real right or lien in favor of Banco
Filipino had already been established, subsisting over the properties until the discharge of the
principal obligation, whoever the possessor(s) of the land might be.

Sale or transfer cannot affect or release the mortgage. A purchaser is necessarily bound
to acknowledge and respect the encumbrance to which is subjected the purchased thing
and which is at the disposal of the creditor "in order that he, under the terms of the
contract, may recover the amount of his credit therefrom." For, a recorded real estate
mortgage is a right in rem, a lien on the property whoever its owner may be. Because the
personality of the owner is disregarded; the mortgage subsists notwithstanding changes
of ownership; the last transferee is just as much of a debtor as the first one; and this,
independent of whether the transferee knows or not the person of the mortgagee. So it
is, that a mortgage lien is inseperable from the property mortgaged. All subsequent
purchasers thereof must respect the mortgage, whether the transfer to them be with or
without the consent of the mortgagee. For, the mortgage, until discharge, follows the
property.

As for petitioners' argument that they are still entitled to redeem the foreclosed properties, it
must be rejected too.The debtor in extra-judicial foreclosures under Act No. 3135, or his
successor-in-interest, has, one year from the date of registration of the Certificate of Sale with
the Registry of Deeds, a right to redeem the foreclosed mortgage, hence, petitioners, as MICC's
successors-in-interest, had one year from the registration of the Certificate of Sale on July 29,
1985 or until July 29, 1986 for the purpose.

Petitioners, however, failed to do so. Ownership of the subject properties was thus consolidated
in favor of Banco Filipino.

Finally, the respondents claim that the petition for the issuance of a writ of possession was filed
out of time, the said petition having been filed more than five years after the issuance of the final
decree of registration. This argument fails too. In Rodil v. Benedicto, this Court categorically
held that the right of the applicant or a subsequent purchaser to request for the issuance of a
writ of possession of the land never prescribes.
4 Pablo Garcia vs Yolanda Valdez Villar

Facts: Lourdes Galas was the original owner of the subject property of this case located at
Malindang St. Quezon City. Galas, together with her daughter, Pingol, as co-maker, mortgaged
the subject property to Yolanda Valdez Villar (Villar) as security for a loan in the amount of Two
Million Two Hundred Thousand Pesos (₱2,200,000.00). In a separate date, Galas, again with
Pingol as her co-maker, mortgaged the same subject property to Pablo P. Garcia (Garcia) to
secure her loan of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).

On November 21, 1996, Galas sold the subject property to Villar for One Million Five
Hundred Thousand Pesos (₱1,500,000.00), and declared in the Deed of Sale that such property
was "free and clear of all liens and encumbrances of any kind whatsoever." On December 3,
1996, the Deed of Sale was registered and, consequently, was issued in the name of Villar.
Both Villar’s and Garcia’s mortgages were carried over and annotated at the back of Villar’s new
TCT.

On October 27, 1999, Garcia filed a Petition for Mandamus with Damages against Villar.
Garcia subsequently amended his petition to a Complaint for Foreclosure of Real Estate
Mortgage with Damages.

Issue:

1. W/N the second mortgage to Garcia was valid.

2. W/N the sale of the subject property is valid.
3. W/N the sale of the subject property to Villar was in violation of the prohibition on pactum
commissorium.
4. W/N Garcia’s action for foreclosure of mortgage on the subject property can
prosper. *related issue*

Held:

1. The Court rules that the second mortgage was valid.

While it is true that the annotation of the first mortgage to Villar on Galas’s TCT
contained a restriction on further encumbrances without the mortgagee’s prior consent,
this restriction was nowhere to be found in the Deed of Real Estate Mortgage. As this
Deed became the basis for the annotation on Galas’s title, its terms and conditions take
precedence over the standard, stamped annotation placed on her title. If it were the
intention of the parties to impose such restriction, they would have and should have
stipulated such in the Deed of Real Estate Mortgage itself.

2. The Court ruled that the sale was valid.

The Deed of Real Estate Mortgage merely provided for the options Villar may
undertake in case Galas or Pingol fail to pay their loan. Nowhere was it stated in the
Deed that Galas could not opt to sell the subject property to Villar, or to any other
person. Such stipulation would have been void anyway, as it is not allowed under Article
2130 of the Civil Code, to wit:
 Art. 2130. A stipulation forbidding the owner from alienating the
immovable mortgaged shall be void.
3. The Court rules that there was no pactum commissorium.
Garcia claims that the stipulation appointing Villar, the mortgagee, as the
mortgagor’s attorney-in-fact, to sell the property in case of default in the payment of the
loan, is in violation of the prohibition on pactum commissorium.
Villar’s purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney provision mentioned did not provide that the
ownership over the subject property would automatically pass to Villar upon Galas’s
failure to pay the loan on time. What it granted was the mere appointment of Villar as
attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to
apply the proceeds to the payment of the loan. Galas’s decision to eventually sell the
subject property to Villar for an additional ₱1,500,000.00 was well within the scope of her
rights as the owner of the subject property. The subject property was transferred to Villar
by virtue of another and separate contract, which is the Deed of Sale. Garcia never
alleged that the transfer of the subject property to Villar was automatic upon Galas’s
failure to discharge her debt, or that the sale was simulated to cover up such automatic
transfer.
4. The Court ruled that there was no cause of action.
A mortgage is a real right, which follows the property, even after subsequent
transfers by the mortgagor. "A registered mortgage lien is considered inseparable from
the property inasmuch as it is a right in rem." The sale or transfer of the mortgaged
property cannot affect or release the mortgage; thus, the purchaser or transferee is
necessarily bound to acknowledge and respect the encumbrance.
While we agree with Garcia that since the second mortgage, of which he is the
mortgagee, has not yet been discharged, we find that said mortgage subsists and is still
enforceable. However, Villar, in buying the subject property with notice that it was
mortgaged, only undertook to pay such mortgage or allow the subject property to be sold
upon failure of the mortgage creditor to obtain payment from the principal debtor once
the debt matures. Villar did not obligate herself to replace the debtor in the principal
obligation, and could not do so in law without the creditor’s consent, thereby making a
novation. Therefore, the obligation to pay the mortgage indebtedness remains with the
original debtors Galas and Pingol.
In Rodriguez v. Reyes, it stated that the mere fact that the purchaser of an
immovable has notice that the acquired realty is encumbered with a mortgage does not
render him liable for the payment of the debt guaranteed by the mortgage, in the
absence of stipulation or condition that he is to assume payment of the mortgage debt.
The reason is plain: the mortgage is merely an encumbrance on the property, entitling
the mortgagee to have the property foreclosed. Mortgage is merely an accessory
undertaking for the convenience and security of the mortgage creditor, and exists
independently of the obligation to pay the debt secured by it. The mortgagee, if he is so
minded, can waive the mortgage security and proceed to collect the principal debt by
personal action against the original mortgagor.
In Sy v. Court of Appeals, the Court held that RA No. 337 amended Act No. 3135 insofar as the
redemption price is concerned. The Court held that:

[T]he General Banking Act partakes of the nature of an amendment to Act No. 3135
insofar as the redemption price is concerned, when the mortgagee is a bank or banking or
credit institution, Section 6 of Act No. 3135 being, in this respect, inconsistent with Section
78 of the General Banking Act. Although foreclosure and sale of the subject property was
done by SIHI pursuant to Act. No. 3135, x x x Section 78 of the General Banking Act, as
amended provides the amount at which the subject property is redeemable from SIHI,
which is, in this case, the amount due under the mortgage deed, or the outstanding
obligation of Carlos Coquinco, plus interest and expenses.

In Ponce de Leon v. Rehabilitation Finance Corporation, the Court held that RA No. 337, being
a special and subsequent law, amended Act No. 3135 insofar as the redemption price is
concerned. The Court held that:

Rep. Act No. 337, otherwise known as "The General Banking Act," is entitled "An Act Regulating
Banks and Banking Institutions and for other purposes." Section 78 thereof limits the amount of
the loans that may be given by banks and banking or credit institutions on the basis of the
appraised value of the property given as security, as well as provides that, in the event of
foreclosure of a real estate mortgage to said banks or institutions, the property sold may be
redeemed "by paying the amount fixed by the court in the order of execution," or the amount
judicially adjudicated to the creditor bank. This provision had the effect of amending Section
6 of Act No. 3135, insofar as the redemption price is concerned, when the mortgagee is a
bank or a banking or credit institution, said Section 6 of Act No. 3135 being, in this
respect, inconsistent with the above-quoted portion of Section 78 of Rep. Act No. 337. In
short, the Parañaque property was sold pursuant to said Act No. 3135, but the sum for which it
is redeemable shall be governed by Rep. Act No. 337, which partakes of the nature of an
amendment to Act No. 3135, insofar as mortgages to banks or banking or credit institutions are
concerned, to which class the RFC belongs. At any rate, the conflict between the two (2) laws
must be resolved in favor of Rep. Act No. 337, both as a special and as the subsequent
legislation.

The Court gives respondent Mario Matute a grace period of 60 calendar days from notice of
finality of this Decision to redeem the property, by paying petitioner Development Bank of the
Philippines the remaining balance of respondents Environmental Aquatics, Inc. and Land
Services and Management Enterprises, Inc.'s loan, plus expenses and interest at the agreed
rate computed from the 19 December 1990 public auction. If the bank has taken material
possession of the property, the possession of the property shall compensate for the interest
during the period of possession.
5 DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
ENVIRONMENTAL AQUATICS, INC., LAND SERVICES AND MANAGEMENT
ENTERPRISES, INC. and MARIO MATUTE Respondents.

Facts:

On 10 September 1976, Environmental Aquatics, Inc. (EAI) and Land Services and
Management Enterprises, Inc. (LSMEI) loaned ₱1,792,600 from Development Bank of the
Philippines (DBP).

As security for the loan, LSMEI mortgaged to DBP its 411-square meter parcel of land situated
in New Manila, Quezon City. The mortgage contract stated that:

If at anytime the Mortgagor shall fail or refuse to pay any of the amortization on the
indebtedness X X X Mortgagee may immediately foreclose this mortgage judicially or
extrajudicially under Act No. 3135 as amended, or under Republic Act No. 85, as amended
and or under Act No. 1508 as amended.

On 31 August 1981, DBP restructured the loan.

EAI and LSMEI failed to pay the loan. As of 11 September 1990, the loan had increased to
₱16,384,419.90. On 25 October 1990, DBP applied for extrajudicial foreclosure of the real
estate mortgage.

During the 19 December 1990 public auction, the ex-officio sheriff sold the property to DBP as
the highest bidder for ₱1,507,000.

On 15 May 1991, LSMEI transferred its right to redeem the property to respondent Mario Matute
(Matute).

Matute was interested in redeeming the property by paying the ₱1,507,000 purchase price, plus
other costs. In its 29 August 1991 letter, DBP informed Matute could redeem the property by
paying the remaining balance of EAI and LSMEI's loan. As of 31 August 1991, the loan
amounted to ₱19,279,106.22.

On 8 November 1991, EAI, LSMEI and Matute filed with the RTC a complaint.

RTC Ruling

The RTC allowed Matute to redeem the property at its ₱1,507,000 purchase price on the
grounds that the mortgage was executed in line with Art. 3135. The contracting parties chose
Art. 3135 as the controlling law for their mortgage when the contract stated that:

"x x x the Mortgagee may immediately foreclose this mortgage judicially or extrajudicially under
Act No. 3135 as amended, or under Republic Act No. 85, as amended and or under Act No.
1508 as amended. x x x x."
Having thus come to the conclusion that Act 3135 and Sections 29 to 32 of Rule 39 of the Rules
of Court rather than Executive Order No. 81 are the laws applicable to the right of redemption
invoke in this case. Pursuant to Section 30 of Rule 39, "the judgment debtor — or his
successor-in-interest per Sec. 29, here plaintiff Mario Batute — may redeem the property from
the purchaser, at any time within twelve months after the sale, on paying the purchaser the
amount of his purchase, with one per centum per month interest thereon in addition, up to the
time of redemption, together with the amount of any assessments or taxes which the purchaser
may have paid thereon after the purchase, and interest on such last-named amount at the same
rate; x x x".

DBP appealed to the Court of Appeals.

The CA Ruling

In its 16 January 2006 Decision, the Court of Appeals affirmed with modification the RTC's 7
January 1994 Decision. The Court of Appeals imposed a 16% annual interest on the remaining
balance of the loan.

Issue:

Whether or not Art. 3135 is applicable as to the redemption price

Ruling:

It has long been settled that where the real property is mortgaged to and foreclosed
judicially or extrajudicially by the Development Bank of the Philippines, the right of
redemption may be exercised only by paying to "the Bank all the amount he owed the
latter on the date of the sale, with interest on the total indebtedness at the rate agreed
upon in the obligation from said date, unless the bidder has taken material possession of the
property or unless this had been delivered to him, in which case the proceeds of the property
shall compensate the interest."

The foregoing rule is embodied consistently in the charters of DBP and its predecessor
agencies.

In Development Bank of the Philippines v. Mirang, the Court held that the redemption price for
properties morgaged to and foreclosed by DBP is equivalent to the remaining balance of the
loan, with interest at the agreed rate. The Court held that, "The unavoidable conclusion is
that the appellant, in redeeming the foreclosed property, should pay the entire amount he
owed to the Bank on the date of the sale, with interest thereon at the rate agreed upon."

In Nepomuceno, et al. v. Rehabilitation Finance Corporation, the Court held that the redemption
price for properties morgaged to and foreclosed by DBP is equivalent to the remaining balance
of the loan, with interest at the agreed rate.

The lower courts ruled that the redemption price for the property is equivalent to the ₱1,507,000
purchase price because DBP chose Act No. 3135 as the governing law for the extrajudicial
foreclosure. The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not provide a
procedure for extrajudicial foreclosure of real estate mortgage.

In Development Bank of the Philippines v. Zaragoza, Development Bank of the Philippines v.

Mirang, and Development Bank of the Philippines v. Jimenez, et al., the Court held that when
the bank resorted to Act No. 3135 in order to sell the mortgaged property extrajudicially, it did so
merely to find a proceeding for the sale. It is of judicial notice that Act 3135 is the only law
governing the proceedings in extrajudicial foreclosure of real estate mortgage. Act No. 1508, on
the other hand, governs the extrajudicial foreclosure of chattel mortgage, and should not be in
issue in the case which involves a real estate mortgage.

It should likewise be of judicial notice that Republic Act No. 85 is the charter of the
Rehabilitation Finance Corporation, predecessor of appellant DBP. RA 85 prescribes the
redemption price, not the proceedings and requirements in an extrajudicial foreclosure of real
estate mortgage such as those found in Act 3135.

x x x When DBP cited Act 3135 in its Deed of Real Estate Mortgage or even in the application
for foreclosure of mortgage, it was not a matter of making an exclusive option or choice because
Act 3135 governs the procedure and requirements for an extrajudicial foreclosure or real estate
mortgage. In citing said law, DBP was merely finding a proceeding for extra-judicial foreclosure
sale And while the said Act 3135 provides for redemption, such provision will not apply in the
determination of the redemption price on mortgages to DBP. In the latter case, the DBP Charter
will prevail.

Even assuming that DBP chose Act No. 3135 as the governing law for the extrajudicial
foreclosure, the redemption price would still be equvalent to the remaining balance of the loan.
EO No. 81, being a special and subsequent law, amended Act No. 3135 insofar as the as
redemption price is concerned.

In Sy v. Court of Appeals, the Court held that RA No. 337 amended Act No. 3135 insofar as the
redemption price is concerned. The Court held that:

[T]he General Banking Act partakes of the nature of an amendment to Act No. 3135
insofar as the redemption price is concerned, when the mortgagee is a bank or banking or
credit institution, Section 6 of Act No. 3135 being, in this respect, inconsistent with Section
78 of the General Banking Act. Although foreclosure and sale of the subject property was
done by SIHI pursuant to Act. No. 3135, x x x Section 78 of the General Banking Act, as
amended provides the amount at which the subject property is redeemable from SIHI,
which is, in this case, the amount due under the mortgage deed, or the outstanding
obligation of Carlos Coquinco, plus interest and expenses.

In Ponce de Leon v. Rehabilitation Finance Corporation, the Court held that RA No. 337, being
a special and subsequent law, amended Act No. 3135 insofar as the redemption price is
concerned. The Court held that:

Rep. Act No. 337, otherwise known as "The General Banking Act," is entitled "An Act Regulating
Banks and Banking Institutions and for other purposes." Section 78 thereof limits the amount of
the loans that may be given by banks and banking or credit institutions on the basis of the
appraised value of the property given as security, as well as provides that, in the event of
foreclosure of a real estate mortgage to said banks or institutions, the property sold may be
redeemed "by paying the amount fixed by the court in the order of execution," or the amount
judicially adjudicated to the creditor bank. This provision had the effect of amending Section
6 of Act No. 3135, insofar as the redemption price is concerned, when the mortgagee is a
bank or a banking or credit institution, said Section 6 of Act No. 3135 being, in this
respect, inconsistent with the above-quoted portion of Section 78 of Rep. Act No. 337. In
short, the Parañaque property was sold pursuant to said Act No. 3135, but the sum for which it
is redeemable shall be governed by Rep. Act No. 337, which partakes of the nature of an
amendment to Act No. 3135, insofar as mortgages to banks or banking or credit institutions are
concerned, to which class the RFC belongs. At any rate, the conflict between the two (2) laws
must be resolved in favor of Rep. Act No. 337, both as a special and as the subsequent
legislation.

The Court gives respondent Mario Matute a grace period of 60 calendar days from notice of
finality of this Decision to redeem the property, by paying petitioner Development Bank of the
Philippines the remaining balance of respondents Environmental Aquatics, Inc. and Land
Services and Management Enterprises, Inc.'s loan, plus expenses and interest at the agreed
rate computed from the 19 December 1990 public auction. If the bank has taken material
possession of the property, the possession of the property shall compensate for the interest
during the period of possession.
6 Bank of the Philippine Islands, as successor-in-interest of FEBTC vs. Cynthia Reyes

Facts: Defendant Reyes borrowed, renewed and received from Far East Bank the principal
₱20,950,000.00. In support of such allegation, four promissory notes were presented during the
course of the trial of the case. As security for the obligation, defendant Reyes executed Real
Estate Mortgage Agreements involving twenty-two (22) parcels of land. When the debt became
due and demandable, the defendant failed to settle her obligation and the plaintiff was
constrained to foreclose the properties. As alleged, after due publication, the mortgaged
properties were sold at public auction

At the public auction, the mortgaged properties were awarded to BPI in consideration of
its highest bid price amounting to ₱9,032,960.00. On said date, the obligation already
₱30,420,041.67, inclusive of interest but excluding attorney’s fees, publication and other
charges. After applying the proceeds of the public auction to the outstanding obligation, there
remains to be a deficiency and defendant Reyes is still indebted to the plaintiff in the amount of
₱24,545,094.67. Thus, the filing by BPI for an action for a sum of money against defendant.

In the Answer, the defendant claims that based on the plaintiff’s appraisal of the
properties mortgaged to Far East Bank, the 22 properties fetched a total appraisal value of
₱47,436,000.00 as of January 6, 1998. This appraisal value is evidenced by the Appraisal.
Considering the appraisal value and the outstanding obligation of the defendant, it appears that
the mortgaged properties sold during the public auction are more than enough as payment to
the outstanding obligation of the defendant.

Issue: Whether or not petitioner is entitled to recover the unpaid balance or deficiency from
respondent

Held: The Court ruled that petitioner is entitled to recover the unpaid balance.

There is no dispute with regard to the total amount of the outstanding loan obligation that
respondent owed to petitioner at the time of the extrajudicial foreclosure sale of the property
subject of the real estate mortgage. Likewise, it is uncontested that by subtracting the amount
obtained at the sale of the property, a loan balance still remains.

In the recent case of BPI Family Savings Bank, Inc. v. Avenido, we reiterated the well-
entrenched rule that a creditor is not precluded from recovering any unpaid balance on the
principal obligation if the extrajudicial foreclosure sale of the property subject of the real estate
mortgage results in a deficiency. Furthermore, we have also ruled in Suico Rattan & Buri
Interiors, Inc. v. Court of Appeals that, in deference to the rule that a mortgage is simply a
security and cannot be considered payment of an outstanding obligation, the creditor is not
barred from recovering the deficiency even if it bought the mortgaged property at the
extrajudicial foreclosure sale at a lower price than its market value notwithstanding the fact that
said value is more than or equal to the total amount of the debtor’s obligation. Settled is the rule
that a mortgage is simply a security and not a satisfaction of indebtedness.

Throughout a long line of jurisprudence, we have declared that unlike in an ordinary

sale, inadequacy of the price at a forced sale is immaterial and does not nullify a sale since, in a
forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of the
property easier. In Hulst v. PR Builders, Inc., it stated that “…when there is a right to redeem,
inadequacy of price should not be material because the judgment debtor may re-acquire the
property or else sell his right to redeem and thus recover any loss he claims to have suffered by
reason of the price obtained at the execution sale. Thus, respondent stood to gain rather than
be harmed by the low sale value of the auctioned properties because it possesses the right of
redemption.”

It bears also to stress that the mode of forced sale utilized by petitioner was an
extrajudicial foreclosure of real estate mortgage which is governed by Act No. 3135, as
amended. An examination of the said law reveals nothing to the effect that there should be a
minimum bid price or that the winning bid should be equal to the appraised value of the
foreclosed property or to the amount owed by the mortgage debtor. What is clearly provided,
however, is that a mortgage debtor is given the opportunity to redeem the foreclosed property
"within the term of one year from and after the date of sale."23 In the case at bar, other than the
mere inadequacy of the bid price at the foreclosure sale, respondent did not allege any
irregularity in the foreclosure proceedings nor did she prove that a better price could be had for
her property under the circumstances. Thus, even if we assume that the valuation of the
property at issue is correct, we still hold that the inadequacy of the price at which it was sold at
public auction does not invalidate the foreclosure sale.

Even if we are so inclined out of sympathy for respondent’s plight, neither could we
temper respondent’s liability to the petitioner on the ground of equity. We are barred by our own
often repeated admonition that equity, which has been aptly described as "justice outside
legality," is applied only in the absence of, and never against, statutory law or judicial rules of
procedure. The law and jurisprudence on the matter is clear enough to close the door on a
recourse to equity.
7 PSB vs Geronimo
Facts:

 respondents Spouses Dionisio and Caridad Geronimo obtained a loan from petitioner
Philippine Savings Bank (petitioner) in the amount of ₱3,082,000, secured by a mortgage
on respondents’ land situated in Barrio Talipapa, Caloocan City and covered by Transfer
Certificate of Title No. C-50575.4 Respondents defaulted on their loan, prompting petitioner
to initiate the extrajudicial foreclosure of the real estate mortgage. At the auction sale
conducted on 29 March 1996, the mortgaged property was sold to petitioner,5 being the
highest bidder, for ₱3,000,000. Consequently, a Certificate of Sale was issued in favor of
petitioner
 Claiming that the extrajudicial foreclosure was void for non-compliance with the law,
particularly the publication requirement, respondents filed with the trial court a complaint for
the annulment of the extrajudicial foreclosure.
 The RTC sustained the validity of the foreclosure, and held that "personal notice on the
mortgagor is not required under Act No. 3135." All that is required is "the posting of the
notices of sale for not less than 20 days in at least three public places in the municipality or
city where the property is situated, and publication once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or city, if the
property is worth more than four hundred pesos."
 the CA reversed it, holding that Ang Pinoy is not a newspaper of general circulation
ISSUE

 whether the extra-judicial foreclosure is void for noncompliance with the publication
requirement under Act No. 3135.
RULING

 Petitioner failed to establish its compliance with the publication requirement under Section 3
of Act No. 3135. Consequently, the questioned extrajudicial foreclosure of real estate
mortgage and sale are void
 the Court notes that Ang Pinoy is a newspaper of general circulation printed and published
in Manila, not in Caloocan City where the mortgaged property is located, as indicated in the
excluded Affidavit of Publication. This is contrary to the requirement under Section 3 of Act
No. 3135 pertaining to the publication of the notice of sale in a newspaper of general
circulation in the city where the property is situated.
8 SPOUSES OCHOA vs. CHINA BANKING CORPORATION

The case at bar involves petitioners’ mortgaged real property located in Parañaque City over
which respondent bank was granted a special power to foreclose extra-judicially. Petitioners
insist the stipulated exclusive venue of Makati City is not only binding on petitioners’ complaint
for Annulment of Foreclosure, Sale, and Damages filed before the Regional Trial Court of
Parañaque City, but also on respondent bank’s Petition for Extrajudicial Foreclosure of
Mortgage, which was filed with the same court.

Issue: Whether or not the proper venue for a petition for Extrajudicial Foreclosure of Mortgage is
that which is stipulated by the parties or only within the province where the property to be sold is
situated, as per Act No. 3135.

Ruling: By express provision of Section 2 of Act No. 3135, the sale can only be made in
Parañaque City. The extrajudicial foreclosure sale of a real estate mortgage is governed by Act
No. 3135, as amended by Act No. 4118, otherwise known as "An Act to Regulate the Sale of
Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages." Section 2
thereof clearly states:

Sec. 2. Said sale cannot be made legally outside of the province in which the property sold is
situated; and in case the place within said province in which the sale is to be made is the
subject of stipulation, such sale shall be made in said place or in the municipal building of the
municipality in which the property or part thereof is situated.

Thus, the exclusive venue of Makati City, as stipulated by the parties and sanctioned by Section
4, Rule 4 of the Rules of Court, cannot be made to apply to the Petition for Extrajudicial
Foreclosure filed by respondent bank because the provisions of Rule 4 pertain to venue of
actions, which an extrajudicial foreclosure is not.

Verily then, with respect to the venue of extrajudicial foreclosure sales, Act No. 3135, as
amended, applies, it being a special law dealing particularly with extrajudicial foreclosure sales
of real estate mortgages, and not the general provisions of the Rules of Court on Venue of
Actions.

Consequently, the stipulated exclusive venue of Makati City is relevant only to actions arising
from or related to the mortgage, such as petitioners’ complaint for Annulment of Foreclosure,
Sale, and Damages.
9 Royal Savings Bank vs. Fernando Asia, et. Al.

Facts: Sometime in January 1974, Paciencia Salita (Salita) and her nephew, Franco Valenderia
(Valenderia), borrowed the amount of ₱25,000 from petitioner. The latter loaned to them an
additional ₱20,000 in May 1975. To secure the payment of the aforementioned amounts loaned,
Salita executed a Real Estate Mortgage over her property. Notwithstanding demands, neither
Salita nor Valenderia were able to pay off their debts.

As a result of their failure to settle their loans, petitioner instituted an extra-judicial

foreclosure proceeding against the Real Estate Mortgage, pursuant to RA 3135, the public
auction happened to which petitioner was declared the highest bidder. On April 1983, the
redemption period expired. Both Salita and Valenderia failed to redeem the foreclosed property.
Thus, the property was issued in petitioner’s name. Thereafter, Salita filed with the RTC a case
for Reconveyance, Annulment of Title and Damages against petitioner. RTC granted the prayer.
Petitioner appealed the to the CA which reversed the decision of the RTC, since no further
appeal happened, the decision became final and executory.

Pursuant to Section 7 of Act 3135, petitioner filed with the RTC an Ex-Parte Petition for
the Issuance of a Writ of Possession, which was granted. Respondents claimed to have been in
open, continuous, exclusive and notorious possession in the concept of owners of the land in
question for 40 years. Allegedly, they had no knowledge and notice of all proceedings involving
the property until they were served a Notice to Vacate by the RTC Sheriff. They further claimed
that, prior to the service of the Notice to Vacate, they had no knowledge or notice of the lower
court’s proceedings or the foreclosure suit of petitioner.

The Notice to Vacate gave respondents three days to voluntarily vacate the property. In
order to prevent the execution of the notice, they filed an Urgent Motion to Quash Writ of
Possession and Writ of Execution. RTC granted the motion to quash. Claiming that it raises no
factual issues, petitioner came straight to this Court through a Petition for Review.

Petitioner insists that because it is a government-owned financial institution, the general

rules on real estate mortgage found in Act 3135 do not apply to it. It prays that this Court rule
that Presidential Decree (P.D.) No. 38519—the law intended specifically to govern mortgage
foreclosures initiated by government-owned financial institutions—should be applied to this
case. According to petitioner, when the RTC quashed the Writ of Possession, the latter violated
Section 2 of P.D. 385, which reads:

Section 2. No restraining order, temporary or permanent injunction shall be

issued by the court against any government financial institution in any action taken by
such institution in compliance with the mandatory foreclosure provided in Section 1
hereof, whether such restraining order, temporary or permanent injunction is sought by
the borrower(s) or any third party or parties, except after due hearing in which it is
established by the borrower and admitted by the government financial institution
concerned that twenty percent (20%) of the outstanding arrearages has been paid after
the filing of foreclosure proceedings.
Issue: Whether or not the RTC erred in granting to quash the writ of possession.

Held: The Court ruled that it was only proper for the RTC to quash the Writ of Possession until
a determination is made as to who, between petitioner and respondents, has the better right to
possess the property.

The evident purpose underlying P.D. 385 is sufficiently served by allowing foreclosure
proceedings initiated by GFIs to continue until a judgment therein becomes final and executory,
without a restraining order, temporary or permanent injunction against it being issued. But if a
parcel of land is occupied by a party other than the judgment debtor, the proper procedure is for
the court to order a hearing to determine the nature of said adverse possession before it issues
a writ of possession. This is because a third party, who is not privy to the debtor, is protected by
the law. Such third party may be ejected from the premises only after he has been given an
opportunity to be heard, to comply with the time-honored principle of due process. In the same
vein, under Section 33 of Rule 39 of the Rules on Civil Procedure, the possession of a
mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure, unless a
third party is actually holding the property adversely vis-à-vis the judgment debtor.

In the eyes of this Court, the RTC did not err in issuing the herein assailed Orders on the
basis of its initial finding that respondents are third parties who are actually holding the property
adversely vis-à-vis the judgment debtor. The RTC did not err in applying the doctrine laid down
in Barican v. Intermediate Appellate Court, in which we ruled that the obligation of a court to
issue a writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to
be ministerial, once it appears that there is a third party who is in possession of the property and
is claiming a right adverse to that of the debtor/mortgagor.

Art. 433.Actual possession under claim of ownership raises a disputable

presumption of ownership. The true owner must resort to judicial process for the
recovery of the property.

Under the aforequoted provision, one who claims to be the owner of a property
possessed by another must bring the appropriate judicial action for its physical recovery.
10 METROPOLITAN BANK and TRUST COMPANY, Petitioner,
vs.
CENTRO DEVELOPMENT CORPORATION, CHONGKING KEHYENG, MANUEL CO
KEHYENG and Quirino Kehyeng, Respondents.

Facts:

Go Eng Uy, President of Centro Development Corp. was authorized to mortgage its properties
and assets to secure the loan of ₱ 84 million of Lucky Two Corporation and Lucky Two
Repacking. The properties and assets consisted of a building and improvements. Maria Jacinta
V. Go, the corporate secretary, issued a Secretary’s Certificate.

Centro, represented by Go Eng Uy, executed a Mortgage Trust Indenture (MTI) with the Bank of
the Philippines Islands (BPI). Centro constituted a continuing mortgage on all or substantially all
of its properties and assets in favor of BPI, the trustee. Should Centro or any of its affiliates fail
to pay their obligations when due, the trustee shall cause the foreclosure of the mortgaged
property.

On 31 March 1993, Centro and BPI amended the MTI to allow an additional loan of ₱ 36 million
and to include San Carlos Milling Company, Inc. (San Carlos) as a borrower in addition to
Centro, Lucky Two Corp. and Lucky Two Repacking. Then, on 28 July 1994, Centro and BPI
again amended the MTI for another loan of ₱ 24 million, bringing the total obligation to ₱ 144
million.

Meanwhile, Centro, represented by Go Eng Uy, approached petitioner Metropolitan Bank and
Trust Company (Metrobank) in 1994 and proposed that the latter assume the role of successor-
trustee of the existing MTI. After Metrobank agreed to the proposal, the board of directors of
respondent Centro allegedly resolved on 12 August 1994 to constitute petitioner as successor-
trustee of BPI.

On 27 September 1994, Metrobank and respondent Centro executed the assailed MTI,
amending the previous agreements by appointing the former as the successor-trustee of BPI. It
is worth noting that this MTI did not amend the amount of the total obligations covered by the
previous MTIs.

It was only sometime in 1998, Chongking Kehyeng, Manuel Co Kehyeng and Quirino Kehyeng,
allegedly discovered that the properties of Centro had been mortgaged, and that the MTI that
had been executed appointing Metrobank as trustee.

Notably, Chongking Kehyeng had been a member of the board of directors of Centro since
1989, while the two other, Manuel Co Kehyeng and Quirino Keyheng, had been stockholders
since 1987.

Kehyeng were minority stockholders who owned thirty percent (30%) of the outstanding capital
stock of Centro.
They alleged that they were not aware of any board or stockholders’ meeting held on 12 August
1994, when petitioner was appointed as successor-trustee of BPI in the MTI.

Meanwhile, during the period April 1998 to December 1998, San Carlos obtained loans in the
total principal amount of ₱ 812,793,513.23 from Metrobank.

San Carlos failed to pay these outstanding obligations despite demand. Thus, Metrobank, as
trustee of the MTI, enforced the conditions thereof and initiated foreclosure proceedings.

On 22 June 2000, petitioner Metrobank filed a Petition for Extrajudicial Foreclosure of Mortgage
with the executive judge of the Regional Trial Court (RTC) of Makati City. Metrobank alleged
that the total amount of the Promissory Notes that San Carlos executed in favor of the
Metrobank amounted to ₱ 812,793,513.23. The total outstanding obligation, inclusive of
interests and penalties, was ₱ 1,178,961,181.45.

Centro filed a Complaint for the annulment of the 27 September 1994 MTI with a prayer for a
temporary restraining order (TRO) and preliminary injunction against Metrobank, Go Eng Uy,
Alexander V. Go, Ramon V. Go, Maria Jacinta Go and Enriqueto Magpantay.

Respondents alleged, the representation of Go Eng Uy that he was authorized by the board of
directors and/or stockholders of Centro was false.

RTC Ruling

On 15 December 2003, the RTC dismissed the Complaint. It held that the evidence presented
by respondents was insufficient to support their claim that there were no meetings held
authorizing the mortgage of Centro’s properties. It noted that the stocks of respondents
Kehyeng constituted only 30% of the outstanding capital stock, while the Go family owned the
majority 70%, which represented more than the 2/3 vote required by Section 40 of the
Corporation Code. The trial court ruled that respondents Kehyeng, particularly Chongking
Kehyeng, who sat in the board of directors, should have done periodic inquiries and verifications
of documents pertaining to corporate properties. The RTC also held that laches had attached,
considering that eight (8) years had lapsed before respondents questioned the mortgage
executed in 1990.

The trial court also noted the absence of evidence showing the steps respondents had taken to
seek redress for the alleged misrepresentations of Go Eng Uy and Maria Jacinta Go. On the
other hand, the court found that no neglect could be imputed to petitioner for relying on the
Secretary’s Certificate, which apparently established Go Eng Uy’s authority to mortgage
Centro’s properties and assets.

CA Ruling

The CA denied the application for the issuance of a writ of preliminary injunction.

Centro and San Carlos filed another case for the nullification of the foreclosure proceedings and
prayed for the issuance of a TRO/injunction. Centro and San Carlos alleged that the total
obligation due was only ₱ 657,000,000 and not ₱ 812,793,513.23; that the sale of the San
Carlos properties found in Negros Occidental fully satisfied their outstanding obligations; and
that the action to foreclose the Makati properties was illegal and void.

While the case was pending, RTC of Makati City held an auction sale of the disputed property,
during which petitioner was adjudged as the highest bidder for ₱ 344,700,000.

Centro filed before the CA a Petition for Certiorari.

During this time, CA-G.R. CV No. 80778, which involved the legality of the MTI, was still
pending.

The CA found that only a quorum was present during the stockholders’ meeting on 12 August
1994. The CA held that the 2/3 vote required by Section 40 was not met. It ruled that the
minority stockholders were deprived of their right to dissent from or to approve the proposed
mortgage, considering that they had not been notified in writing of the meeting in which the
corporate action was to be discussed.

On the laches, the CA ruled that the MTI could not be ratified, considering that the requirements
of the Corporation Code were not complied with.

Thus, the Metrobank raised its case to the Supreme Court.

Issue:

Whether the requirements of Section 40 of the Corporation Code was complied with in the
execution of the MTI;

Whether the foreclosure was valid;

Whether laches has already attached, such that respondents can no longer

Ruling:

As to the Laches

Laches is defined as the failure or neglect for an unreasonable and unexplained length of time
to do that which, by exercising due diligence, could or should have been done earlier; it is
negligence or omission to assert a right within a reasonable time, warranting a presumption that
the party entitled to assert it either has abandoned it or declined to assert it.

What the respondents questioned were the additional loans granted to San Carlos after the
execution of the 27 September 1994 MTI and the foreclosure of the mortgage resulting from the
nonpayment of San Carlos’ obligations. Thus, contrary to the finding of the trial court, only four
years had lapsed from the execution of the 27 September 1994 MTI when respondents
questioned the mortgage allegedly constituted to cover these loans.
Furthermore, the TCTs were not accordingly annotated to cover these additional loans. Also,
the mortgage of the property securing all the loans were not disclosed in Centro’s financial
statements for the years 1991 to 1998. Thus, absent any proof that the individual respondents
were notified of the stockholders’ meeting on 12 August 1994 or that they were present during
the meeting, these respondents could not have been informed of the alleged additional loans
and the corresponding mortgage constituted over the properties.

It cannot therefore be said that laches had attached and that respondents were already barred
from assailing the MTI in 1998.

As to the validity of the MTI

Reading carefully the Secretary’s Certificate, it is clear that the main purpose of the directors’
Resolution was to appoint petitioner as the new trustee of the previously executed and
amended MTI. Going through the original and the revised MTI, The Court found no substantial
amendments to the provisions of the contract.

The Court agrees with Metrobank that the act of appointing a new trustee of the MTI was a
regular business transaction. The appointment necessitated only a decision of at least a
majority of the directors present at the meeting in which there was a quorum, pursuant to
Section 25 of the Corporation Code.

The second paragraph of the directors’ Resolution No. 005, s. 1994, which empowered Go Eng
Uy "to sign the Real Estate Mortgage and all documents/instruments with the said bank, for and
in behalf of the Company which are necessary and pertinent thereto," must be construed to
mean that such power was limited by the conditions of the existing mortgage, and not that a
new mortgage was thereby constituted.

Moreover, it is worthy to note that respondents do not assail the previous MTI executed with
BPI. They do not question the validity of the mortgage constituted over all or substantially all of
respondent Centro’s assets pursuant to the 21 March 1994 MTI in the amount of ₱ 84 million.
Nor do they question the additional loans increasing the value of the mortgage to ₱ 144 million;
or the use of Centro’s properties as collateral for the loans of San Carlos, Lucky Two
Corporation, and Lucky Two Repacking.

Thus, Section 40 of the Corporation Code finds no application in the present case, as there was
no new mortgage to speak of under the assailed directors’ Resolution.

As to the foreclosure

The Court found that Metrobank failed to establish its right to be entitled to the proceeds of the
MTI.

There is no evidence that petitioner, as creditor or as trustee, had a cause of action to move for
the extrajudicial foreclosure of the subject properties mortgaged under the MTI.

More glaring is the fact that the assailed MTI is not even referred to in the Promissory Notes
executed by petitioner in favor of San Carlos, evidencing the loans extended by the latter to the
former. This omission violated Section 1.13 of the MTI, which requires that a promissory note
must be covered by an outstanding MPC and secured by the lien of the MTI.

Petitioner thus miserably failed to prove that it was entitled to the benefits of the MTI.

The Court found that, as trustee and as creditor, Metrobank failed to comply with the MTI’s
conditions for granting additional loans to San Carlos – additions that brought the total loan
amount to ₱ 1,178,961,181.45 – when it did not amend the MTI to accommodate the additional
loans in excess of ₱ 144 million.

The fact that the foreclosure of the mortgaged property was undertaken pursuant to the 27
September 1994 MTI is an indication that the parties had failed to amend it accordingly.
Metrobank could not have applied for an extrajudicial foreclosure on the basis of all the
Promissory Notes granted to San Carlos.

Instead, petitioner could have only applied for the foreclosure of the property corresponding to ₱
144 million, which was the maximum amount embodied in the 27 September 1994 MTI. In other
words, as an accommodation debtor, Centro’s properties may not be liable for San Carlos’
debts beyond this maximum amount, pursuant to the MTI executed with Metrobank

The Court also held that the value of the mortgage should be limited only to the amount
provided by the contract between the parties.

As to the Metrobank’s negligence

On a final note, Republic Act No. 8971, or the General Banking Law of 2000, recognizes the
vital role of banks in providing an environment conducive to the sustained development of the
national economy and the fiduciary nature of banking; thus, the law requires banks to have high
standards of integrity and performance. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a family.

In the case at bar, Metrobank itself was negligent in the conduct of its business when it
extended unsecured loans to the debtors. Worse, it was in serious breach of its duty as the
trustee of the MTI. It was not able to protect the interests of the parties and was even
instrumental in violating the terms of the MTI, to the detriment of the parties thereto. Thus,
petitioner has only itself to blame for being left with insufficient recourse against petitioner under
the assailed MTI.
11 Rural Bank v. Centeno

FACTS

Sps. Centeno were the previous owners of the 3 Cadastre lots (subject lots). During that time,
they mortgaged the foregoing properties in favor of petitioner Rural Bank of Sta. Barbara, Inc.
as security for a P1,753.65 loan. Sps. Centeno, however, defaulted on the loan, prompting
petitioner to cause the extrajudicial foreclosure of the said mortgage. Consequently, the subject
lots were sold to petitioner being the highest bidder at the auction sale. It obtained a Certificate
of Sale at Public Auction which was later registered with the Register of Deeds of Iloilo City.

Sps. Centeno failed to redeem the subject lots within the one (1) year redemption period
pursuant to Section 66 of Act No. 3135. Nonetheless, they still continued with the possession
and cultivation of the aforesaid properties. Respondent Gerry Centeno, son of Sps. Centeno,
took over the cultivation of the same. He purchased the said lots from his parents. Accordingly,
Rosario Centeno paid the capital gains taxes on the sale transaction and tax declarations were
eventually issued in the name of respondent. While the latter was in possession of the subject
lots, petitioner secured a Final Deed of Sale thereof and was able to obtain the corresponding
tax declarations in its name.

Petitioner filed a petition for the issuance of a writ of possession before the RTC, claiming
entitlement to the said writ by virtue of the Final Deed of Sale covering the subject lots.
Respondent opposed the petition, asserting that he purchased and has, in fact, been in actual,
open and exclusive possession of the same properties for at least fifteen (15) years. He further
averred that the foreclosure sale was null and void owing to the forged signatures in the real
estate mortgage. Moreover, he claims that petitioner’s rights over the subject lots had already
prescribed.

RTC ruled in favor of Rural Bank due to respondent’s failure to redeem the subject lots. CA
reversed the RTC and ruled against the issuance of a writ of possession.

ISSUE

W/N petitioner is entitled to a writ of possession over the subject lots.

HELD

It is well-established that after consolidation of title in the purchaser’s name for failure of the
mortgagor to redeem the property, the purchaser’s right to possession ripens into the absolute
right of a confirmed owner. At that point, the issuance of a writ of possession, upon proper
application and proof of title, to a purchaser in an extrajudicial foreclosure sale becomes merely
a ministerial function,17 unless it appears that the property is in possession of a third party
claiming a right adverse to that of the mortgagor.18 The foregoing rule is contained in Section
33, Rule 39 of the Rules of Court.

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy. The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a third party is actually holding the
property adversely to the judgment obligor.

Respondent acquired the subject lots from his parents, Sps. Centeno, after they were
purchased by petitioner and its Certificate of Sale at Public Auction was registered with the
Register of Deeds of Iloilo City. It cannot therefore be disputed that respondent is a mere
successor-in-interest of Sps. Centeno. Consequently, he cannot be deemed as a “third party
who is actually holding the property adversely to the judgment obligor” under legal
contemplation. Hence, the RTC had the ministerial duty to issue—as it did issue—the said writ
in petitioner’s favor.
12 Lim vs DBP
 "While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagor’s
failure to pay his obligation, it is imperative that such right be exercised according to its
clear mandate. Each and every requirement of the law must be complied with, lest, the valid
exercise of the right would end.”
Facts:

 Petitioners Lim obtained a loan (Lim account) from DBP to finance their cattle raising
business.
 they executed a Promissory Note undertaking to pay the annual amortization with an
interest rate of 9% per annum and penalty charge of 11% per annum.
 The petitioners Lim, together with the other petitioners obtained another loan (Diamond L
Ranch Account) and also executed a promissory note promising to pay the note annually
with interest
 To secure the loans, the pertitioners executed a Mortgage in favor of DBP over real
properties covered by the titles registered in the Registry of Deeds for the Province of South
Cotabato
 Due to violent confrontations between government troops and Muslim rebels in Mindanao,
petitioners were forced to abandon their cattle ranch. As a result, their business collapsed
and they failed to pay the loan amortizations.
 In 1978, petitioners made a partial payment in the amount of ₱902,800.00, leaving an
outstanding loan balance of ₱610,498.30, inclusive of charges and unpaid interest, as of
September 30, 1978.
 In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested from DBP
Statements of Account for the "Lim Account" and the "Diamond L Ranch Account.
 Edmundo asked the statement of account to be amended because they already paid
P902,800
 Edmundo followed up on the recomputation and DBP informed him that the Diamond L
Ranch Account amounted to ₱2,542,285.60 as of May 31, 1990 and that the mortgaged
properties located at San Isidro, Lagao, General Santos City, had been subjected to
Operation Land Transfer under the Comprehensive Agrarian Reform Program (CARP) of
the government.23 Edmundo was also advised to discuss with the Department of Agrarian
Reform (DAR) and the Main Office of DBP24 the matter of the expropriated properties
 He asked how the mortgaged properties were ceded by DAR to other persons without his
knowledge. He also signified intent to settle the account but no reply was made
 On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled the following
day. To stop the foreclosure, he was advised by the bank’s Chief Legal Counsel to pay an
interest covering a 60-days period or the amount of ₱60,000.00 to postpone the foreclosure
for 60 days. He was also advised to submit a written proposal for the settlement of the loan
accounts
 The petitioners received letters telling them to settle their accounts to prevent foreclosure
 DBP gave the petitioners several extensions for petitioners to settle their loans but they
never did, which led to DBP cancelling the Restructuring agreement
 Eventually, DBP foreclosed the mortgage
ISSUE:

 Whether or not the obligation of the petitioners is extinguished

 Whether or not the foreclosure is valid
Ruling

 The obligation is not extinguished

 Petitioners argue the Principle of Constructive Fulfilment which cites that the obligation is
extinguished by the creditor preventing them from performing the obligation
 They argue that by DBP cancelling the Restructuring Agreement extinguishes the obligation
 The court does not agree and the priniciple does not apply
 The foreclosure is not valid
 While DBP had a right to foreclose the mortgage, we are constrained to nullify the
foreclosure sale due to the bank’s failure to send a notice of foreclosure to petitioners no
notice of the extrajudicial foreclosure was sent by DBP to petitioners about the foreclosure
sale scheduled on July 11, 1994.
The letters dated January 28, 1994 and March 11, 1994 advising petitioners to immediately pay
their obligation to avoid the impending foreclosure of their mortgaged properties are not the
notices required in paragraph 11 of the Mortgage. The failure of DBP to comply with their
contractual agreement with petitioners, i.e., to send notice, is a breach sufficient to invalidate the
foreclosure sale
13 ATTY. LEO N. CAUBANG vs. SPS. CRISOLOGO

Facts:
Respondents spouses Crisologo obtained a Loan in the amount of ₱200,000.00 from
PDCP Bank Inc. A month after, the Spouses Crisologo acquired another loan from the same
bank, in the amount of ₱1,500,000.00. As security for both loans, the spouses mortgaged their
property covered.
The spouses were unable to pay. For failure to settle the account, PDCP Bank filed a
Petition for the Extrajudicial Foreclosure of the Mortgage.
Petitioner Leo Caubang, as Notary Public, prepared the Notices of Sale, announcing the
foreclosure of the real estate mortgage and the sale of the mortgaged property at public auction.
He caused the posting of said notices in three (3) public places. Publication was, likewise, made
in the Oriental Daily Examiner, one of the local newspapers in Davao City.
Consequently, Caubang conducted the auction sale of the mortgaged property, with the
bank as the only bidder.1âwpthi The bank bidded for ₱1,331,460.00, leaving a deficiency of
₱2,207,349.97 (the loan has ballooned to P3, 000,000.00). Thereafter, a Certificate of Sale in
favor of the bank was issued.
Later, the Spouses Crisologo were surprised to learn that their mortgaged property had
already been soldto the bank. Thus, they filed a Complaint to declare the Extrajudicial
Foreclosure and Auction Sale void for failure to comply with the publication requirement.

Ruling:

Under Section 3 of Act No. 3135: Notice of sale; posting; when publication required.–
Notice shall be given by posting notices of the sale for not less than twenty days in at least three
public places of the municipality or city where the property is situated, and if such property is
worth more than four hundred pesos, such notices shall also be published once a week for at
least three consecutive weeks in a newspaper of general circulation in the municipality or city.7

Caubang never made an effort to inquire as to whether the Oriental Daily Examiner was
indeed a newspaper of general circulation, as required by law. It was shown that the Oriental
Daily Examiner is not even on the list of newspapers accredited to publish legal notices, as
recorded in the Davao RTC’s Office of the Clerk of Court. 

Since there was no proper publication of the notice of sale, the Spouses Crisologo, as
well as the rest of the general public, were never informed that the mortgaged property was
about to be foreclosed and auctioned. As a result, PDCP Bank became the sole bidder. This
allowed the bank to bid for a very low price (₱1,331,460.00) and go after the spouses for a
bigger amount as deficiency.1âwp

The statutory requirements of posting and publication are mandated and imbued with public
policy considerations. Consequently, these must be strictly complied with and any substantial
error in a notice of sale will render the notice insufficient and will consequently vitiate the sale.
14 GC DALTON INDUSTRIES, INC., Petitioner,
vs.
EQUITABLE PCI BANK, Respondent.

Facts:

Equitable PCI Bank extended a ₱30-million loan Camden Industries, Inc. (CII)

To facilitate collection, CII executed a "hold-out" agreement in favor of Equitable authorizing it to

deduct from its savings account any amounts due.

To guarantee payment, GC Dalton Industries, Inc. executed a third-party mortgage of its real
properties in Quezon City and Malolos, Bulacan as security for CII’s loans.

CII defaulted in its payments. By 2003, its outstanding debt was ₱68,149,132.40.4

Consequently, Equitable filed a petition for extrajudicial foreclosure of Dalton’s Bulacan

properties. On August 3, 2004, the mortgaged properties were sold to Equitable.

CII filed a case in RTC alleging that it already paid its debt to Equitable.

Pasig RTC Ruling

It found that, while CII’s past due obligation amounted only to ₱14,426,485.66 as of November
30, 2002, respondent had deducted a total of ₱108,563,388.06 from CII’s savings account.

Thus, the Pasig RTC ordered respondent to return to CII the "overpayment" with legal interest of
12% per annum amounting to ₱94,136,902.40; (2) to compensate it for lost profits amounting to
₱2,000,000 per month starting August 2004 with legal interest of 12% per annum until full
payment and (3) to return the TCTs covering the mortgaged properties to petitioner.

CA Ruling

In an order dated December 7, 2005, the Pasig RTC dismissed respondent’s notice of appeal
due to its failure to pay the appellate docket fees. It likewise found respondent guilty of forum-
shopping for filing the petition for the issuance of a writ of possession in the Bulacan RTC. Thus,
the Pasig RTC ordered the immediate entry of its March 30, 2005 decision.

Bulacan RTC Ruling

In an order dated December 10, 2005, the Bulacan RTC granted the motion and a writ of
possession was issued in Equitable’s favor on December 19, 2005.

CA Ruling

Dalton appealed the case to the CA. It claimed that the order violated Section 14, Article VIII of
the Constitution which requires that every decision must clearly and distinctly state its factual
and legal bases. The CA dismissed the petition for lack of merit on the ground that an order
involving the issuance of a writ of possession is not a judgment on the merits, hence, not
covered by the requirement of Section 14, Article VIII of the Constitution.

Dalton raised his case to the Supreme Court.

Issue:

Whether or not writ of possession in extrajudicial foreclosure is ministerial

In Re: Redemption - Whether or not Dalton may redeem the land.

Ruling:

As to the writ of possession

The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is summary

and ministerial in nature as such proceeding is merely an incident in the transfer of title. The trial
court does not exercise discretion in its issuance.  

An order for the issuance of a writ of possession is not the judgment on the merits contemplated
by Section 14, Article VIII of the Constitution.

Furthermore, the mortgagor loses all legal interest over the foreclosed property after the
expiration of the redemption period. Under Section 47 of the General Banking Law, if the
mortgagor is a juridical person, it can exercise the right to redeem the foreclosed property until,
but not after, the registration of the certificate of foreclosure sale within three months after
foreclosure, whichever is earlier. Thereafter, such mortgagor loses its right of redemption.

Equitable filed the certificate of sale and affidavit of consolidation with the Register of Deeds of
Bulacan on September 13, 2004.

This terminated the redemption period granted by Section 47 of the General Banking Law.
Because consolidation of title becomes a right upon the expiration of the redemption
period, Equitable became the owner of the foreclosed properties.

Therefore, when petitioner opposed the ex parte motion for the issuance of the writ of
possession on January 10, 2005 in the Bulacan RTC, it no longer had any legal interest in the
Bulacan properties.

As to redemption

Nevertheless, even if the ownership of the Bulacan properties had already been consolidated in
the name of Equitable, Dalton still had, and could have availed of, the remedy provided in
Section 8 of Act 3135.

It could have filed a petition to annul the August 3, 2004 auction sale and to cancel the
December 19, 2005 writ of possession, within 30 days after respondent was given possession.
But it did not. Thus, inasmuch as the 30-day period to avail of the said remedy had already
lapsed, petitioner could no longer assail the validity of the August 3, 2004 sale.

Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground
for the refusal to issue a writ of possession. Regardless of whether or not there is a pending suit
for the annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of
possession, without prejudice, of course, to the eventual outcome of the pending annulment
case.

Needless to say, petitioner committed a misstep by completely relying and pinning all its hopes
for relief on its complaint for specific performance and damages in the Pasig RTC, instead of
resorting to the remedy of annulment (of the auction sale and writ of possession) under Section
8 of Act 3135 in the Bulacan RTC.
15 Torres v. Lapinid

FACTS

Vicente V. Torres, Jr. (Vicente), Mariano Velez (Mariano) and Carlos Velez (petitioners) filed a
Complaint before RTC Cebu City praying for the nullification of the sale of real property by
respondent Jesus Velez (Jesus) in favor of Lapinid; the recovery of possession and ownership
of the property; and the payment of damages.

Petitioners alleged in their complaint that they, including Jesus, are co-owners of several
parcels of land including the disputed lot located at Cebu. Jesus filed an action for partition of
the parcels of land against the petitioners and other co-owners before RTC Cebu. A judgment
was rendered based on a compromise agreement signed by the parties wherein they agreed
that Jesus, Mariano and Vicente were jointly authorized to sell the said properties and receive
the proceeds thereof and distribute them to all the co-owners. However, the agreement was
later amended to exclude Jesus as an authorized seller. Pursuant to their mandate, the
petitioners inspected the property and discovered that Lapinid was occupying a specific portion
of the 3000 square meters of Lot No. 4389 by virtue of a deed of sale executed by Jesus in
favor of Lapinid. It was pointed out by petitioner that as a consequence of what they discovered,
a forcible entry case was filed against Lapinid.

The petitioners prayed that the deed of sale be declared null and void arguing that the sale of a
definite portion of a co-owned property without notice to the other co-owners is without force
and effect. Further, the complainants prayed for payment of rental fees amounting to P1,000.00
per month from from the time of deprivation of property in addition to attorney’s fees and
litigation expenses.

The RTC dismissed the complaint. The CA affirmed the RTC.

ISSUE

W/N Jesus, as a co-owner, can validly sell a portion of the property he co-owns in favor of
another person.

HELD

This Court has ruled in many cases that even if a co-owner sells the whole property as his, the
sale will affect only his own share but not those of the other co-owners who did not consent to
the sale. This is because the sale or other disposition of a co-owner affects only his undivided
share and the transferee gets only what would correspond to his grantor in the partition of the
thing owned in common.

We find unacceptable the argument that Lapinid must pay rental payments to the other co-
owners.

As previously discussed, Lapinid, from the execution of sale, became a co-owner vested with
rights to enjoy the property held in common.
Clearly specified in the Civil Code are the following rights:

Art. 486. Each co-owner may use the thing owned in common, provided he does so in
accordance with the purpose for which it is intended and in such a way as not to injure the
interest of the co-ownership or prevent the other co-owners from using it according to their
rights. The purpose of the co-ownership may be changed by agreement, express or implied.

Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it and even
substitute another person in its enjoyment, except when personal rights are involved. But
the effect of the alienation or mortgage, with respect to the co-owners, shall be limited to the
portion which may be allotted to him in the division upon the termination of the co-ownership.

Affirming these rights, the Court held in Aguilar v. Court of Appeals that:

x x x Each co-owner of property held pro indiviso exercises his rights over the whole property
and may use and enjoy the same with no other limitation than that he shall not injure the
interests of his co-owners, the reason being that until a division is made, the respective share of
each cannot be determined and every co-owner exercises, together with his co-participants joint
ownership over the pro indiviso property, in addition to his use and enjoyment of the same.

From the foregoing, it is absurd to rule that Lapinid, who is already a co-owner, be ordered to
pay rental payments to his other co-owners. Lapinid’s right of enjoyment over the property
owned in common must be respected despite opposition and may not be limited as long he
uses the property to the purpose for which it is intended and he does not injure the interest of
the co-ownership.

A co-owner is an owner of the whole and over the whole he exercises the right of dominion, but
he is at the same time the owner of a portion which is truly abstract. Hence, his co-owners have
no right to enjoin a co-owner who intends to alienate or substitute his abstract portion or
substitute a third person in its enjoyment.

Petition Denied.
16 Homeowners Savings and Loan Bank vs Dailo
Facts

 Miguela and Marcelino Dailo are spouses married on Aug 8, 1987, owning the subject
property house and lot in San Pablo City. The Deed of Absolute Sale, however, was only in
the name of Marcelino
 Marcelino executed an SPA authorizing Gesmundo to obtain a loan from Homeowners
Savings and Loan Bank and to secure the loan with a real estate mortgage on their property
 Miguela was unaware of these transactions
 The loan was unpaid and the petitioner bank extrajudicially foreclosed the property and was
awarded to the bank as the highest bidder.
 Marcelino had died in the meantime and Miguela learned of the mortgage when she visited
the subject property
 Miguela claims to have no knowledge of the mortgage on the conjugal property and filed a
case to nullify the mortgage
Issue

 Whether or not the mortgage was valid as to Marcelino’s undivided share as co-owner
 Whether or not the conjuga partnership is liable to pay for the loan, the same having been
redounded to the benefit of the family
Ruling

 The court agreed with the respondent Miguela’s contention that the provisions on co-
ownership do not apply, instead Art. 124 of the Family Code
 “In applying Article 124 of the Family Code, this Court declared that the absence of the
consent of one renders the entire sale null and void, including the portion of the conjugal
property pertaining to the husband who contracted the sale.”
 In the absence of a marriage settlement, the property in under the conjugal partnership of
the spouses because they were married before the effectivity of the family code
 By express provision of Article 124 of the Family Code, in the absence of (court) authority or
written consent of the other spouse, any disposition or encumbrance of the conjugal
property shall be void.
The burden of proof to prove that the loan redounded to the benefit of the family lies with the
creditor, Homeowners. Petitioner’s sweeping conclusion that the loan obtained by the late
Marcelino Dailo, Jr. to finance the construction of housing units without a doubt redounded to
the benefit of his family, without adducing adequate proof, does not persuade this Court.
Therefore, the CPG cannot be held liable
17 HOME GUARANTY CORPORATION v. LA SAVOIE DEVELOPMENT CORPORATION

Facts:

La Savoie Development Corporation (La Savoie) is a domestic corporation. With the onset of
the Asian financial crisis in 1997, the devaluation of the Philippine peso and due to other, La
Savoie found itself unable to pay its obligations to its creditors. Thus, La Savoie filed a "petition
for the declaration of state of suspension of payments with approval of proposed rehabilitation
plan".

The RTC issued the Stay Order staying the enforcement of all claims against La Savoie.
Following the issuance, La Savoie's creditors — Planters Development Bank, Philippine
Veterans Bank, and Robinsons Savings Bank — filed their Oppositions. Home Guaranty
Corporation also filed an Opposition even though "it [was] not a creditor of Petitioner."

Home Guaranty Corporation noted that through the "La Savoie Asset Pool Formation and Trust
Agreement"16 (Trust Agreement), La Savoie obtained financing for some of its projects which
Planters Development Bank as nominal issuer issued PI50 million in asset participation
certificates dubbed as the "La Savoie Development Certificates" (LSDC certificates) to be sold
to investors. The redemption of the LSDC certificates upon maturity and the interest payments
on them were "backed/collateralized by the assets that were conveyed by [La Savoie] to the
Trust." Moreover, the LSDC certificates were covered by a guaranty extended by Home
Guaranty Corporation.

The RTC denied due course to La Savoie's Petition for Rehabilitation and lifted Stay Order.
Aggrieved, La Savoie filed an Appeal before the Court of Appeals.

In the meantime, Home Guaranty Corporation approved and processed the call on the guaranty
for the redemption of the LSDC certificates. Thus, Home Guaranty Corporation paid a total of
P128.5 million as redemption value to certificate holders. Acting on this, Planters Development
Bank executed a "Deed of Assignment and Conveyance" 37 in favor of Home Guaranty
Corporation through which, in the words of Home Guaranty Corporation, Planters Development
Bank "absolutely conveyed and assigned to [Home Guaranty Corporation] the ownership and
possession of the entire assets that formed part of the La Savoie Asset Pool."

Home Guaranty Corporation asserts 'that the properties comprising the Asset Pool should be
excluded from the rehabilitation proceedings as these have now been "removed from the
dominion"47 of La Savoie and have been conveyed and assigned to it. It underscores that the
transfer made to it by Planters Development Bank was made after the Stay Order had been
lifted.

On the other hand, La Savoie claimed that the supposed assignment and conveyance to Home
Guaranty Corporation was ineffectual considering that "at the time of the guaranty call, the Stay
Order was admittedly in effect." It also asserted that by paying the guaranty, Home Guaranty
Corporation effectively became its creditor. Excluding the properties comprising the Asset Pool
from the rehabilitation proceedings would then be tantamount to giving preference to one
creditor, something which is prohibited in rehabilitation proceedings.

Issue: Whether the properties comprising the Asset Pool should be excluded from the
proceedings on La Savoie Development Corporation's Petition for Rehabilitation. (The
resolution of this issue hinges on whether the conveyance to Home Guaranty Corporation of the
properties comprising the Asset Pool was valid and effectual.)

Ruling:

No, the conveyance is void. The execution of a Deed of Conveyance without resorting to
foreclosure amounts to pactum commissorium. Hence, it is void and ineffectual and does not
serve to vest ownership in Home Guaranty Corporation.

As a paying guarantor, Home Guaranty Corporation was subrogated into the rights of La
Savoie's creditors and now stands as the latter's own creditor. It remains so pending the
satisfaction of La Savoie's obligation and as the void conveyance made to it by Planters
Development Bank failed to terminate in the creditor-debtor relationship with La Savoie.cralawr

As a paying guarantor, Home Guaranty Corporation was subrogated into the rights of La
Savoie's creditors and now stands as the latter's own creditor. It remains so pending the
satisfaction of La Savoie's obligation and as the void conveyance made to it by Planters
Development Bank failed to terminate in the creditor-debtor relationship with La Savoie.c In
sum, Home Guaranty Corporation must submit itself, like La Savoie's other creditors, to how La
Savoie's Petition for Rehabilitation shall be resolved.
18 Century Savings Bank vs. Spouses Danilo Samonte and Rosalinda Samonte

Facts: The present controversy stemmed from the two loans, in the aggregate amount of
3,500,000.00, extended by petitioner to respondents. Each loan was secured by a promissory
note and deed of real estate mortgage executed by respondents in favor of petitioner. When
respondents defaulted in the payment of their loans by the latter part of 1999, petitioner initiated
before the notary public extrajudicial foreclosure proceedings over the mortgaged properties,
pursuant to Act No. 3135. Section 3 of Act No. 3135 provides for the following pre-requisites for
an extrajudicial 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 where the property is situated, and if
such property is worth more than four hundred pesos, such notice shall also be published once
a week for at least three consecutive weeks in a newspaper of general scirculation in the
municipality or city.

Hence, petitioner caused the publication of a Notice of Sale dated November 12, 1999,
prepared by Notary Public Enriqueto I. Magpantay (Magpantay), in the Challenger News – a
weekly newspaper of general circulation – on November 15, 22, and 29, 1999.

The public auction took place as scheduled with petitioner being declared as the winning
bidder. Notary Public Magpantay subsequently issued a Certificate of Sale, covering the subject
properties, in favor of petitioner. This Certificate of Sale mentioned, among other things, that the
extrajudicial foreclosure sale of the mortgaged properties was only a partial satisfaction of
respondents’ total outstanding financial obligations to petitioner. Consequently, petitioner filed a
complaint against respondents for the collection of the deficiency of their loans.

Sometime in 2001, the parties executed a Contract of Lease, whereby petitioner leased
one of the foreclosed properties to respondents for a period of one year. It was acknowledged in
said contract that petitioner acquired the real property subject of the lease as the highest and
winning bidder in an extrajudicial foreclosure sale, conducted pursuant to Act No. 3135, as
amended. Petitioner eventually consolidated its titles to the foreclosed properties.

A few months later, respondents filed a complaint seeking the annulment of the
extrajudicial foreclosure sale of their real properties. Among respondents’ contentions was that
the extrajudicial foreclosure proceedings initiated by petitioner failed to comply with the posting
requirements under Section 3 of Act No. 3135, as amended. On the other hand, petitioner
insisted that the extrajudicial foreclosure sale was duly conducted in accordance with law.

Issue: Whether or not the legal requirements on the notice of sale were complied with to for the
extrajudicial foreclosure to be valid

Held: The Court ruled that the extrajudicial foreclosure sale of respondents’ properties is valid,
having complied with the legal requirements for the same.

It is an elementary rule that the "burden of proof is the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by the amount of
evidence required by law." In Cristobal v. Court of Appeals, the Court explicitly ruled that
foreclosure proceedings enjoy the presumption of regularity and that the mortgagor who alleges
absence of a requisite has the burden of proving such fact

In this case, it was respondents who instituted case seeking the annulment of the
extrajudicial foreclosure of their mortgaged properties on the ground of non-compliance with the
requirements of the law on the posting of the notices of sale. Thus, the burden falls upon
respondents to prove the fact of non-compliance; but respondents miserably failed in this
regard. Respondents did not present any evidence at all to establish that the notices of sale
were not posted as required under Section 3 of Act No. 3135, as amended. Instead,
respondents merely focused on how Notary Public Magpantay’s Certificate of Posting was
worded, and emphasized on technicalities and semantics.

Respondents insist that the phrase "on the 15st day of November 1999, I have caused
the posting of three (3) copies of Notice of Sale" in the Certificate of Posting meant that Notary
Public Magpantay posted the 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 reasonable to
understand the same phrase as to mean that the notices were posted beginning November 15,
1999 until the issuance of the certificate on December 9, 1999. There is also no basis to require
the notary public’s certificate to exactly state that the notices of sale were posted at "public
places." Notary Public Magpantay’s use of the words "conspicuous places" in his certificate
already satisfactorily complies with the legal requirement for posting. The adjective "public" may
refer to that which is "exposed to general view," and "conspicuous" is a synonym thereof.

In addition, despite any defect in the posting of the Notice of Sale, the Court reiterates its
ruling in previous jurisprudence that the publication of the same notice in a newspaper of
general circulation is already sufficient compliance with the requirement of the law. In Olizon v.
Court of Appeals, the Court expounded on the purpose for giving notice of the foreclosure sale;
and if such purpose could be attained by publication alone, then the absence of actual posting
should not nullify the sale because there is a greater probability that an announcement or notice
published in a newspaper of general circulation, which is distributed nationwide, shall have a
readership of more people than that posted in a public bulletin board, no matter how strategic its
location may be, which caters only to a limited few. Olizon squarely applies in this case. It is not
disputed that the Notice of Sale was duly published in a newspaper of general circulation once a
week for three consecutive weeks.

Finally, the Court agrees with the RTC that respondents are already estopped from
challenging the validity of the foreclosure sale, after entering into a Contract of Lease with
petitioner over one of the foreclosed properties. The title of the landlord is a conclusive
presumption as against the tenant or lessee. According to Section 2(b), Rule 131 of the Rules of
Court, "[t]he tenant is not permitted to deny the title of his landlord at the time of the
commencement of the relation of landlord and tenant between them." The juridical relationship
between petitioner as lessor and respondents as lessees carries with it a recognition of the
lessor’s title. As lessees, then respondents are estopped to deny their landlord's title, or to
assert a better title not only in themselves, but also in some third person while they remain in
possession of the leased premises and until they surrender possession to the landlord.
19 COCA-COLA BOTTLERS PHILS., INC., Petitioner,

v.

SPOUSES EFREN AND LOLITA SORIANO, Respondents.

Facts:

Sps. Soriano were engaged in the business of selling defendant-appellant Coca-Cola products
in Tuguegarao City, Cagayan.

Cipriano, Coca-Cola General Manager, informed the Spouses that the Coca-Cola required
security for the continuation of their business. Sps. Soriano were convinced to hand over two (2)
certificates of titles over their property and were made to sign a document. Cipriano assured
Sps. Soriano that it will be a mere formality and will never be notarized.

Sps. Soriano informed Coca-Cola of their intention to stop selling Coca-Cola products due to
their advanced age. Thus, Sps. Soriano verbally demanded from defendant-appellant the return
of their certificates of titles. However, the titles were not given back to them. They discovered for
the that their land was mortgaged in favor of Coca-Cola and already foreclosed.

Sps. Soriano filed a complaint for annulment of sheriffs foreclosure sale. They alleged that they
never signed a mortgaged document and that they were never notified of the foreclosure sale.

Furthermore, the Spouses claimed that they merely signed a document in Tuguegarao. They
never signed any document in Ilagan, lsabela nor did they appear before a certain Atty.
Reymundo Ilagan on 06 January 2000 for the notarization of the said mortgage document.

Coca-Cola avers that the Sps.’s admission that they signed the real estate mortgage document
in Tuguegarao, Cagayan indicates that the mortgage agreement was duly executed. The failure
of the parties to appear before the notary public for the execution of the document does not
render the same null and void or unenforceable.

Ruling of the RTC

On February 9, 2011, the RTC rendered its decision nullifying the real estate mortgage and the
foreclosure proceedings.

Aggrieved, Coca-Cola appealed to the CA.

Ruling of the CA

CA affirmed the RTC.

Issue:
Whether or not there was a valid real estate mortgage.

Ruling:

Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that
a mortgage may be validly constituted, that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless
binding between the parties. 

Thus, as between the parties to a mortgage, the non-registration of a REM deed is immaterial to
its validity.

The Court ruled that "with or without the registration of the REMs, as between the parties
thereto, the same is valid and [the mortgagor] is bound thereby.

Even if the instrument were not recorded, "the mortgage is nevertheless binding between the
parties." The law cannot be any clearer. Effect must be given to it as written. The mortgage
subsists; the parties are bound. As between them, the mere fact that there is as yet no
compliance with the requirement that it be recorded cannot be a bar to foreclosure.

The CA, in the case at bar, clearly erred in ruling that the parties in the instant case cannot be
bound by the REM deed.

To reiterate, the law is clear and explicit as to the validity of an unregistered REM between the
parties. Indeed, if an unregistered REM is binding between the parties thereto, all the more is a
registered REM, such as the REM deed in this case.

Although the REM deed was registered and annotated on the back of the title, the Coca-Coca
failed to comply with the provisions under Section 112 of P.D. 1529 that the every such
instrument shall be signed by the person or persons executing the same in the presence of at
least two witnesses who shall likewise sign thereon, and shall acknowledged to be the free
act and deed of the person or persons executing the same before a notary public or other
public officer authorized by law to take acknowledgment.

Nonetheless, the defective notarization of the REM agreement merely strips it of its public
character and reduces it to a private document. Although Article 1358 of the New Civil Code
requires that the form of a contract transmitting or extinguishing real rights over immovable
property should be in a public document, the failure to observe such required form does not
render the transaction invalid. 

The necessity of a public document for the said contracts is only for convenience; it is not
essential for its validity or enforceability. Consequently, when there is a defect in the notarization
of a document, the clear and convincing evidentiary standard originally attached to a duly-
notarized document is dispensed with, and the measure to test the validity of such document is
preponderance of evidence.

Thus, in order to determine the validity of the REM in this case, the REM agreement shall be
subject to the requirement of proof under Section 20, Rule 132:
Section 20. Proof of private document. - Before any private document offered as authentic is
received in evidence its due execution and authenticity must be proved either:

a) By anyone who saw the document executed or written; or

b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.

Moreover, the party invoking the validity of the private document has the burden of proving its
due execution and authenticity. The respondents' allegations and admissions should be
weighed against their favor.

It is undisputed that the respondents signed the REM deed. They merely invoke the nullity of the
same on the grounds that it was not signed in the place stated therein and that they were made
to believe that it will not be notarized.

Clearly, the Spouses did not specifically deny the due execution and genuineness of the REM
deed.

In light of the foregoing, The Court found merit in petitioner's argument that the due execution
and genuineness of the REM deed was impliedly admitted by the respondents when they
admitted signing the same. A perusal of all the pleadings filed by the respondents reveal that
their arguments are anchored on the supposed fraud employed by the petitioner that led to their
acts of surrendering the titles and signing the REM deed.

The Court refused to annul the REMs on the ground of fraud consisting of the mortgagee's
assurances that the REMs already signed by the mortgagor would not be registered, thus:

As to the issue on the validity of the foreclosure proceedings, the Court found no cogent reason
to nullify the same. Basic is the rule that unless the parties stipulate, personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary because Section 3 of Act
No. 3135 only requires the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. Moreover, the same was not put
into issue in this case. The foreclosure proceedings were nullified by the courts a quo merely as
a consequence of the nullification of the REM deed. Consequently, The Court found that the
foreclosure proceedings are likewise valid.
20 Gotesco v. Solidbank

FACTS

Gotesco obtained from Solidbank a term loan of P300 million through its President, Mr. Jose Go
(Mr. Go). This loan was covered by three promissory notes. To secure the loan, Gotesco was
required to execute a Mortgage Trust Indenture (Indenture) naming Solidbank-Trust Division as
Trustee.

The Indenture obliged Gotesco to mortgage several parcels of land in favor of Solidbank. One of
the lots mortgaged and used as collateral was a property located in San Fernando, Pampanga.
A stipulation in the Indenture also irrevocably appointed Solidbank-Trust Division as Gotesco’s
attorney-in-fact. Under the Indenture, Gotesco also agreed to “at all times maintain the Sound
Value of the Collateral.”

When the loan was about to mature, Gotesco found it difficult to meet its obligation because of
the 1997 Asian Financial Crisis. Gotesco sent a letter to Solidbank proposing to restructure the
loan obligation. The loan restructuring agreement proposed to extend the payment period to
seven years. The suggested period included a two-year grace period.

Solidbank informed Gotesco of a substantial reduction in the appraised value of its mortgaged
properties. Based on an appraisal report submitted to Solidbank, the sound value of the
mortgaged properties at that time was at P381.2M. Since the necessary collateral to loan ratio
was 200%, Solidbank held that there was a deficiency in the collateral, which Gotesco had to
address. Solidbank required Gotesco to replace or add to the mortgaged properties.

Gotesco construed letter as Solidbank’s implied agreement to the loan restructuring proposal.
However, Gotesco found it unnecessary to address the alleged deficiency in the collateral. It
insisted that the aggregate sound value of the mortgaged properties had not changed and was
still at P1.07B

Solidbank sent a demand letter to Gotesco as the loan became due. Despite having received
this demand letter, Gotesco failed to pay the outstanding obligation.

Solidbank then filed a Petition for the Extrajudicial Foreclosure of the lot through Atty. Wilfrido
Mangiliman (Atty. Mangiliman), a notary public.

In the Notice of Sale, the public auction of the land located in Pampanga was announced to be
held. However, pursuant to A.M. No. 99-10-05-0, the Notice of Sale indicated that if the
minimum requirement of two bidders was not met, the sale was to be postponed and
rescheduled.

The public auction was held and Solidbank was declared the winning bidder.

Gotesco filed a complaint before Branch 42, Regional Trial Court, San Fernando, Pampanga for
Annulment of Foreclosure Proceedings, Specific Performance, and Damages against
Solidbank, Atty. Mangiliman, and the Register of Deeds of San Fernando, Pampanga.
Gotesco assailed the validity of the foreclosure proceeding claiming that it was premature and
without legal basis. According to Gotesco, the jurisdictional requirements prescribed under Act
No. 3135 were not complied with. First, Solidbank did not furnish Gotesco copies of the petition
for extrajudicial foreclosure, notice of sale, and certificate of sale. Second, the filing fees were
not paid. Lastly, even assuming the original period for loan payment was not extended, the
prerequisites for the foreclosure proceeding provided in the Indenture were not met.

RTC ruled in favor of Solidbank. Writ of Possession against Gotesco was issued. MR was
subsequently denied. CA affirmed RTC.

ISSUE

W/N the requirements under Sec. 3, Act. 3135 were complied with.

W/N the Writ of Possession was properly issued.

HELD

As to the validity of the foreclosure proceeding, this Court rules in the affirmative.

Section 3 of Act No. 3135 requires that the Notice of Sale be a) physically posted in three (3)
public places and b) be published once a week for at least three (3) consecutive weeks in a
newspaper of general circulation in the city where the property is situated.

Petitioner claims that since the foreclosed property was located in Pampanga, the publication of
the Notice of Sale in Remate was not valid. Petitioner suggests that the Notice of Sale could
only be published in a newspaper printed in the city where the property was located. It posits
that because Remate was printed and published in Manila, not in San Fernando, Pampanga,
the publication was defective. Petitioner is mistaken.

If notices are only published in newspapers printed in the city where the property is located,
even newspapers that are circulated nationwide will be disqualified from announcing auction
sales outside their city of publication. This runs contrary to the spirit of the law which is to attain
wide enough publicity so all parties interested in acquiring the property can be informed of the
upcoming sale.

As to the proper issuance of the Writ of Possession.

Generally, the purchaser in a public auction sale of a foreclosed property is entitled to a writ of
possession during the redemption period. Section 7 of Act No. 3135, as amended by Act No.
4118.

It is ministerial upon the trial court to issue such writ upon an ex parte petition of the
purchaser.141 However, this rule admits an exception.

The last sentence of Rule 39, Section 33 of the Rules of Court is instructive:

XXXX
The possession of the property shall be given to the purchaser or last redemptioner by
the same officer unless a third party is actually holding the property adversely to the
judgment obligor.

There is also no merit to petitioner’s argument that the Writ of Possession should not be issued
while the complaint for the annulment of the foreclosure proceeding is still pending.