JN DEVELOPMENT CORPORATION v. PHILIPPINE EXPORT, GR NO.

151060, 2005-08-31
Facts:
petitioner JN Development Corporation ("JN") and Traders Royal Bank (TRB) entered into an
agreement whereby TRB would extend to JN an Export Packing Credit Line for
P2,000,000.00... loan was covered by several securities, including a... real estate mortgage[2]
and a letter of guarantee from respondent Philippine Export and Foreign Loan Guarantee
Corporation ("PhilGuarantee"), now Trade and Investment Development Corporation of the
Philippines, covering seventy percent (70%) of the credit... line.
JN, petitioner spouses Rodrigo and Leonor Sta. Ana[5] and petitioner Narciso Cruz[6]
executed a Deed of
Undertaking[7] (Undertaking) to assure repayment to PhilGuarantee.
JN failed to pay the loan to TRB upon its maturity; thus,... TRB requested PhilGuarantee to
make good its guarantee.
PhilGuarantee informed JN about the call made by TRB, and inquired about the action of JN
to settle the... loan.
Having received no response from JN,... PhilGuarantee paid TRB
P934,824.34
Subsequently, PhilGuarantee made... several demands on JN, but the latter failed to pay.
JN, through Rodrigo Sta. Ana, proposed to settle the obligation "by way of development and
sale" of the mortgaged property
PhilGuarantee, however, rejected the proposal.
PhilGuarantee thus filed a Complaint[12] for collection of money and damages against
herein petitioners.
RTC dismissed PhilGuarantee's Complaint as well as the counterclaim of petitioners. It ruled
that petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB.
court's... finding that TRB was able to foreclose the real estate mortgage executed by JN,
thus extinguishing petitioners' obligation.[13] Moreover, there was no showing that after the
said foreclosure, TRB had demanded from JN any deficiency or the payment of the...
difference between the proceeds of the foreclosure sale and the actual loan.
RTC held that since PhilGuarantee's guarantee was good for only one year
PhilGuarantee had no more legal duty to pay TRB
The RTC likewise ruled that Cruz cannot be held liable under the Undertaking since he was
not the one who signed the document, in line with its finding that his... signature found in
the records is totally different from the signature on the Undertaking.
According to the RTC, the failure of TRB to sue JN for the recovery of the loan precludes
PhilGuarantee from seeking recoupment from the spouses Sta. Ana and Cruz what it paid to
TRB. Thus, PhilGuarantee's payment to TRB amounts to a waiver of its right under Art. 2058
of the
Civil Code.
appellate court reversed the RTC and ordered petitioners to pay PhilGuarantee
P934,624.34... plus service charge... and interest.
CA held that the RTC's finding that the loan was extinguished by virtue of the foreclosure
sale of the mortgaged property had no factual support,... Sta. Ana even offered the same
mortgaged property to PhilGuarantee to settle its obligations with the latter.
JN's obligation had become due and demandable within the one-year period of effectivity of
the guarantee; thus, PhilGuarantee's payment to TRB conformed with its guarantee,
although the payment itself was effected one year after the maturity date of the... loan.
Contrary to the trial court's finding, the CA ruled that the contract of guarantee was not
extinguished by the alleged lack of evidence on PhilGuarantee's consent to the extensions
granted by TRB to JN.
Interpreting Art.
2058... while the provision states that the guarantor cannot be compelled to pay unless the
properties of the debtor are exhausted, the guarantor is not precluded from waiving the
benefit of excussion... and paying the obligation altogether.
CA found that Narciso Cruz was unable to prove the alleged forgery of his signature in the
Undertaking
Petitioners sought reconsideration... but the motion for reconsideration was denied by the
CA for lack of merit.
before the Court are the separate petitions for review of the CA Decision. JN and the
spouses Sta. Ana, petitioners in G.R. No. 151060, posit that the CA erred in interpreting
Articles 2079, 2058, and 2059 of the Civil Code in its Decision.
Meanwhile, petitioner Narciso Cruz in G.R. No. 151311 claims that the CA erred when it
held that petitioners are liable to PhilGuarantee despite its payment after the expiration of
its contract of guarantee and the lack of PhilGuarantee's consent to the... extensions granted
by TRB to JN.
Moreover, Cruz questions the reversal of the ruling of the trial court anent his liability as a
signatory to the Undertaking.
On the other hand, PhilGuarantee maintains that the date of default, not the actual date of
payment, determines the liability of the guarantor and that having paid TRB when the loan
became due, it should be indemnified by petitioners.
there could be no waiver of its right to excussion more explicit than its act of payment to
TRB very directly.
the right to excussion is for the benefit of the guarantor and is not a defense for the debtor
to... raise and use to evade liability.[... o sufficient evidence proving the alleged forgery of
Cruz's signature on the Undertaking, which is a notarized document and as such must be
accorded the presumption of... regularity.
Issues:
date of default, not the actual date of payment, determines the liability of the guarantor and
that having paid TRB when the loan became due, it should be indemnified by petitioners.
there could be no waiver of its right to excussion more explicit than its act of payment to
TRB very directly
Ruling:
The Court finds for PhilGuarantee.
excussion may only be invoked after legal remedies against the principal debtor have been
expanded.
the creditor must first obtain a judgment against the principal debtor before assuming to run
after the alleged guarantor, "for obviously... the 'exhaustion of the principal's property'
cannot even begin to take place before judgment has been obtained."
The law imposes conditions precedent for the invocation of the defense. Thus, in order that
the guarantor may make use of the benefit of... excussion, he must set it up against the
creditor upon the latter's demand for payment and point out to the creditor available
property of the debtor within the Philippines sufficient to cover the amount of the debt.
While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the
obligation once demand is made on him. Excussion, after all, is a right granted to him by law
and as such he may opt to make use of it or waive it. PhilGuarantee's waiver of the right of...
excussion cannot prevent it from demanding reimbursement from petitioners. The law
clearly requires the debtor to indemnify the guarantor what the latter has paid.
Petitioners' claim that PhilGuarantee had no more obligation to pay TRB because of the
alleged expiration of the contract of guarantee is untenable.
guarantee, dated17 December 1979
The guarantee was only up to 17 December 1980. JN's obligation with TRB fell due on 30
June 1980, and demand on PhilGuarantee was made by TRB on 08 October 1980. That
payment was actually made only on 10 March 1981 does not take it out of the terms of the
guarantee. What is... controlling is that default and demand on PhilGuarantee had taken
place while the guarantee was still in force.
There is likewise no merit in petitioners' claim that PhilGuarantee's failure to give its express
consent to the alleged extensions granted by TRB to JN had extinguished the guarantee. The
requirement that the guarantor should consent to any extension granted by the creditor to...
the debtor under Art. 2079 is for the benefit of the guarantor. As such, it is likewise waivable
by the guarantor.
ven assuming that extensions were indeed granted by TRB to JN, PhilGuarantee could have
opted to waive the need for consent to such extensions. Indeed, a... guarantor is not
precluded from waiving his right to be notified of or to give his consent to extensions
obtained by the debtor. Such waiver is not contrary to public policy as it is purely personal
and does not affect public interest.[
PhilGuarantee's waiver can be inferred from its actual payment to TRB after the latter's
demand, despite JN's failure to pay the renewal/guarantee fee as indicated in the guarantee.
The law does not prohibit the payment by a guarantor on his own volition, heedless of the
benefit of excussion. In fact, it... recognizes the right of a guarantor to recover what it has
paid, even if payment was made before the debt becomes due,[43] or if made without notice
to the debtor,[44] subject of course to some conditions.
The cited case finds no application in the case a quo. PhilGuarantee is not invoking the
benefit of excussion. It cannot be overemphasized that excussion is a right granted to the
guarantor and, therefore, only he may invoke it at his discretion.
The benefit of excussion, as well as the requirement of consent to extensions of payment, is
a protective device pertaining to and conferred on the guarantor. These may be invoked by
the guarantor against the creditor as defenses to bar the unwarranted enforcement of the...
guarantee. However, PhilGuarantee did not avail of these defenses when it paid its
obligation according to the tenor of the guarantee once demand was made on it.
What is peculiar in the instant case is that petitioners, the principal debtors themselves, are
muddling the issues... and raising the same defenses against the guarantor, which only the
guarantor may invoke against the creditor, to avoid payment of their own obligation to the
guarantor.
Petitioners assert that TRB's alleged foreclosure of the real estate mortgage over the land
executed as security for the loan agreement had extinguished PhilGuarantee's obligation;
thus, PhilGuarantee's recourse should be directed against TRB, as per the pari-passu...
provision[46] in the contract of guarantee.[47] We disagree.
The foreclosure was made on 27 August 1993, "after the case was submitted for decision in
1992 and before the issuance of the decision of the court a quo in 1998".[48] Thus,
foreclosure was resorted to by TRB against JN when they both had become... aware that
PhilGuarantee had already paid TRB and that there was a pending case filed by
PhilGuarantee against petitioners. This matter was not raised and proved in the trial court,
nor in the appeal before the CA, but raised for the first time in petitioners' motion for...
reconsideration in the CA.
Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of
action was premised on its payment of JN's obligation after the latter's default.
PhilGuarantee was well within its rights to demand reimbursement for such payment made,...
regardless of whether the creditor, TRB, was subsequently able to obtain payment from JN.
If double payment was indeed made, then it is JN which should go after TRB, and not
PhilGuarantee. Petitioners have no one to blame but themselves, having allowed the
foreclosure of the... property for the full value of the loan despite knowledge of
PhilGuarantee's payment to TRB.
Likewise, petitioners cannot invoke the pari-passu clause in the guarantee, not being parties
to the said agreement. The clause is clearly for the benefit of the guarantor and no other.
Anent the issue of forgery, the CA is correct in reversing the decision of the trial court. Save
for the denial of Narciso Cruz that it was not his signature in the Undertaking and the
perfunctory comparison of the signatures, nothing in the records would support the claim
of... forgery. Forgery cannot be presumed and must be proved by clear, positive and
convincing evidence and the burden of proof lies on the party alleging forgery.
Principles:
The benefit of excussion, as well as the requirement of consent to extensions of payment, is
a protective device pertaining to and conferred on the guarantor. These may be invoked by
the guarantor against the creditor as defenses to bar the unwarranted enforcement of the...
guarantee.

52 Phil. 197

STREET, J.:
On June 22, 1925, the defendant, Juan Barcia y Zanuy, resident of
Pontevedra, Occidental Negros, borrowed the sum of P20,000, for two
years, from Jose Ledesma y Rosario, with interest at 12 per centum per
annum, payable annually. To secure this debt Barcia mortgaged to Ledesma
the hacienda Cambaros, being lot No. 1500 of the cadastral survey of
Pontevedra, Occidental Negros, containing something more than 294
hectares, and registered in transfer certificate No. 4890 of the property
registry of Occidental Negros. The property thus mortgaged belonged to the
plaintiff herein, Miguel Perez y Tejido, who had, however, duly authorized
the creation of this mortgage. Among the stipulations contained in this
mortgage is one to the effect that in case of failure on the part of the debtor
to comply with any of the obligations of the mortgage, all terms then
pending should be considered as lapsed (se daran por vencidos todos los
plazos que entonces hubiere pendientes). When the first year was ended
Barcia failed to pay the interest then due, and as a consequence the creditor
threatened to foreclose the mortgage. Thereupon, for his own protection,
the owner, Miguel Perez, was compelled to intervene to avoid the sacrifice
of the estate. To this end he procured indulgence for several months from
the creditor Ledesma and later paid off the interest then due on the
mortgage, amounting to P2,400. 
Following this act, the plaintiff Perez instituted the present action against
Barcia on April 22, 1927, in the Court of First Instance of Occidental
Negros. In the petitory part of the complaint the court is asked to declare
that the defendant has lost the right to the period for payment allowed in
the mortgage, and it is further prayed that the defendant be required to pay
to the plaintiff the sum of P20,000, with interest, in order that the plaintiff
may free his property from the lien fixed upon it by the mortgage in favor of
Ledesma. Upon hearing the cause the trial court gave judgment in favor of
the plaintiff to recover the sum of P20,000 as capital of the loan, with
interest at 12 per cent per annum from June 23, 1927, as well as for the sum
of P2,400 which the plaintiff had paid to Ledesma as stipulated interest for
one year on the mortgage indebtedness, with interest on the last named
sum from the date of the judgment. From this judgment the defendant
appealed.
With respect to the sum of P2,400 which the plaintiff paid to Ledesma to
cover the interest for one year upon the mortgage debt, the propriety of the
judgment in favor of the plaintiff is unquestionable. Though not literally
such, the plaintiff was substantially in the position of a surety for the
defendant, by reason of the mortgage upon the hacienda Cambaros; and a
debtor is bound to indemnify his surety for any outlay that the latter makes
in satisfying the obligation of the debtor (art. 1838, Civil Code). Moreover,
the judgment for the amount mentioned was a proper remedy to extend to
the plaintiff under the prayer for general relief. It results that no error was
committed by the trial court in giving judgment for the item mentioned.
With respect to the item of P20,000, with interest, for which the court gave
judgment in favor of the plaintiff, the case is different. As regards this part
of the judgment, the cause of action rests on article 1843 of the Civil Code
which recognizes the right of the surety, in case of the insolvency of the
debtor, to proceed against the principal debtor even before the surety has
paid off the debt. But in giving judgment for this item the court apparently
overlooked the fact that, in the closing paragraph of the article cited, the
precise relief to which a surety may be entitled before paying the principal
debt is defined; and the giving of a money judgment in favor of the surety
for the amount of the debt is not among the remedies there enumerated.
The relief to which a surety is entitled, according to the paragraph referred
to, is to obtain his release from the contract of suretyship or to obtain
security to protect himself against any proceedings on the part of the
creditor and against danger of insolvency of the debtor. Article 1843 of the
Civil Code was therefore infringed by the trial court in giving judgment in
favor of the plaintiff for the principal debt.
Furthermore, in the case before us, the plaintiff has voluntarily disabled
himself from seeking security from the defendant as contemplated in the
last paragraph of the article mentioned; for we find that in Exhibit 8,
denominated memorandum, and executed by Perez in favor of Barcia, the
plaintiff expressly agreed that, in view of the fact that Barcia could not give
security for any amount which he might obtain by mortgaging
the hacienda Cambaros, Perez would not require security or bond, and the
plaintiff expressly renounced all security in his favor for the payment of the
debt. It results that inasmuch as Perez thus disabled himself from obtaining
the precise remedy which the law would have given, under the last
paragraph of article 1843, Civil Code, no remedy at all can be extended to
him under said article. In other words, the plaintiff will have no right of
action to recover the debt from the defendant until the debt has actually
been paid by the plaintiff.
Another point which is discussed in the briefs is this, namely, whether the
plaintiff had a cause of action prior to the due date of the mortgage, the
action having been begun full two months before the end of the period
conceded to the debtor in the mortgage. Upon this it is insisted for the
defendant that the action was prematurely brought; while the plaintiff
contends that he had a present right of action when the suit was begun,
both under article 1129 of the Civil Code and under the clause of the
mortgage accelerating the maturity of the debt upon failure of the debtor to
comply with any of his obligations. Into this question it is not necessary to
enter, in the view which we have taken of the feature of the case last above
discussed.
From what has been said it follows that the appealed decision must be
reversed in so far as it gives judgment in favor of the plaintiff to recover of
the defendant the sum of P20,000, with interest at 12 per centum per
annum from June 23, 1927; and with respect to said item the defendant is
absolved from the complaint, but without prejudice to the plaintiff. In
respect to the sum of P2,400, with lawful interest from the date of the
judgment in the court below, the judgment is affirmed. So ordered, without
costs.
Johnson, Malcolm, Ostrand, Romualdez, and Villa-Real, JJ., concur.

E. ZOBEL v. CA, GR No. 113931, 1998-05-06

Facts:
Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers,"
applied for a loan with respondent Consolidated Bank and Trust Corporation (now
SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos
(P2,... 875,000.00) to finance the purchase of two (2) maritime barges and one tugboat[3]
which would be used in their molasses business. The loan was granted subject to the
condition that respondent spouses execute a chattel mortgage over the three (3) vessels to...
be acquired and that a continuing guarantee be executed by Ayala International Philippines,
Inc., now herein petitioner E. Zobel, Inc. in favor of SOLIDBANK. The respondent spouses
agreed to the arrangement. Consequently, a chattel mortgage and a Continuing Guaranty[4]
were executed.
Respondent spouses defaulted in the payment of the entire obligation upon maturity.
Hence, on January 31,1991, SOLIDBANK filed a complaint for sum of money with a prayer
for a writ of preliminary attachment, against respondents spouses and petitioner.
Issues:
whether or not petitioner under the "Continuing Guaranty" obligated itself to SOLIDBANK
as a guarantor or a surety.
Ruling:
Strictly speaking, guaranty and surety are nearly related, and many of the principles are
common to both. However, under our civil law, they may be distinguished thus: A surety is
usually bound with his principal by the same instrument, executed at the same... time, and on
the same consideration. He is an original promissor and debtor from the beginning, and is
held, ordinarily, to know every default of his principal. Usually, he will not be discharged,
either by the mere indulgence of the creditor to the principal, or by want of... notice of the
default of the principal, no matter how much he may be injured thereby. On the other hand,
the contract of guaranty is the guarantor's own separate undertaking, in which the principal
does not join. It is usually entered into before or after that of the principal,... and is often
supported on a separate consideration from that supporting the contract of the principal.
The original contract of his principal is not his contract, and he is not bound to take notice of
its non-performance. He is often discharged by the mere indulgence of the... creditor to the
principal, and is usually not liable unless notified of the default of the principal.
Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the
solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a
surety is the insurer of the debt, and he... obligates himself to pay if the principal does not
pay.
Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied
upon by petitioner, finds no application to the case at bar.
But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the
chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty
executed in favor of SOLIDBANK, petitioner bound itself to the contract... irrespective of
the existence of any collateral. It even released SOLIDBANK from any fault or negligence
that may impair the contract.
x x x the undersigned (petitioner) who hereby agrees to be and remain bound upon this
guaranty, irrespective of the existence, value or condition of any collateral
No act or omission of any kind on your part in the premises shall in any event affect or...
impair this guaranty,
Principles:
But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the
chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty
executed in favor of SOLIDBANK, petitioner bound itself to the contract... irrespective of
the existence of any collateral. It even released SOLIDBANK from any fault or negligence
that may impair the contract.

47 Phil. 724

JOHNSON, J.:
This is a petition for the extraordinary writ of prohibition. Its purpose is to
prevent the respondents from executing a judgment rendered by the Court
of First Instance of the Province of Iloilo in an action for the detention of a
certain piece or parcel of land, and damages.
It appears from the record that on or about the 14th day of April, 1923, the
respondent Encarnacion Nellama commenced an action in the court of the
justice of the peace of the municipality of Miagao, of the Province of Iloilo,
to recover of the therein defendants, Esteban Moralda and Petra Moralda,
the possession of a certain piece or parcel of land located in the barrio De
Valencia, of said municipality, composed of about one cavan de semilla de
palay, more or less, and prayed for damages in the sum of P25 for the
unlawful detention of said parcel of land. On the 12th day of May, 1923, the
justice of the peace of said municipality rendered a judgment in favor of
said plaintiff and against said defendants, ordering and directing the latter
to deliver to the former the possession of said parcel of land and to pay
damages in the sum of P25 and the costs. From that judgment of the justice
of the peace the defendants appealed to the Court of First Instance. To
perfect said appeal the defendants executed and delivered the usual bond
required by law, with the petitioners herein as bondsmen.
The record contains some confusion concerning the amount of said bond.
In one part of the petition it is alleged that the bond was for the sum of P50,
or double the amount of the judgment for damages of the justice of the
peace, while in another part of the petition it appears that the bond was for
the sum of P500, and in addition thereto the sum of P9 for costs. In the
Court of First Instance the original plaintiff instead of renewing the
complaint presented in the court of the justice of the peace, presented
practically a new complaint in which he prayed for the possession of said
parcel of land together with damages for the sum of P100 instead of P25,
and costs. The record does not disclose what was the defense of the original
defendants in the Court of First Instance.
Upon the trial of the issue presented in the Court of First Instance the
respondent judge rendered a judgment in favor of the original plaintiff and
against the original defendants, ordering and directing the said defendants
to deliver to the plaintiff the said parcel of land and to pay P100 as damages
together with costs. The original defendants having failed to satisfy said
judgment, an execution was issued thereon and placed in the hands of the
sheriff, directing and ordering him to collect of the defendants, including
the bondsmen on appeal, the sum of P500 and costs. The lower court
justified the issuance of said execution for the sum of P500 as the amount
of the bond, instead of for P50, upon the ground that the said bond was in
truth and in fact a bond for the sum of P500. After repeated motions for
reconsideration of the order directing the execution, and many delays, the
present petition was presented.
Upon the presentation of the petition the respondents were required to
show cause why the prayer thereof should not be granted. In answer to that
order the respondents demurred, alleging, first, that the facts stated in the
petition were not sufficient to constitute a cause of action justifying the
granting of the writ of prohibition and, second, that the petition was
ambiguous, unintelligible and vague. Upon the issue thus presented, the
cause was submitted to this court without argument.
It is argued pro and con by the respective parties, that the respondent judge
was without jurisdiction to issue a writ of execution upon said judgment
against said bondsmen without a further hearing, contending at the same
time that the bond was for P50 and not for P500. The question of the
amount of the bond was fixed by the lower court, and the record contains
no fact or facts justifying us in arriving at a different conclusion. It has been
held in numerous decisions by this court, that the sureties on
a supersedeas bond were jointly and severally liable with the principal
debtor, and that an execution might issue against their property,
concurrently with the execution against the property of the principal.
(Molina vs. De la Riva, 7 Phil., 345; Chinese Chamber of Commerce vs. Pua
Te Ching, 16 Phil., 406; and many other cases which might be cited; articles
1144, 1822, 1831 and 1856, Civil Code.)
Upon the question whether or not the plaintiff in an action of forcible entry
and detainer can change the character of his action on appeal in the Court
of First Instance, by increasing the amount of his damages, is one upon
which there is a difference of opinions in different jurisdictions. Inasmuch
as the question has not been squarely presented to us, we express no
opinion.
The entire record in fact presents but two questions, and they are: First, Did
the respondent judge exceed his jurisdiction? And, second, Did the
petitioners have another adequate and speedy remedy? The first question
must be answered in the negative, for the reason that the judgment had
become final and the respondent had full jurisdiction to issue an execution
thereon. The defendants had another speedy and adequate remedy by an
appeal. If they were not satisfied with the judgment of the respondent
judge, they might have appealed. They did not avail themselves of that
remedy. The mere fact that the time has elapsed for the perfection of the
appeal does not create a right to the remedy prayed for. If the finding of the
respondent judge was that the appeal bond was for P500 instead of P50,
then the petitioners had suffered no damages and they are simply being
required to comply with the contract which they voluntarily entered into.
We find no reason nor foundation whatever for granting the remedy prayed
for. The same is, therefore, hereby denied, with costs against the
petitioners. So ordered.
Street, Malcolm, Villamor, Johns, and Villa-Real, JJ., concur.
93 Phil. 661

LABRADOR, J.:
The most important facts involved in this case are set forth in a stipulation
and in the decision of the trial court, and may be summarized as follows:

On July 21, 1948 the Bucas Grande Lumber Corporation executed a chattel
mortgage for P150,000 in favor of the Philippine Trust Company over its
machineries and equipments situated in Matingab, Bucas Grande Island,
Surigao.  The machineries and equipments are set forth in a list attached to
the mortgage deed.  On April 12, 1949 another deed of mortgage was
executed for the same amount and over the same properties, although the
arrangement or order in which the properties are listed is different.  As the
mortgagor failed to pay the indebtedness, the attorneys of the mortgagee
sent a letter to the provincial.sheriff of Surigao requesting the latter to take
immediate possession of the properties mortgaged and sell them on
September 30, 1949, at the office of the mortgagor at Bucas Grande.  When
the sheriff received this letter on September 23, 1949, he could not give
sufficient notice of the sale, so he postponed the sale on October 8, 1949. 
At this sale, the Philippine Trust Company was the sole bidder and its bid
was for P40,000.  Award was made to it and a certificate of sale, dated
October 15, 1949 (Exhibit 8), issued in its favor.  It so happened, however,
that the list of machineries attached to the certificate of sale did not include
many of the items included in the deed of mortgage, so the Philippine Trust
Company protested against the list of properties included in the certificate
of sale (Exhibit 9).  The only change that the sheriff was willing to make was
the inclusion in the certificate of sale of "various equipments or spare parts
scattered in the vicinity of the sawmill of the mortgagor."  As this was not
satisfactory, a deputy of the sheriff was sent to the premises to make a list
of the properties on the island, and this list tallied with that attached to the
mortgage deed of April 12, 1949.  In the meantime, one Montromery W.
Rice transported four items to the town of Surigao, although one of these
was taken back.

Before the representatives of the Philippine Trust Company left Surigao for
Manila on November 1, 1949, they made an agreement with the sheriff that
a second sale was to be conducted on November 10, 1949.  The sheriff,
however, did not make the sale on November 10, 1949, as agreed upon
between him and the representatives of the Philippine Trust Company.  He
advanced the sale to November 7, 1949 and gave notice of this to the
Philippine Trust Company be telegram dated November 5, 1949, which he
registered with the post office only on November 6th.  This telegram was
received by the Philippine Trust Company only on November 7, 1949
(Exhibit 11, Philippine Trust Company), and still another (rush) on the
same date (Exhibit 13, Philippine Trust Company.)  The Philippine Trust
Company answered these on the same date with a rush telegram, asking
that the sale be postponed to November 14th (Exhibit 14, Philippine Trust
Company.)  This telegram of the Philippine Trust Company was received by
the sheriff at 3:38 o'clock in the afternoon of November 7, 1949.  The only
bidder at the sale waws L. F. Lang, plaintiff and appellee herein, who placed
a bid for P15,000.  The bid was dated November 7, 1949, at 10 o'clock in the
morning (Exhibit 15, Sheriff.)  On November 7, 1949 at 10:20 in the
morning, the sheriff sent a third telegram, collect, to the Philippine Trust
Company, advising the latter that he received its bid late and had
consummated the sale to Lang (Exhibit 17, Philippine Trust Co.)  This
telegram was received by the Philippine Trust Company on November 9,
and, upon receiving this advice, it protested by rush telegram that the sale
was illegal (Exhibit 18, Philippine Trust Company.)  It also sent a letter
(Exhibit 19, Philippine Trust Company), claiming that the second sale was
illegal because the properties were already sold.

It will be noted that on November 7, 1949, evidently before learning that

the sale had been consummated, the representative of the Philippine Trust
Company wrote a letter to the sheriff offering a bid for P16,000 for all the
properties in the list (Exhibit 21, Philippine Trust Company.)  This letter
was presented to the sheriff on November 10, 1949.

The sheriff referred the matter of the protest of the Philippine Trust
Company against the second sale to the provincial fiscal for opinion, and
the latter, on November 17, 1949, held that the second sale was illegal.  So
the sheriff refused to execute the certificate of sale in favor of L. F. Lang
and, instead, advertised another sale for November 28th.  At this sale, the
Philippine Trust Company entered a bid for P16,000, and award to it was
made, but up to the present the sheriff has not executed the corresponding
certificate of sale.

The present action was instituted by L. F. Lang to compel the sheriff to

execute a certificate of sale in his favor, for the award made on November 7,
1949, to deliver to him the chattels sold, and to prevent him from executing
a certificate of sale in favor of the Philippine Trust Company.  The
Philippine Trust Company intervened in the action and filed an answer,
with a counter-claim and a cross-claim, praying that the sheriff be ordered
to execute a deed of sale in its favor for P16,000, this amount to be credited
to its mortgage; that plaintiff's suit be dismissed; and that plaintiff be
sentenced to pay P40,000 damages.  In their pleadings, both Lang and the
Philippine Trust Company asked for damages against each other.

The trial court found that the second sale was agreed upon between the
Philippine Trust Company and the sheriff because of the misunderstanding
as to the properties covered by the deed of mortgage and those actually sold
in the foreclosure sale; that as a third party was involved in the second sale,
even if the sheriff and the Philippine Trust Company had agreed that it be a
formality, this agreement could not be effective as against said third
person; that granting that the Philippine Trust Company had the right to be
given opportunity to offer its bid and was not given that opportunity
because the sale was waived by it (1) because when it received notice of the
sale, it only limited itself to asking for its postponement, and only protested
its illegality after it had been advised that it was already consummated, and
(2) because its representative filed its bid on November 10, 1949.  It,
therefore, held that the second sale was valid and that the first and third
sales were illegal, and it ordered the sheriff to execute the certificate of sale
in favor of the plaintiff, dismissing the cross-claim of the Philippine Trust
Company.  It also found that none of the parties had proved or is entitled to
damages, and dismissed all claims therefor.

The Philippine Trust Company has appealed against the above judgment,
claiming (1) that the first sale was a valid one; (2) that the second sale was
null and void because no notice thereof was given as provided for by law;
and (3) that with respect to the second sale, it did not waive the
requirements of the law as to notice, and is not estopped to raise this
objection.

The most important error assigned against the judgment of the trial court,
refers to the validity of the second sale effected on November 7, 1949.  In
support of the alleged invalidity of this sale, it is claimed that the properties
had already been previously sold to defendant-intervenor-appellant,
Philippine Trust Company, in the first sale made on October 8, 1949.  The
argument is based on a wrong premise, i.e., that the first sale conducted on
Octover 8, 1949 was a valid one.  Assuming, as defendant and appellant
Philippine Trust Company contends, that the properties sold on that first
foreclosure sale were believed by it to be all the properties covered by the
mortgage, the sheriff who conducted the sale believed otherwise, claiming
that only those listed in the certificate of sale (Exhibit 8) were sold by him. 
The existence of a mistake on the part of the sheriff was recognized by the
representatives of the Philippine Trust Company, who upon refusal of the
sheriff to include in his certificate all the items covered by the mortgage,
agreed that another sale be conducted.  In a foreclosure sale, just as in any
ordinary contract of sale, there must be a specific subject.  There must be a
"meeting of the minds" with respect to the subject of the contract, i.e., that
what the vendor is selling is exactly the same as what the vendee is
purchasing.  In the absence of such an understanding, no sale may be
considered perfected.  We, therefore, hold that the first foreclosure sale of
October 8, 1949 was not a valid one, for the reason that there was a
misunderstanding at the sale between the sheriff and the appellant,
Philippine Trust Company, as to the identity of the properties being sold.
As to the second sale, it should be noted that it was advertised on
November 1, 1949 and actually took place on November 7, 1949.  Therefore,
the 10-day period of notice required by the law (section 14, Act No. 1508)
was not complied with.  However, the trial court held that, notwithstanding
this irregularity, the same can not be annulled because the deed of
mortgage contains an express waiver on the part of the mortgagor of the ten
days notice required by law.  It is true that, insofar as the mortgagor is
concerned, the express waiver of the notice contained in the deed of
mortgage saves the sale from his objection.  But not the mortgagee.  It did
not receive notice of the sale within ten days thereof because, in spite of the
agreement between the representatives of the mortgagee and the sheriff
that the sale shall be made on November 10, 1949, the latter, for reasons
which the record does not show or explain, advanced the sale and set it for
November 7, 1949, without previous notice, and without opportunity for it
to bid.  The sheriff dated his telegram November 5, 1949, but he actually
filed it and was received in the office of the postmaster only at 11:10 o'clock
in the morning of November 6, 1949 (Exhibit 11, Philippine Trust
Company).  This telegram was received by the Philippine Trust Company
on November 7, 1949.  The Philippine Trust Company, in utter good faith,
answered this first telegram by a rush telegram registered at the post office
at 10:31 o'clock in the morning of November 7th, and this telegram was
received at the post office of Surigao at 12:16 in the afternoon of the same
day.  But the sale had been advertised for 10:00 o'clock in the morning, and
the sheriff ignored the telegram, making the award in favor of the bidder,
L.F. Lang.

It is clear and evident, as the trial court found, that there was no sufficient
opportunity for the mortgagee to take part in the sale and offer its bid
thereat.  However, it held that it waived its objection (to the failure of ;the
sheriff to give it sufficient notice in advance and opportunity to bid)
because the objection against the illegality was made only after learning
that its request for postponement was not granted, and because it made a
bid on November 10, 1949.  In arriving at this conclusion the court
reasoned, with plaintiff and appellee, that the appellant may not at the
same time be allowed to attack the sale if its bid is rejected, and approve of
it if said bid is accepted.  The fallacy of the reasoning of the court in bot
arguments is evident.  As to the first, the mortgagee did not expect, as he
had no right to assume, that its request for postponement was to be denied,
because it had not been given sufficient opportunity to bid, and in all
fairness the sale should have been postponed.  Of course, its attack against
the validity of the sale could come only after it was advised of the denial of
its request for postponement; it could not have done otherwise.  It could
not put the cart before the mule.  To ask for the postponement of a sale is
not to agree thereto on the date it actually took place, which was
objectionable.  If it may be considered a waiver of the objection at all, it is
so only conditionally, i.e., that the proceedings already had been allowed to
stand, but that the mortgagee will not be denied the right to bid and will
still be granted its opportunity to do so.

The same may be said of the submission of mortgagee's bid on November

10, 1949.  As it was agreed upon between it and sheriff that the sale was to
be made on November 10, 1953, it wanted the sheriff to be bound by said
agreement and still allow its bid to be considered, even if the sale had
actually been made.  If there was a waiver also, it was likewise a conditional
one, i.e., that the sale continue but that its bid be considered submitted on
time.  But the plaintiff and appellee and the trial court would consider the
mortgagee as having waived its objection to the invalidity of the sale only,
without considering its subsequent bid as presented on time; plaintiff, in
effect, would want to accept the waiver only, and reject the condition
imposed in said waiver; he would want to eat his cake and still have it too. 
The claim of plaintiff and appellee is clearly unfair and unjust and can not
be justifiable in law or equity.

A waiver must be express.  If it is to be implied from conduct merely, said

conduct must be clearly indicative thereof (of the waiver), indicative of a
clear intent (67 C. J.. 306).  Especially where, as in the case at bar, the
mortgagee loses a very valuable right, such as the right to participate in a
bid, in order to recover the loan that it has granted on the security of the
mortgage, or as much thereof as is possible under the circumstances,
nothing less than a clear, positive waiver, made with a full knowledge of the
circumstances, must be required.  In the case at bar, the conduct from
which the alleged waiver is implied was neither express, nor clear or
positive, but implied from the request for the postponement of the bid and
the presentation of such bid three days later.  These two acts clearly imply
an assertion that the right to bid still existed, not a waiver thereof.  They
may not be interpreted as a waiver of the objection to the illegality of the
sale, but a re-assertion of the right to an opportunity to bid.  And as the trial
court clearly committed error in holding that mortgagee had waived its
objection, the sale, which was held without the ten days prior notice to the
mortgagee, must be declared, as we hereby declare it to be, null and void.
As the sales of October 8 and November 7, 1949 are both null and void, it
follows that the third one, concluded on November 28, 1949, which was in
all respects regular, and against which no objection had been raised except
the alleged validity of the second sale, must be upheld.  At this sale the
Philippine Trust Company was the successful bidder and it bid P16,000. 
The execution of the corresponding certificate of sale has been asked for
and this remedy can no longer be denied.

For the foregoing considerations, the judgment appealed from is hereby

reversed, and the Provincial Sheriff of Surigao is hereby ordered to execute
and deliver a certificate of sale of the properties sold thereat at the price of
P16,000, which price should be credited in favor of the purchaser as
mortgage creditor in the sale on foreclosure.  Costs shall be taxed against
the plaintiff and appellee.  So ordered.

Paras, C. J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes,

Jugo and Bautista Angelo, JJ., concur.

SUPPLEMENTAL DECISION

Sept. 29, 1953

LABRADOR, J.:

In view of the fact that favorable judgment has been rendered in its favor,
the Philippine Trust Company has now filed a motion asking that the
judgment be completed by an award of damages.  There is no evidence to
support a finding that the sheriff had wanted to deprive the Philippine
Trust Company of its opportunities to make a bid at the sale,
notwithstanding the fact that the date thereof was advanced.  If the
Philippine Trust Company was actually deprived thereof, it was perhaps
more due to delay in the transmission and delivery of the telegrams that the
sheriff had sent.  Furthermore, the supposed damage was too speculative
and grossly out of proportion to the appraisal of the properties that the
Philippine Trust Company itself made, as evidenced by the amount of its
bid, for the claim for damages to merit the serious consideration of the
court.  Neither is there any ground for it to recover in its counterclaim, as
there is absolutely no evidence to show that plaintiff-appellee was in any
way responsible for the advancing of the sale.  The counterclaim and the
cross-claim presented by the Philippine Trust Company are therefore
dismissed.

Paras, C. J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes,

Jugo and Bautista Angelo, JJ., concur.

RESOLUTION

September 29, 1953

LABRADOR, J.:

Plaintiff-appellee has moved the court to reconsider the decision,

contending that the law on extra-judicial foreclosure contains no provision
that notice of the sale be given the executing mortgage creditor.  The
absence of a provision is explained by the fact that it is the creditor who
causes the mortgaged property to be sold, and the date of sale is fixed upon
his instruction because it is he who causes the sale and controls its details. 
That the creditor should fix the date of the sale is clearly to be inferred from
the provision that it is he (the creditor) who is required by the law to give
notice of the sale and its date to the mortgagor.  When, as in the case at bar,
the sheriff sets a day for the sale different from that fixed for it by the
creditor,  Neither the pleadings nor the evidence entitle him to such relief. 
Motion denied.

Paras, C. J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes,

Jugo and Bautista Angelo, JJ., concur.

26 Phil. 160

MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of Iloilo
ordering the sheriff to execute a conveyance of certain real estate, the
subject of the action, in favor of one Ruperto Montinola.

According to the claim of Gregorio Yulo as attorney for Juan Tuason, some
time prior to the beginning of this action a mortgage held by Juan Tuason
against the real estate of one Ceferino Domingo Lim was foreclosed by the
former and the property described therein sold at public sale to said Juan
Tuason under the bid of Gregorio Yulo, his attorney.  The sale, so far as the
record is concerned, was duly and properly made and affirmed by the
court.  Later the purchaser at the sale, Juan Tuason, asked the sheriff for a
deed of the property in pursuance of the purchase thereof at the public sale,
and the sheriff was about to execute the conveyance to the purchaser when
one Ruperto Montinola presented himself to the sheriff alleging that he had
purchased from the mortgagor and defendant in the action to foreclose the
mortgage, Ceferino Domingo Lim, his right to redeem the mortgaged
premises and tendered to the sheriff the amount for which the mortgaged
property was sold, with the cests and expenses, at the same time
demanding that the sheriff execute a deed of said property to him.  The
sheriff finding himself called upon by two different persons, with interests
apparently opposing, to perform an official act, began this action to
determine to whom the conveyance of the property should be issued.

The facts as claimed by Montinola are the same as those stated by Gregorio
Yulo as attorney for Juan Tuason, except that Montinola claims that the
sale of the real estate in question was under an execution issued upon a
judgment and not under a decree in foreclosure.

The trial court found, and ordered in accordance with that finding, that the
conveyance of the premises in question should be executed in favor of
Ruperto Montinola, upon the ground that he purchased the equity of
redemption of the mortgagor, stood in his shoes, and was, therefore,
entitled to a conveyance of the property.

There are several reasons why the judgment must be reversed.

In the first place, the action is begun against the attorney Gregorio Yulo,
who is alleged by the plaintiff to be representing both Juan Tuason and
Ruperto Montinola.  Under section 114 of the Code of Civil Procedure, an
action must be brought by the real parties in interest.  Under other
provisions of the code, and as a  corollary to the provisions of section 114,
actions must be brought against the real parties in interest.  If the sheriff
had the right to bring the action at all, a question to which we will refer
later, it should have been brought against Juan Tuason and Ruperto
Montinola, and very possibly against Ceferino Domingo Lim also.  The first
two persons at least are the real parties in interest, and a judgment to be
binding upon them and their interests must be against them personally.  A
judgment rendered against Gregorio Yulo as attorney for Juan Tuason and
Montinola would not bind the latter, they not having appeared as parties in
the action and having in no way litigated the questions involved.  Unless
they were estopped by some act of theirs, a judgment against Gregorio Yulo
and Ruperto Montinola would be without force as to them, and they might
on the day following the entry of such a judgment relitigate the questions
already litigated in the other action.

Moreover, Gregorio Yulo cannot consistently represent Juan Tuason and

Ruperto Montinola at the same time.  Their interests, under the theory of
the action and the pleadings, are clearly adverse to each other.  Even if
Gregorio Yulo were the proper party to be sued, he could be sued as the
representative of only one of the two persons whom he is claimed to
represent in this action.  The interests of the other are so opposed to those
of the one as to make an attempt to represent both farcical.

In the second place, the case was decided in the court below without any
facts before it.  Gregorio Yulo, as attorney for Juan Tuason, answered the
complaint denying each and every allegation thereof and set up facts
showing a special defense.  Ruperto Montinola appeared by his attorneys
and demurred to the complaint.  The demurrer was overruled but,
nevertheless, the complaint was ordered amended.  An amended complaint
was filed, to which the same demurrer was interposed by Ruperto
Montinola and the same answer by Gregorio Yulo, as attorney for Juan
Tuason.  No action was taken on the demurrer to the amended complaint
and nothing was done as to the issue joined by the answer of Gregorio Yulo
as attorney for Juan Tuason.  Instead, a final judgment upon the merits was
entered in favor of Ruperto Montinola and against Juan Tuason, ordering
the sheriff to execute a conveyance of the premises to the former.  Relative
to the basis of its decision the court says:  "This is a case submitted to the
court on written facts which seem to be accepted by the defendants but
demurred to by them."

The court, after this statement, goes on to detail the sale of the land in
question under a judgment in favor of Juan Tuason, the expiration of
eleven months after such sale, the application of Tuason to the sheriff for a
conveyance, the objection thereto by Montinola upon the ground that he
had obtained an assignment from Lim, the judgment debtor, of his right to
redeem, and the tender to the sheriff of the amount for which the property
sold, with interest and costs.

We do not know from the record what facts are admitted.  Those stated in 
the complaint are denied by Gregorio Yulo as attorney for Juan Tuason,
and as a special defense he sets up facts making an entirely different case
from that shown by the complaint.  As to the defendant Gregorio Yulo as
attorney for Montinola, the facts stated in the complaint are admitted by
the demurrer.  There was no hearing, no evidence, no stipulation between
the parties, and no agreed statement of facts.  From the statement of the
facts in the opinion of the trial court we do not know whether the sale was
by virtue of an execution issued upon an ordinary judgment for a sum of
money, as seems to be alleged in the complaint, or whether it was a sale by
virtue of a mortgage foreclosure as alleged in the answer.  Certainly the
facts as stated in the brief of Montinola are entirely different from those
stated in the brief of Gregorio Yulo as attorney for Tuason; and their
arguments are based upon the facts stated in their briefs.  This indicates
that there was no agreement upon the facts in the court below in the real
sense of the term and that there must have been some mistake in assuming
that the facts were agreed upon.

For these reasons the judgment must be reversed and the cause remanded
for the purpose of giving the parties an opportunity to agree upon a
statement of facts upon which the case may be decided or for such
proceeding upon the demurrer and answer as the parties may desire and
the law permits.

Certain questions, however, having been thoroughly argued in this court

and presented on this appeal, we take the occasion, as we have in numerous
other cases, to set out our views upon the questions thus presented and
argued, to the end that time and expense may be saved the litigants.  In all
probability our opinion upon these questions will settle the case once for all
and obviate the necessity of again presenting to this court or to any other
the same facts upon which the case rests here.

As to that portion of the judgment which requires the sheriff to execute a

conveyance of the land in question to Ruperto Montinola:

Treating the sale as one in foreclosure, we may say that even if it be

conceded that there exists an equity of redemption after mortgage property
has been sold and the sale duly confirmed, and even though it be admitted
that Ruperto Montinola purchased that right of redemption, there still
appears no reason why a conveyance of the property should be made to him
by the sheriff.  Redemption of the land merely replaces title in the
mortgagor, if it be assumed that the title was at any time divested.  It is
from him that Montinola must obtain his conveyance  if he is entitled  to it
from any one.  It is clear that, if Lim had himself redeemed the  property,
there would have been  no necessity  for the execution  of a conveyance, as
a  redemption cancels and renders without force or effect the sale of the
property by the sheriff and revests title in the mortgagor.  Certainly the
sheriff owes no  duty  whatever to Montinola so far as the execution of a
conveyance is  concerned.  If the property is redeemed, it is, by that fact,
taken from the hands of the sheriff and he loses jurisdiction over it.   A
sheriff may issue a conveyance only by virtue of official duty.  If there were
no redemption, his sale of the property would require him to execute a
conveyance to the purchaser.  But when there is a redemption, the sale and
all of its incidents and effects are destroyed and obliterated, and,
accordingly, he has no official connection with the matter thereafter.  It
returns to the mortgagor.  It is clear, therefore, that the demand of
Montinola that the sheriff execute to him a conveyance of the property in
question, after the redemption, is entirely gratuitous.  It in effect asks the
sheriff to perform an act not imposed upon him as a duty and which refers
to property over which he has lost jurisdiction and control.  If Montinola is
entitled to a conveyance, he must obtain it from the mortgagor Lim.
What has been said with relation to the sheriff's duty in the case of
redemption from sales in actions of foreclosure applies with equal force to
redemption from sales under executions; and Montinola, on redemption,
would not be entitled to receive from the sheriff a conveyance in either case.

We may say, furthermore, that this court has already held that in mortgage
foreclosures the rights of the mortgagee and persons holding under him are
cut off by the sale, when duly confirmed, and with them the equity of
redemption.  The reason for that holding is that the right of redemption
being purely statutory, and there being no statute conferring that right, it
does not exist.  We so held in the case of the Compania General de Tabacos
de Filipinas vs. Romana Gauzon.  (10 Off. Gaz., 1043, notes.)  The same
opinion is expressed, in the case of Raymundo vs. Sunico.  (25 Phil. Rep.,
365.)  While the judgment in the former case was subsequently vacated and
the cause remanded for a new trial, it was done upon grounds which did not
affect the decision as to the right of redemption, and the opinion of the
court expressed in that case after full argument and extensive citation of
authorities, and after full consideration, is one to which we adhere at this
time.

It is a principle well established that the right of redemption is a statutory

right and does not exist in the absence of statute.  In the case of Parker vs.
Dacres (130 U. S., 43), the court says, at page 47: "Counsel for the plaintiff
speaks of a common-law right of redemption after sale that attaches in the
absence of any statutory provision on the subject.  We are not aware of any
such right existing at common law, or in the system of equity as
administered in the courts of England previous to the organization of our
Government.  It is a mistake to suppose that the case of Clark vs. Reyburn
(8 Wall., 319), recognizes a right of redemption after a sale under a
foreclosure decree independently of statute.  It is there stated that 'by the
common law, when the condition of the mortgage was broken, the estate of
the  mortgagee became indefeasible,' and that 'equity interposed and
permitted the mortgagor, within a reasonable time, to redeem upon the
payment of the amount due before sale;' also, that, according to the settled
practice in equity, when proceedings to foreclose were  not regulated by
statute, this right to redeem before sale is fixed by the primary.decree, and
that only in the event of final default in paying the amount ascertained to be
due is an absolute sale ordered.  *   *   *  It is clear that the right to redeem
after sale, wherever it exists, is statutory."
It is equally certain that the right of redemption in the form in which it is
asserted in this case, i. e., after sale under decree of court, did not exist
under the Spanish law.  Mr. Coote says: "By the civil law, the debtor might
redeem the estate on payment of his debt, at any time before sentence
passed."  (Coote on Mori,  10.)  "Until debarred by judicial sentence." 
(Ibid., 209.)  "Until decree of foreclosure."  (Ibid.)  "The mortgagor is the
equitable owner until the land is redeemed or foreclosed."  (Ibid., 319.) 
Under the Spanish law the right of redemption was destroyed by the sale
under the decree of foreclosure.

"Both at law and in equity," says Mr. Jickling, "the conveyance is at first
conditional, not absolute; and in  both, the estate may, on an event, be
discharged of the condition, and become the indefeasible property of the
mortgagee.  At law, that event is the non-payment at the day agreed upon;
in equity, it is the decree of a court of judicature.  In the former jurisdiction,
it is conventional; in the latter, judicial."  (Jickling's Analogy, 66.)

Chancellor Kent, in his definition of a mortgage, states that:  "The legal

ownership (of the  land  mortgaged) is vested in the creditor; but in equity,
the mortgagor remains the owner until he is debarred by his own default, or
by judicial decree."  (4 Kent, 133.)

And again:  "The equity doctrine is, that the mortgage is a mere security for
the debt, and only a chattel interest, and that until  decree of foreclosure,
the mortgagor continues the real owner of the  fee."  (Ibid., pp. 159, 160.)

Hillard says: "Foreclosure is the process by which a mortgagee acquires an

absolute title  to  the property of which he had previously been only the
conditional owner, or upon which he had previously a mere lien or
encumbrance."  (2 Hillard on Mort., 1, 1st ed.)

Whenever the decree is pronounced, the event which fixes the limit  to the
mortgagor's equitable estate has happened; and to say the mortgagor may
redeem after "sentence passed," or after he is "debarred by judicial decree,"
or "decree of foreclosure," is in contradiction of, and directly repugnant to
language so explicit and entirely unambiguous, as to preclude the
possibility of successful cavil.

The doctrine of the adjudged cases may be stated, without hazarding

successful controversy, to be that after decree of foreclosure or judicial
sentence, and immediately thereupon, the entire estate, both legal and
equitable, becomes vested in the mortgagee, subject only to a judicial sale,
from the proceeds of which the mortgagor may, perchance, derive the
benefit of a resulting surplus.

This is the general doctrine prevailing in the absence of statute.   It may be

modified, and is modified, either materially or casually by the legislative
authority of the state.  Here the  mortgagor is given until the term of court
next succeeding the one in which the decree of foreclosure is made to pay
the mortgage debt, interest, cost, and charges; and in the event of such
payment the land remains his own.  The provisions of the Code of Civil
Procedure which deal with the foreclosure of mortgages are silent on the
equity of redemption.  Having arrived at the point where the sale is to take
place, reference is then made to the provisions relating to sales under
execution, and the provisions in relation to such sales are made applicable
to sales in foreclosure.  While the provisions relating to the sale of property
under execution, to which the provisions of the code relative to the
foreclosure of mortgages make reference, provide that, where a sale of
property is made by virtue of an execution, the debtor whose property is
sold shall have one year within which to pay the judgment, interest, costs,
and charges and to retake the property thus sold, we are, nevertheless, of
the opinion that it was not the intention of the Legislature to include those
provisions in the reference contained in the sections  relating to mortgage
foreclosures.  The substantive rights of the parties to a mortgage are
determined by the law, and in the present instance, it is undoubted, under
the Code of Civil Procedure as well as under the general law, that the  right
of redemption is property and is subject to the same protection which other
property receives at the hands of the law.   The  owner of that equity is
entitled to the same consideration which the owner of other property must
receive and he can be deprived of it only under the same circumstances and
conditions and with the same formalities.  It is equally true, on the other
hand, that the equity of redemption, if there be one, being when granted
property of the mortgagor and in derogation of the rights of the mortgagee,
will not be held to be conferred upon the mortgagor in the absence of clear 
statutory provisions to that effect.  The contract between the parties is that
to which we must first look to determine their rights; and that contract, as
interpreted and construed under the law of the state, is the only source
from  which the rights of the parties under the contract spring.  The
contract is this case grants no such right; and it being the general rule that
the rights which pertain to the mortgagor are completely terminated and
cut off by the decree of foreclosure and the sale thereunder, the latter being
duly confirmed, it follows of necessity that his rights can not be continued
beyond that point except by clear provision of statute, for the reason that, in
the absence of such provisions, the rights  of the mortgagee under the
contract would become absolute on the happening of that event.  We are of
the opinion, therefore, that when, in the law relating to the foreclosure of
mortgages, reference was made to the provisions of the code relative to the
sale of property under execution, it was intended, there being no express
words to the contrary, to include in such reference only such provisions as
refer to the mere management and conduct of the sale the mere ministerial
acts which must be performed in order that the sale be legal and not to
those provisions which relate to the substantive rights of the parties before
or after the sale has  been consummated.

The judgment is reversed and the cause remanded for such proceedings, if
any, as the parties interested may desire to take consistent with law.

Arellano, C. J., Torres and Carson ,JJ., concur.

Trent, J., concurs in the result.

189 Phil. 4

AQUINO, J.:
This case is about the mortgagor's equity of redemption in case of judicial
foreclosure of a mortgage in favor of a rural bank.

In Civil Case No. 2988 of the Court of First Instance of Misamis Occidental,
Oroquieta City Branch I, entitled "Rural Bank of Oroquieta (Mis. Occ.),
Inc. vs. Procopio Serrano and Maria Cueme", a case of foreclosure of
mortgage, Judge Melecio A. Genato on July 3, 1974 rendered a decision,
ordering the defendants to pay plaintiff bank within a period of "not less
than ninety (90) days nor more than one hundred (100) days from" the
receipt of the decision the loan of P1,500 with twelve percent interest per
annum from January 16, 1972 plus ten percent of the principal as attorney's
fees (p. 29, Rollo).

In case of nonpayment within that period, the trial court, in order to satisfy
that obligation, ordered the sheriff to sell at public auction the mortgaged
lot, a parcel of coconut land with an area of 2.8 hectares, covered by TCT
No. T-1753, located at Sitio Petugo, Barrio Bato, Plaridel, Misamis
Occidental and assessed at P3,433.86 (p. 29, Rollo).

That judgment became final and executory.  The Serrano spouses did not
pay their mortgage debt.  A writ of execution was issued.  On January 13,
1975, the sheriff levied upon the mortgaged lot and advertised its sale at
public auction to satisfy the mortgage obligation which, together with the
sheriff's fees and costs, amounted to P2,223.60 on January 28, 1975.

At the auction sale held on March 3, 1975, the mortgaged lot was sold to the
bank as the only bidder.  The sheriff issued a certificate of sale dated March
4, 1975 (p. 34, Rollo).

There being no redemption within the one-year period (sec. 78, General
Banking Law), the sheriff issued a final certificate of sale dated April 19,
1976 which was registered on the following day.

On September 20, 1976, the bank sold the lot to Eufemia Mejos.  TCT No.
6035 was issued to her (pp. 47-48, Rollo).

On September 8, 1977, Judge Genato issued an order directing the issuance

of a writ of possession to the bank.  The mortgagors or judgment debtors
filed a motion for the reconsideration of that order on the grounds that,
because there was no judicial confirmation of the auction sale, they still
have an equity of redemption and could still pay the mortgage debt (alleged
to be usurious) and that the auction sale was fraudulent and irregular. 
They averred that the bank rejected their offer to redeem the mortgaged lot
and that the issuance of the writ of possession was premature.

Judge Genato granted the motion for reconsideration in his order

of October 12, 1977 which contains these inconsistent or contradictory
directives:  "Let the execution of judgment in this case be ordered and
subsequently the writ of possession be accordingly issued.  The Rural Bank
of Oroquieta is hereby ordered to accept payment of the loan with
interests." (p. 36, Record.)

On December 23, 1977, the bank filed a manifestation and motion wherein
it revealed that the land had already been sold to Eufemia Mejos and,
therefore, its acceptance of the redemption price amounting to P2,820.60
would not produce any legal effect (pp. 47-48, Rollo).

The bank further disclosed that there is pending in the trial court a case for
the annulment of the foreclosure sale of the said lot and the release of the
mortgage, docketed as Civil Case No. 3265, which was instituted by the
Serrano spouses, as mortgagors, against the bank and the Mejos spouses. 
The bank prayed that it should not be compelled to accept the proffered
redemption price.

The trial court denied the motion.  The bank filed a notice of appeal,
deposited the appeal bond of P120 and submitted a record on appeal.  It
specified in its notice of appeal that it was appealing to the Court of Appeals
from the trial court's order of October 12, 1977, allowing the redemption.

The Serrano spouses filed a motion to dismiss the appeal on the ground
that they had already deposited with the clerk of court the redemption price
of P2,830.

The trial court in its order of February 27, 1978 dismissed the appeal on the
ground that the order sought to be appealed is interlocutory or not
appealable.  The bank assailed that order in the Court of Appeals by means
of certiorari which was really a mandamus action to compel the trial court
to give due course to its appeal.

The Court of Appeals dismissed the petition.  It sustained the trial court's
position that the order sought to be appealed is interlocutory because the
trial court had not yet confirmed the foreclosure sale (Rural Bank of
Oroquieta [Mis. Occ.], Inc. vs. Judge Genato, CA-G. R. No. SP-07756,
October 26, 1979).

The bank appealed to this Court.  The issue is whether the trial court and
the Court of Appeals erred in not giving due course to the bank's appeal.

We hold that the trial court and the Court of Appeals acted correctly in
refusing to give due course to the bank's appeal not only because the order
sought to be appealed is interlocutory but also because in the present
posture of the case it is imperative that the trial court
should consolidate the foreclosure case, Civil Case No. 2988, with the other
case, Civil Case No. 3265 filed by the Serrano spouses for the annulment of
the foreclosure sale and the subsequent sale of the mortgaged lot to the
Mejos spouses.  Note that the latter case is also pending in the sala of
respondent Judge.

The trial court erred in unreservedly allowing the Serrano spouses to

redeem the mortgaged lot without taking into account the supervening
fact that the lot is now registered in the name of Eufemia Mejos who is not
a party in the foreclosure proceeding and who is entitled to be heard.  That
complication cannot be summarily ignored.

At this stage, a decision cannot be rendered outright on the conflicting

rights of the Serrano spouses, the bank and the Mejos spouses with respect
to the mortgaged lot.  The trial court should first try and resolve the issues
arising out of the lack of judicial confirmation of the foreclosure sale and
the subsequent sale of the mortgaged lot to a third the person after the
expiration of the one-year period for exercising the right of redemption. 
We can only state some guidelines in resolving those issues.

After the execution of a real estate mortgage, the mortgagor has an equity of
redemption, exercisable within the period stipulated in the mortgage deed. 
In case of judicial foreclosure, that equity of redemption subsists after the
sale and before it is confirmed by the court (Raymundo vs. Sunico, 25 Phil.
365; Benedicto vs. Yulo, 26 Phil. 160; Grimalt vs. Velasquez and Sy Quio,
36 Phil. 936; Sun Life Assurance Co. vs. Gonzalez Diez, 52 Phil. 271; La
Urbana vs. Belando, 54 Phil. 930; Villar vs. Javier de Paderanga, 97 Phil.
604; Piano vs. Cayanong, 117 Phil. 415).

However, in case of a judicial foreclosure of a mortgage in favor of a

banking institution, section 78 of the General Banking Law grants the
mortgagor a right of redemption which may be exercised within one year
from the sale.

Under section 3, Rule 68 of the Rules of Court, it is the confirmation by the

court of the auction sale that would divest the Serrano spouses of their
rights to the mortgaged lot and that would vest such rights in the bank as
purchaser at the auction sale.

The clause "subject to such rights of redemption as may be allowed by law",

found in the last part of section 3, has no application to this case because
the mortgagor did not exercise his right of redemption under section 78 of
the General Banking Law.
What applies to this case is the settled rule that "a foreclosure sale is not
complete until it is confirmed, and before said confirmation, the court
retains control of the proceedings by exercising a sound discretion in regard
to it, either granting or withholding confirmation as the rights and interests
of the parties and the ends of justice may require" (Salazar vs. Torres, 108
Phil. 209, 214-5).

"In order that a foreclosure sale may be validly confirmed by the court, it is
necessary that a hearing be given the interested parties, at which they may
have an opportunity to show cause why the sale should not be confirmed."
(Raymundo vs. Sunico, 25 Phil. 365).

"The acceptance of a bid at the foreclosure sale confers no title on the

purchaser.  Until the sale has been validly confirmed by the court, he is
nothing more than a preferred bidder.  Title vests only when the sale has
been validly confirmed by the court." (Raymundo vs. Sunico, 25 Phil. 365).

The confirmation retroacts to the date of the sale (Villar vs. Javier de
Paderanga, 97 Phil. 604, citing Binalbagan Estate, Inc. vs. Gatuslao, 74
Phil. 128).

A hearing should be held for the confirmation of the sale.  The mortgagor
should be notified of that hearing.  Lack of notice vitiates the confirmation
of the sale.  The mortgagor may still redeem the mortgaged lot after the
rendition of the order confirming the sale which is void for lack of hearing
and notice to the mortgagor.  (Grimalt vs. Velasquez and Sy Quio, 36 Phil.
936; Raymundo vs. Sunico, 25 Phil. 365).

Notice and hearing of a motion for confirmation of sale are essential to the
validity of the order of confirmation, not only to enable the interested
parties to resist the motion but also to inform them of the time when their
right of redemption is cut off (Tiglao vs. Botones, 90 Phil. 275, 279).

An order of confirmation, void for lack of notice and hearing, may be set
aside anytime (Tiglao vs. Botones, supra).

It is equally settled that after the foreclosure sale but before its
confirmation, the court may grant the judgment debtor or mortgagor an
opportunity to pay the proceeds of the sale and thus refrain from
confirming it (Anderson and De Mesa vs. Reyes and Gutierrez Saenz, 54
Phil. 944, citing Grimalt vs. Velasquez and Sy Quio, 36 Phil. 936 and La
Urbana vs. Belando, 54 Phil. 930).

If after the foreclosure sale and before the confirmation thereof, the
mortgagee, as purchaser at the auction sale, sold the mortgaged property to
another person, that subsequent sale does not render the foreclosure sale
more effective.  That subsequent sale does not prevent the trial court from
granting the mortgagor a period within which to redeem the mortgaged
lot by paying the judgment debt and the expenses of the sale and
costs (Anderson and De Mesa vs. Reyes and Gutierrez Saenz, 54 Phil. 944).

"Whatever may have been the old rule by all of the modern authorities, it is
the policy of the courts to assist rather than to defeat the right of
redemption" (De Castro vs. Olondriz and Escudero, 50 Phil. 725, 732).
After the confirmation of the sale, made after hearing and with due notice
to the mortgagor, the latter cannot redeem anymore the mortgaged lot
(unless the mortgagee is a banking institution) (Piano vs. Cayanong, 117
Phil. 415).

It is after the confirmation of the sale that the mortgagor loses all interest in
the mortgaged property (Clemente vs. H. E. Heacock Co., 106 Phil.
1163; Clemente vs. Court of Appeals, 109 Phil. 798; Clemente vs. H. E.
Heacock Co., L-23212, May 18, 1967, 20 SCRA 115).

In the instant case, where the foreclosure sale has not yet been confirmed
but the statutory one-year period for redemption expired and the
mortgaged lot was sold by the mortgagee (as the only bidder at the auction
sale) to a third person, the trial court should give the purchaser a chance to
be heard before requiring the mortgagee-bank to accept the redemption
price tendered by the mortgagors.

WHEREFORE, while we affirm the decision of the Court of Appeals in not

giving due course to petitioner's appeal from the trial court's
aforementioned order of October 12, 1977, at the same time the said order
is reversed and set aside for being premature.

The trial court is directed to consolidate the foreclosure case, Civil Case No.
2988, with Civil Case No. 3265 for the annulment of the foreclosure sale
and the sale of the mortgaged lot to Eufemia Mejos and to proceed in
accordance with the guidelines laid down in this decision.  No costs.

SO ORDERED.

Barredo, (Chairman), Concepcion, Jr., and De Castro, JJ., concur.

Abad Santos, J., in the result.

CARLOS PARDO DE TAVERA v. EL HOGAR FILIPINO, GR No. 45963, 1939-10-12

Facts:
loan of P1,000,000... corporation executed a first mortgage on said premises and on the
building proposed to be erected thereon.
additional loan of P300,000 with the same security executed for the... original loan.
defaulted in the payment of the monthly amortizations on the loan; whereupon, El Hogar
Filipino foreclosed the mortgage and proceeded with the extra-judicial sale of the Crystal
Arcade building
Issues:
whether or not the two secured loans are null and void.
Ruling:
the loans are valid.
the evidence is sufficient to show that the Secretary of Finance and the Bank
Commissioner had knowledge of the loans and of the security given therefor, and that they
have impliedly approved the same.
Principles:
a loan given on a property which may be considered as a public building, is not, in itself,
null... and void. It is unlawful to make loans on that kind of security, but the law does not
declare the loans, once made, to be null and void. The unlawful taking of the security may
constitute a misuser of the powers conferred upon the corporation by its charter, for which
it may be... made to answer in an action for ouster or dissolution; but certainly the
stockholders and depositors of the corporation should not be punished with a loss of the
money loaned nor the borrower be rewarded with it.

EN BANC
 [G.R. No. L-6752. April 29, 1955.]

NAZARIO TRILLANA, Petitioner, v. FAUSTINO MANANSALA, MARIA LOPEZ,

MAXIMA MANANSALA and THE COURT OF APPEALS, Respondents.

Delgado, Flores & Macapagal for Petitioner.

M. G. Bustos & Remedios D. Garcia for Respondents.

SYLLABUS

1. ANTICHERESIS; MORTGAGE COUPLED WITH DELIVERY OF POSSESSION OF LAND

TO CREDITOR IS ANTICHRESIS. — A mortgage, coupled with delivery of possession of
the land to the creditor, is antichresis.

2. ID.; ANTICHRETIC CREDITOR CANNOT ACQUIRE LAND BY PRESCRIPTION. — The

antichretic creditor cannot ordinarily acquire by prescription the land surrendered to
him by the debtor. (Barretto v. Barretto, 37 Phil., 234; Valencia v. Alcala, 42 Phil.,
177.)

DECISION

BENGZON, J.:

To a revindicatory complaint filed in 1950 in the Court of First Instance by Nazario

Trillana over a parcel of land in Hagonoy, Bulacan, the defendants Faustino Manansala
Et. Al., set up title through sale and prescription.

Both parties allegedly deriving ownership from the registered owner Marcos Bernardo,
presented at the hearing: chanrob1es virtual 1aw library

(a) Plaintiff — the contract of absolute sale (Exhibit A) executed in his favor in June
1948 by Vicenta Bernardo, daughter and the only surviving heir of Marcos Bernardo;

(b) Defendants — the document Exhibit 1, in tagalog, which is translated as follows: jgc:chanrobles.com.ph

"Julio 20, 1934-1944

I Marcos Bernardo married of legal age and residing at barrio S. Sebastian, Hagonoy,
Bulacan, P, I. now I own a land (latian) . . . now my above mentioned property I
mortgage to Mr. Faustino Manansala and Maria Lopez husband and wife in the amount
of P1,070 beginning today July 20, 1934 until April 1944 and if I cannot pay said
amount come April 1944 the property I mortgaged is hereby paid to Mr. Faustino
Manansala and Maria Lopez husband and wife . . ." cralaw virtua1aw library
The judge found Exhibit 1 to be a forgery, and rendered judgment for plaintiff, saying
as to prescription, that even if defendants had possessed the land since 1934, they
could not acquire by prescription because they had no just title, inasmuch as they knew
Exhibit 1 was false.

On appeal, the Court of Appeals saw differently. It was not convinced of the document’s
(Exhibit 1) falsity, and held that since defendants admittedly took possession of the
realty in July 1934 pursuant to such document and retained it thereafter, the action
filed in 1950 was late, inasmuch as more than 15 years of adverse possession forfeited
the plaintiff’s right to recover, if any.

Doubting the legal feasibility of acquiring, thru prescription, land obtained under Exhibit
1, we gave due course to the petition for review on certiorari, being impressed with
counsel’s contention that said written document represented a contract of antichresis,
which may not give rise to acquisitive prescription.

Upon a fuller examination of the matter, we are now persuaded that our preliminary
impressions were justified. The document Exhibit 1, having used the words "Isinangla",
"sinangla" and "matubos obviously indicated a mortgage, which, coupled with delivery
of possession of the land to the creditor, amounted to antichresis.

And several decisions of this court consistently hold that the antichretic creditor cannot
ordinarily acquire by prescription the land surrendered to him by the debtor. 1

The most that defendants could contend under Exhibit 1 is that it was a sale with pacto
de retro. Yet no argument is needed to show that, even under such contract,
prescription does not run during the period of redemption (1934-1944).

In this connection we notice the Court of Appeals did not regard the contract as a pacto
de retro sale. The Court of Appeals declared the agreement was a "kaliwaan" or
exchange, which according to defendants meant, "after the execution of the document
we delivered the money, and plaintiff delivers possession of the land." The arrangement
however contemplated a subsequent "re-exchange" when the owner redeems
(matubos) on or before April 1944. Such exchange and re-exchange agreed in Exhibit
1, dovetail with an antichretic relationship, which we think was the true agreement of
the parties.

It has not escaped our notice that the document says "if I cannot redeem come April
1944, the property I mortgage is hereby paid to Mr. Faustino Manansala." But that in
our opinion merely authorized Manansala to get the property for payment, thru the
proceedings prescribed for mortgages. Otherwise the stipulation would be open to
attack, either as pactum commissorium or as against the law. (Arts. 1859 and 1884
Civil Code.)

Now as the contract Exhibit 1 did not divest Marcos Bernardo of ownership of the
property, his heir Vicenta Bernardo could, and she did, validly convey such ownership
to Nazario Trillana in 1948, by Exhibit A. Subject of course to the rights of the
antichretic creditors, they defendants Manansala Et. Al.

Wherefore, the judgment of the Court of Appeals is reversed, and one will be
promulgated requiring defendants to deliver the lot to the plaintiff (substituted by
Candida Cruz, Juana Trillana and Francisco Trillana) upon payment by the latter of the
amount of P1,070.2 No interest is to be satisfied, because the fruits gathered by the
Manansalas are considered as interest; no special damages too. Costs against
defendants. So ordered.

Pablo, Acting C. J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, and Reyes, J. B. L., JJ., concur.

Citation preview

NORTHERN MOTORS VS. COQUIA G.R. No. L-40018 December 15, 1975 Facts: Manila
Yellow Taxicab, executed a chattel mortgage over several taxicabs in favor of Northern Motors.
TROPICAL is a judgment creditor of Yellow Taxicab who assigned the judgment to ONG. On
December 12 1974, Sheriff then levied upon 20 taxicabs, 8 of which are security for the chattel
mortgage. Northern Motors filed an intervention on December 18, 1974; however, the levied
taxicabs were sold the same day at 2pm although agreement shows that it should have happened
at 4pm. Indemnity bond was posted by TROPICAL, but the bond was cancelled after the sale
without notice to Northern Motors. The petitioner now seek reconsideration also on the
reinstatement of the bond. A second levy was made upon 35 taxicabs, 7 of which are mortgaged
to Northern Motors. This is a motion for reconsideration in the SC decision pronouncing that the
Mortgagee has a better right than the judgment debtor over the taxicabs. The taxies were levied
and sold at an auction sale. Ong argues admits that the mortgagee has a better right that the
judgment creditor, but argues that the purchaser from the auction sale must have a right superior
to that of the mortgagee. The auction sale proceeded and the purchasers were of unknown
addresses, hence the 8 taxicabs cannot be recovered. The proceeds of the auction were in contest
and the sheriff is deducting the expenses of the execution sale from the proceeds. Issue/s:
Whether the expenses for the execution sale should be deducted from the proceeds thereof?
Whether the purchaser has a better right than the creditor? Whether the bond should be
reinstated? Held: 1st: No, it was already established that the levy on the property was illegal, it is
therefore improper to deduct the expenses of an illegal auction from the proceeds thereof. The
mortgagee can only able to collect the proceeds from the auction sale because the purchasers are
of unknown addresses. The full proceeds of the sale are due to the mortgagee without any
unreasonable and illegal deductions. 2nd: No, the purchaser of the auction sale merely steps in
the shoes of the judgment creditor as they have been aware of the claim of the mortgagee. The
mortgagee has a better right to the possession of the taxicabs, however, since the addresses of the
purchasers are unknown, the proceeds of the sale must be delivered to the mortgagee.

3rd: Yes, the bond should be reinstated, as it is to serve as indemnity for damages in cases that
the sold taxicabs cannot be recovered. Proceedings in the lower court would be an exercise in
futility if the bond will not be reinstated.

Citation preview

PHILIPPINE NATIONAL BANK vs. GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG
ACERO AND SOLEDAD ONG ACERO-CHUA GR No. L-69255 (148 SCRA 166) February
27, 1987 NARVASA, J. FACTS: Isabela Wood Const & Dev’t Corp 

 

PNB = Petitioner

Machinenfabric Augsburg Nunberg (MAN)

Aceros = Respondents Isabela Wood Const & Dev’t Corp. (ISABELA) opened w/ PNB, a
savings account in amount of P2M, w/c is subject of 2 conflicting claims: o One claim was
asserted by the Aceros -- Gloria Acero, Arnolfo Acero, and Soledad Acero, judgment creditors
of ISABELA — who seek to enforce against said savings account the final and executory
judgment rendered in their favor by the CFI of Rizal QC.  The judgment ordered payment by
ISABELA to the ACEROS of P1,532,000.07. Notice of garnisment was served to PNB, pursuant
to the writ of execution. o The other claim is by PNB, which claims that there occurred a mutual
set-off between PNB and ISABELA, which effectively precluded the Aceros' recourse to that
deposit.  PNB's claim to P2M deposit in question is based on agreement between PNB and
ISABELA which provides -(1) the deposit was made by ISABELA as "collateral" with its
indebtedness to PNB (2) in event of ISABELA's failure to fulfill those undertakings, PNB was
empowered to apply deposit to payment of the indebtedness CFI: ruled in favor of Aceros. CFI,
on MR: ruled in favor of PNB; opined that under the circumstances, there had been a valid
assignment by ISABELA to PNB of amount deposited, which effectively placed that amount
beyond the reach of the Aceros. o CFI ruled "ISABELA entered into a Credit Agreement with
PNB for letter of credit in favor of Machinenfabric Augsburg Nunberg (MAN) of Germany from
whom ISABELA purchased 35 units of MAN trucks. As collateral, ISABELA assigned proceeds
of its contract with Dept of Public Works for construction of a bridge for P2M. ISABELA said
the P2M shall remain in the savings account with PNB until ISABELA is able to comply with
delivery and registration of mortgage in favor of PNB of the Paranaque property. Since
ISABELA failed to deliver the mortgage to PNB, and considering that the obligation of
ISABELA to PNB have been due, PNB applied the amount of P 2M in ISABELA's savings
account." o CFI reiterated “When ISABELA subsequently came to be indebted to PNB on
account of ISABELA's breach of terms of the Credit Agreement, and therefore ISABELA and
PNB became at the same time creditors and debtors of each other, compensation automatically
took place between them, in accordance with Article 1278 of the Civil Code. The amounts due
from each other were, in its view, applied by operation of law to satisfy and extinguish their
respective credits.” IAC: ruled in favor of Aceros

ISSUE: WoN PNB and ISABELA had extinguished their obligation by way of compensation. --
NO RULING: PNB averred: There was legal compensation between PNB and ISABELA
(ISABELA having failed to provide the mortage) precluding Aceros access to the P2M savings
deposit by way of garnishment. Invokes Art 1278 of Civil Code "Compensation shall take when
two persons, in their own right, are creditors and debtors of each other. Court ruled (with
Aceros/IAC): Art 1278 does not apply to the case at bar.  PNB first theory that it is a creditor of
ISABELA must fail. PNB has not proven by competent evidence that it is a creditor of
ISABELA. The only evidence present by PNB consists of 2 docs which do not prove any
indebtedness of ISABELA to PNB. These docs do not show that credit was ever availed by
ISABELA's foreign correspondent MAN. (ELAM: Hindi naman pala clear kung inavail ni MAN
ung letter of credit by ISABELA thru PNB, so it could not be said that PNB is a creditor to
ISABELA.) o PNB never even attempted to offer other evidence, which is a certain indication
that PNB does not really have these proofs at all (ELAM: In that PNB is not a creditor of
ISABELA.)  PNB advanced a second theory which is that the P2M deposit had been assigned to
it by ISABELA as "collateral" - that ISABELA had explicitly authorized PNB to apply the P2M
deposit in payment of its indebtedness. This alternative theory is as untenable as the first. o In the
first place, there being no indebtedness by ISABELA to PNB, there is then no occasion to speak
of any mutual set-off or compensation, whether it be legal (by operation of law) or voluntary
(takes place by agreement of parties) o The strongest argument against PNB’s claim is PNB’s act
in itself when it deposited the whole amount of P2M, not in its name, but in the name of
ISABELA without any accompanying statement even remotely intimating that PNB was the
owner of the deposit, or that an assignment thereof was intended, or that some condition or lien
was meant to burden it. o Court said that even if it be assumed that such an assignment had
indeed been made, and PNB had been really authorized to apply the P2M deposit to the
satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals that the
application was attempted to be made by PNB only on February 26, 1980, that application was
ineffectual and futile because at that time, the deposit was already in custodia legis, since notice
of garnishment has been served to PNB on January 9, 1980 (pursuant to the writ of execution
issued by CFI on for the enforcement of the partial judgment in Aceros' favor). o Court added,
that one final factor precludes according validity to PNB's arguments. On the assumption that the
P2M deposit was in truth assigned as some sort of "collateral" to PNB — although as PNB
insists, it was not in the form of a pledge — the agreement postulated by PNB that it had been
authorized to assume ownership of the fund upon the coming into being of ISABELA s
indebtedness is void ab initio, it being in the nature of a pactum commisorium, which is
proscribed for being contrary to public policy. (ELAM: pactum commisorium as per Webster is
the automatic appropriation by the creditor of the thing pledged or mortgaged upon the failure of
the debtor to pay the principal obligation = ipinagbabawal and automatic appropriation)
DISPOSITION: WHEREFORE, the judgment of IAC subject of the instant appeal, being fully in
accord with the facts and the law, is hereby affirmed in toto. Costs against Petitioner.

Citation preview

2. Manila Banking Corp v Teodoro J. & Teodoro GR No. 53955 January 13, 1989 Topic:
Security over personal property Plaintiff-appellee: Manila Banking Corp Defendant-appellants:
Anastacio Teodoro Jr. and Grace Anna Teodoro Ponente: Bidin, J. Doctrine: In case of doubt as
to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge,
the latter being the lesser transmission of rights and interests Facts:  Defendants, together with
Anastacio Teodoro, Sr., jointly and severally, executed in favor of plaintiff PN 11487 for the
sum of P10,420.00 payable in 120 days at 12% interest per annum. Defendants failed to pay the
said amount despite repeated demands.  Defendants Teodoro, Sr. (Father) and Anastacio
Teodoro, Jr. (Son) executed in favor of plaintiff two PNs, 11515 and 11699, for P8,000.00 and
P1,000.00 respectively, payable in 120 days at 12% interest per annum. o Father and Son made a
partial payment on PN 11515 but none on PN 11699 leaving still an unpaid balance of P8,934.74
as of September 30, 1969 including accrued interest and service charge.  The three Promissory
Notes stipulated that any interest due if not paid at the end of every month shall be added to the
total amount then due, the whole amount to bear interest at the rate of 12% per annum until fully
paid.  The Son executed in favor of MBC a Deed of Assignment of Receivables from the
Emergency Employment Administration in the sum of P44,635.00. o The Deed of Assignment
provided that it was for and in consideration of certain credits, loans, overdrafts and other credit
accommodations extended to defendants as security for the payment of said sum and the interest
thereon, and that defendants do hereby remise, release and quitclaim all its rights, title, and
interest in and to the accounts receivables.  It is admitted by the parties that MBC extended
loans to defendants on the basis and by reason of certain contracts entered into by the defunct
EEA with defendants for the fabrication of fishing boats, and that the Philippine Fisheries
Commission succeeded the EEA after its abolition; that non-payment of the notes was due to the
failure of the Commission to pay defendants after the latter had complied with their contractual
obligations; and that the President of plaintiff Bank took steps to collect from the Commission,
but no collection was effected.

  

For failure to pay, MBC instituted a case against the Father, Son and the Son’s wife. Case against
the father was dismissed because he died during the pendency of the suit. RTC ruled against the
defendants. Defendants’ appeal involves a pure question of law so the CA certified the case to
the SC. Appellee moved for a resolution of the appeal/review interposed by defendants-
appellants

Issue/Ruling: W/N the assignment of receivables has the effect of payment of all the loans
contracted by appellants from appellee bank  NO. It is evident that the assignment of
receivables executed by appellants did not transfer the ownership of the receivables to appellee
bank and release appellants from their loans with the bank incurred under promissory notes Nos.
11487, 11515 and 11699.  The Deed of Assignment provided that it was for and in
consideration of certain credits, loans, overdrafts, and their credit accommodations in the sum of
P10,000.00 extended to appellants by appellee bank, and as security for the payment of said sum
and the interest thereon; that appellants as assignors, remise, release, and quitclaim to assignee
bank all their rights, title and interest in and to the accounts receivable assigned (1st paragraph).
 It was further stipulated that the assignment will also stand as a continuing guaranty for future
loans of appellants to appellee bank and correspondingly the assignment shall also extend to all
the accounts receivable; appellants shall also obtain in the future, until the consideration on the
loans secured by appellants from appellee bank shall have been fully paid by them (No. 9 of the
deed).  The position of appellants, however, is that the deed of assignment is a quitclaim in
consideration of their indebtedness to appellee bank, not mere guaranty, because the DOA
provides: the Assignor do hereby remise, release and quit-claim unto said assignee all its rights,
title and interest in the accounts receivable described hereunder.  The character of the
transactions between the parties is not, however, determined by the language used in the
document but by their intention.  Definitely, the assignment of the receivables did not result
from a sale transaction. It cannot be said to have been constituted by virtue of a dation in
payment for appellants' loans with the bank evidenced by PNs 11487, 11515 and 11699 which
are the subject of the suit for collection in Civil Case No. 78178. o At the time the deed of
assignment was executed, said loans were non-existent yet.

o The deed of assignment was executed on January 24, 1964, while PN 11487 is dated April 25,
1966, PN 11515, dated May 3, 1966, PN 11699, on June 20, 1966. Obviously, the deed of
assignment was intended as collateral security for the bank loans of appellants, as a continuing
guaranty for whatever sums would be owing by defendants to plaintiff, as stated in stipulation
No. 9 of the deed.

W/N appellee bank must first exhaust all legal remedies against the Philippine Fisheries
Commission before it can proceed against appellants for collections of loan under the promissory
notes which are plaintiff's bases in the action for collection in Civil Case No. 78178.  NO. The
obligation of appellants under the promissory notes not having been released by the assignment
of receivables, appellants remain as the principal debtors of appellee bank rather than mere
guarantors.  The deed of assignment merely guarantees said obligations. That the guarantor
cannot be compelled to pay the creditor unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against the debtor, under Article 2058 of the
New Civil Code does not therefore apply to them.  It is of course of the essence of a contract of
pledge or mortgage that when the principal obligation becomes due, the things in which the
pledge or mortgage consists may be alienated for the payment to the creditor (Article 2087, New
Civil Code). In the instant case, appellants are both the principal debtors and the pledgors or
mortgagors. Resort to one is, therefore, resort to the other. Appeal is dismissed for lack of merit.
Appealed decision of the TC is affirmed in toto.

Filipinas Marble Corportaion vs. Intermediate Appellate Court,

142 SCRA 180
In its desire to develop the full potentials of its mining claims and deposits, Filipinas Marbles Corporation
(FMC) applied and was granted a loan in the amount of $5,000,000 by respondent Development Bank of
the Philippines (DBP) on the conditions that the management contract will be handled by Bancom System
Control and the DBP. and the loan shall be secured by a final mortgage on the assets of petitioner with a
total approved vale of PhP 48,630,756.  The chattel mortgage was not registered pursuant to Article 2125
of the Civil Code.

ISSUE: WON the non-registration of the mortgage will nullify the contract between the parties,
considering that a mortgage contract is an accessory contract?

HELD:
The SC have to say this, we agree with the petitioner that a mortgage is a mere accessory contract, and,
thus its validity would depend on the validity of the loan secured by it.  We, however, reject the petitioner's
argument that since the chattel mortgage involved was not registered, the same is null and void.  Article
2125 of the Civil Code clearly provides that non-registration of the mortgage does not affect the
immediate parties.  The petitioner cannot invoke the mentioned provision to nullify the mortgage (chattel).
 SECOND DIVISION

[ G.R. No. 177886, November 27, 2008 ]

SPOUSES LEOPOLDO S. VIOLA AND MERCEDITA VIOLA,

PETITIONERS, VS. EQUITABLE PCI BANK, INC.,
RESPONDENT.

DECISION
CARPIO MORALES, J.:
Via a contract denominated as "CREDIT LINE AND REAL ESTATE
MORTGAGE AGREEMENT FOR PROPERTY LINE"[1] (Credit Line
Agreement) executed on March 31, 1997, Leo-Mers Commercial, Inc., as
the Client, and its officers spouses Leopoldo and Mercedita Viola
(petitioners) obtained a loan through a credit line facility in the maximum
amount of P4,700,000.00 from the Philippine Commercial International
Bank (PCI Bank), which was later merged with Equitable Bank and became
known as Equitable PCI Bank, Inc. (respondent).

The Credit Line Agreement stipulated that the loan would bear interest at

the "prevailing PCIBank lending rate" per annum on the principal
obligation and a "penalty fee of three percent (3%) per month on the
outstanding amount."

To secure the payment of the loan, petitioners executed also on March 31,
1997 a "Real Estate Mortgage"[2] in favor of PCIBank over their two parcels
of land covered by Transfer Certificates of Title No. N-113861 (consisting of
300 square meters, more or less ) and N-129036 (consisting of 446 square
meters, more or less) of the Registry of Deeds of Marikina.

Petitioners availed of the full amount of the loan. Subsequently, they made
partial payments which totaled P3,669,210.67. By respondent's claim,
petitioner had since November 24, 2000 made no further payments and
despite demand, they failed to pay their outstanding obligation which, as of
September 30, 2002, totaled P14,024,623.22, broken down as follows:

(a) Principal P4,783,254.69

 obligation
Past due
interest from
(b) 11/24/00 to P1,345,290.38
09/30/02
at 15% interest
Penalty at 3%
per month
(c) P7,896,078.15
from 03/31/98
to 02/23/02
_____________________
P14,024,623.22[3] (Underscoring supplied)
Respondent thus extrajudicially foreclosed the mortgage before the Office
of the Clerk of Court & Ex-Officio Provincial Sheriff of the Regional Trial
Court (RTC) of Marikina City. The mortgaged properties were sold on April
10, 2003 for P4,284,000.00 at public auction to respondent, after which a
Certificate of Sale dated April 21, 2003[4] was issued.

More than five months later or on October 8, 2003, petitioners filed a

complaint[5] for annulment of foreclosure sale, accounting and damages
before the Marikina RTC, docketed as Civil Case No. 2003-905-MK and
raffled to Branch 192. Petitioners alleged, inter alia, that they had made
substantial payments of P3,669,210.67 receipts of which were issued
without respondent specifying "whether the payment was for interest,
penalty or the principal obligation;" that based on respondent's statement
of account, not a single centavo of their payments was applied to the
principal obligation; that every time respondent sent them a statement of
account and demand letters, they requested for a proper accounting for the
purpose of determining their actual obligation, but all their requests were
unjustifiably ignored on account of which they were forced to discontinue
payment; that "the foreclosure proceedings and auction sale were not only
irregularly and prematurely held but were null and void because the
mortgage debt is only P2,224,073.31 on the principal obligation and
P1,455,137.36 on the interest, or a total of only P3,679,210.67 as of April 15,
2003, but the mortgaged properties were sold to satisfy an inflated and
erroneous principal obligation of P4,783,254.69, plus 3% penalty fee per
month or 33% per year and 15% interest per year, which amounted to
P14,024,623.22 as of September 30, 2002;" that "the parties never agreed
and stipulated in the real estate mortgage contract" that the 15% interest
per annum on the principal loan and the 3% penalty fee per month on the
outstanding amount would be covered or secured by the mortgage; that
assuming respondent could impose such interest and penalty fee, the same
are "exorbitant, unreasonable, iniquitous and unconscionable, hence, must
be reduced;" and that respondent is only allowed to impose the legal rate of
interest of 12% per annum on the principal loan absent any stipulation
thereon.[6]

In its Answer, respondent denied petitioners' assertions, contending, inter

alia, that the absence of stipulation in the mortgage contract securing the
payment of 15% interest per annum on the principal loan, as well as the 3%
penalty fee per month on the outstanding amount, is immaterial since the
mortgage contract is "a mere accessory contract which must take its
bearings from the principal Credit Line Agreement."[7]

During the pre-trial conference, the parties defined as sole issue in the case
whether the mortgage contract also secured the payment of 15% interest
per annum on the principal loan of P4,700,000.00 and the 3% penalty fee
per month on the outstanding amount, which interest and penalty fee are
stipulated only in the Credit Line Agreement.[8]

By Decision[9] of September 14, 2005, the trial court sustained respondent's

affirmative position on the issue but found the questioned interest and
penalty fee "excessive and exorbitant." Thus, it equitably reduced the
interest on the principal loan from 15% to 12% per annum and the penalty
fee per month on the outstanding amount from 3% to 1.5% per month.

Accordingly, the court nullified the foreclosure proceedings and the

Certificate of Sale subsequently issued, "without prejudice" to the holding
anew of foreclosure proceedings based on the "re-computed amount" of the
indebtedness, "if the circumstances so warrant."

The dispositive portion of the trial court's Decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1) The interest on the principal loan in the amount of Four Million Seven
Hundred Thousand (P4,700,000.00) Pesos should be recomputed at 12%
per annum;

2) The 3% per month penalty on delinquent account as stipulated by the

parties in the Credit Line Contract dated March 31, 1997 is
hereby REDUCED to 1.5% per month;

3) The foreclosure sale conducted on April 10, 2003 by the Clerk of Court

and Ex-Officio Sheriff of Marikina, to satisfy the plaintiff's mortgage
indebtedness, and the Certificate of Sale issued as a consequence of the said
proceedings, are declared NULL and VOID, without prejudice to the
conduct of another foreclosure proceedings on the basis of the re-computed
amount of the plaintiff's indebtedness, if the circumstances so warrant.

No pronouncement as to costs.

SO ORDERED. (Underscoring supplied)

Petitioners filed a Motion for Partial Reconsideration, [10] contending that
the penalty fee per month on the outstanding amount should have been
taken out of the coverage of the mortgage contract as it was not stipulated
therein. By Order dated December 6, 2005, the trial court denied the
motion.

On appeal by petitioners, the Court of Appeals, by Decision [11] of February

21, 2007, dismissed the same for lack of merit, holding that "the Real Estate
Mortgage covers not only the principal amount [of P4,700,000.00] but
also the `interest and bank charges,' which [phrase bank charges] refers
to the penalty charges stipulated in the Credit Line Agreement."[12]

Petitioners' Motion for Reconsideration having been denied by

Resolution[13] of May 16, 2007, they filed the present Petition for Review
on Certiorari, alleging that -
THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR IN DECIDING THE CASE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT BY RULING THAT
THERE IS NO AMBIGUITY IN CONSTRUING TOGETHER THE CREDIT
LINE AND MORTGAGE CONTRACTS WHICH
PROVIDED CONFLICTING PROVISIONS AS TO INTEREST AND
PENALTY.[14]
The only issue is whether the mortgage contract also secured the penalty
fee per month on the outstanding amount as stipulated in the Credit Line
Agreement.

The Court holds not.

A mortgage must "sufficiently describe the debt sought to be secured, which

description must not be such as to mislead or deceive, and an obligation is
not secured by a mortgage unless it comes fairly within the terms of the
mortgage.[15]

In the case at bar, the parties executed two separate documents on March
31, 1997 - the Credit Line Agreement granting the Client a loan through a
credit facility in the maximum amount of P4,700,000.00, and the Real
Estate Mortgage contract securing the payment thereof. Undisputedly, both
contracts were prepared by respondent and written in fine print, single
space.

The Credit Line Agreement contains the following stipulations on interest

and delinquency charges:

A. CREDIT FACILITY

9. INTEREST ON AVAILMENTS

The CLIENT shall pay the BANK interest on each availment against the
Credit Facility at the rate of:
PREVAILING PCIBANK LENDING RATE

for the first interest period as defined in A(10) hereof. x x x.

xxxx

15. DELINQUENCY

CLIENT's account shall be considered delinquent if the availments exceed

the amount of the line and/or in case the Account is debited for unpaid
interest and the Available Balance is insufficient to cover the amount
debited. In such cases, the Available Balance shall become negative and the
CLIENT shall pay the deficiency immediately in addition to collection
expenses incurred by the BANK and a penalty fee of three percent (3%) per
month of the outstanding amount to be computed from the day deficiency
is incurred up to the date of full payment thereon.

x x x x.[16] (Underscoring supplied)
The Real Estate Mortgage contract states its coverage, thus:

That for and in consideration of certain loans, credit and other banking
facilities obtained x x x from the Mortgagee, the principal amount of which
is PESOS FOUR MILLION SEVEN HUNDERED THOUSAND ONLY
(P4,700,000.00) Philippine Currency, and for the purpose of securing the
payment thereof, including the interest and bank charges accruing
thereon, the costs of collecting the same and of taking possession of and
keeping the mortgaged propert[ies], and all other expenses to which the
Mortgagee may be put in connection with or as an incident to this
mortgage, as well as the faithful compliance with the terms and conditions
of this agreement and of the separate instruments under which the credits
hereby secured were obtained, the Mortgagor does hereby constitute in
favor of the Mortgagee, its successors or assigns, a mortgage on the real
property particularly described, and the location of which is set forth, in the
list appearing at the back hereof and/or appended hereto, of which the
Mortgagor declare that he is the absolute owner and the one in possession
thereof, free and clear of any liens, encumbrances and adverse claims.
[17]
 (Emphasis and underscoring supplied)
The immediately-quoted provision of the mortgage contract does not
specifically mention that, aside from the principal loan obligation, it also
secures the payment of "a penalty fee of three percent (3%) per month of
the outstanding amount to be computed from the day deficiency is incurred
up to the date of full payment thereon," which penalty as the above-quoted
portion of the Credit Line Agreement expressly stipulates.

Since an action to foreclose "must be limited to the amount mentioned in

the mortgage"[18] and the penalty fee of 3% per month of the outstanding
obligation is not mentioned in the mortgage, it must be excluded from the
computation of the amount secured by the mortgage.

The ruling of the Court of Appeals in its assailed Decision that the phrase
"including the interest and bank charges" in the mortgage contract
"refers to the penalty charges stipulated in the Credit Line Agreement" is
unavailing.

"Penalty fee" is entirely different from "bank charges." The phrase "bank

charges" is normally understood to refer to compensation for services. A
"penalty fee" is likened to a compensation for damages in case of breach of
the obligation. Being penal in nature, such fee must be specific and fixed by
the contracting parties, unlike in the present case which slaps a 3% penalty
fee per month of the outstanding amount of the obligation.

Moreover, the "penalty fee" does not belong to the species of obligation
enumerated in the mortgage contract, namely: "loans, credit and other
banking facilities obtained x x x from the Mortgagee, . . . including the
interest and bank charges, . . . the costs of collecting the same and of taking
possession of and keeping the mortgaged properties, and all other expenses
to which the Mortgagee may be put in connection with or as an incident to
this mortgage . . ."

In Philippine Bank of Communications v. Court of Appeals[19] which raised

a similar issue, this Court held:
The sole issue in this case is whether, in the foreclosure of a real estate
mortgage, the penalties stipulated in two promissory notes secured by the
mortgage may be charged against the mortgagors as part of the sums
secured, although the mortgage contract does not mention the said
penalties.

xxxx

We immediately discern that the mortgage contract does not at all mention

the penalties stipulated in the promissory notes. However, the petitioner
insists that the penalties are covered by the following provision of the
mortgage contract:

This mortgage is given as security for the payment to the MORTGAGEE on

demand or at maturity, as the case may be, of all promissory notes, letters
of credit, trust receipts, bills of exchange, drafts, overdrafts and all other
obligations of every kind already incurred or which hereafter may be
incurred....

xxxx

The Court is unconvinced, for the cases relied upon by the petitioner are
inapplicable. x x x.

xxxx
The mortgage contract is also one of adhesion as it was prepared solely by
the petitioner and the only participation of the other party was the affixing
of his signature or "adhesion" thereto. Being a contract of adhesion, the
mortgage is to be strictly construed against the petitioner, the party which
prepared the agreement.

A reading, not only of the earlier quoted provision, but of the entire
mortgage contract yields no mention of penalty charges. Construing this
silence strictly against the petitioner, it can fairly be concluded that the
petitioner did not intend to include the penalties on the promissory notes in
the secured amount. This explains the finding by the trial court, as affirmed
by the Court of Appeals, that "penalties and charges are not due for want of
stipulation in the mortgage contract."

Indeed, a mortgage must sufficiently describe the debt sought to

be secured, which description must not be such as to mislead or deceive,
and an obligation is not secured by a mortgage unless it comes
fairly within the terms of the mortgage. In this case, the mortgage
contract provides that it secures notes and other evidences of indebtedness.
Under the rule of ejusdem generis, where a description of things of a
particular class or kind is "accompanied by words of a generic character,
the generic words will usually be limited to things of a kindred nature with
those particularly enumerated . . . " A penalty charge does not belong
to the species of obligations enumerated in the mortgage, hence,
the said contract cannot be understood to secure the penalty.
[20]
 (Emphasis and underscoring supplied)
Respondent's contention that the absence in the mortgage contract of a
stipulation securing the payment of the 3% penalty fee per month on the
outstanding amount is of no consequence, the deed of mortgage being
merely an "accessory contract" that "must take its bearings from the
principal Credit Line Agreement,"[21] fails. Such absence is significant as it
creates an ambiguity between the two contracts, which ambiguity must be
resolved in favor of petitioners and against respondent who drafted the
contracts. Again, as stressed by the Court in Philippine Bank of
Communications:

There is also sufficient authority to declare that any ambiguity in a contract

whose terms are susceptible of different interpretations must be read
against the party who drafted it.

A mortgage and a note secured by it are deemed parts of one transaction

and are construed together, thus, an ambiguity is created when the
notes provide for the payment of a penalty but the mortgage
contract does not. Construing the ambiguity against the petitioner, it
follows that no penalty was intended to be covered by the
mortgage. The mortgage contract consisted of three pages with no less
than seventeen conditions in fine print; it included provisions for interest
and attorney's fees similar to those in the promissory notes; and it even
provided for the payment of taxes and insurance charges. Plainly, the
petitioner can be as specific as it wants to be, yet it simply did not specify
nor even allude to, that the penalty in the promissory notes would be
secured by the mortgage. This can then only be interpreted to mean that the
petitioner had no design of including the penalty in the amount secured.
[22]
 (Emphasis and underscoring supplied)
WHEREFORE, the assailed Court of Appeals Decision of February 21,
2007 and Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No.
86412 affirming the trial court's decision are, in light of the foregoing
disquisition, AFFIRMED with MODIFICATION in that the "penalty
fee" per month of the outstanding obligation is excluded in the
computation of the amount secured by the Real Estate Mortgage executed
by petitioners in respondent's favor.

SO ORDERED.

Quisumbing, (Chairperson), Tinga, Velasco, Jr., and Brion, JJ., Concur.

PERFECTO DY v. CA, GR No. 92989, 1991-07-08
Facts:
The petitioner, Perfecto Dy and Wilfredo Dy are brothers.  Sometime in 1979, Wilfredo Dy
purchased a truck and a farm tractor through financing extended by Libra Finance and
Investment
Corporation (Libra).  Both truck and tractor were mortgaged to Libra as security for the loan.
The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a
letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor
and assume the mortgage debt of the latter.
In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the
petitioner's request.
Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the
petitioner over the tractor in question.
It was only when the check was cleared on January 17, 1980 that the petitioner learned
about GELAC having already taken custody of the subject tractor.  Consequently, the
petitioner filed an action to recover the subject tractor against GELAC Trading with... the
Regional Trial Court of Cebu City.
Issues:
"WHETHER OR NOT THE HONORABLE COURT OF APPEALS MIS-APPREHENDED THE
FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING THAT
OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN PETITIONER
WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF
WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE
CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID
TRACTOR TO PETITIONER WAS DONE IN FRAUD OF WILFREDO DY'S CREDITORS
WHETHER OR NOT THE HONORABLE COURT OF APPEALS MIS-APPREHENDED THE
FACTS AND ERRED IN NOT SUSTAINING THE FINDING OF THE TRIAL COURT THAT
THE SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING TO ITS CO-
RESPONDENT ANTONIO V. GONZALES ON AUGUST 2, 1980 - AT WHICH TIME
BOTH RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE - WAS
VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND
RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY DAMAGES
Ruling:
The mortgagor who gave the property as security under a chattel mortgage did not part with
he ownership over the same.  He had the right to sell it although he was under the obligation
to secure the written consent of the mortgagee... or he lays himself open to criminal
prosecution under the provision of Article 319 par. 2 of the Revised Penal Code.
Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject
tractor.  There is no dispute that the consent of Libra Finance was obtained in the instant
case.
In the instant case, actual delivery of the subject tractor could not be made.
Anent the second and third issues raised, the Court accords great respect and weight to the
findings of fact of the trial court.  There is no sufficient evidence to show that the sale of the
tractor was in fraud of Wilfredo and... creditors.  While it is true that Wilfredo and Perfecto
are brothers, this fact alone does not give rise to the presumption that the sale was
fraudulent.
We agree with the trial court's findings that the actuations of GELAC Trading were indeed
violative of the provisions on human relations.  As found by the trial court, GELAC knew
very well of the transfer of the property to the petitioners on
July 14, 1980 when it received summons based on the complaint for replevin filed with the
RTC by the petitioner.
WHEREFORE, the petition is hereby GRANTED.
The decision of the Court of Appeals... and the decision of the Regional Trial Court dated
April 8, 1988 is REINSTATED.
Principles:

148 Phil. 476

DIZON, J.:
In Civil Case No. 33074 of the Court of First Instance of Manila, Branch XV
entitled "Philippine National Bank vs. Manila Investment & Construction,
Inc., et al.," decision was rendered on December 26, 1957,
its dispositive portion being partly as follows:
"IN VIEW WHEREOF, judgment is rendered condemning defendants,
jointly and severally, to pay plaintiff:
(1)  Under the first cause of action the sum of P88,939.48 with daily
interest of P12,77385 plus 1/4% commission or P194.6689 for every 30 days
or a fraction thereof, plus 10% on the principal as attorney's fees and the
cost;
(2)  On the second cause of action the sum of P356,913.01, plus P48.46403
and 1/4% or P629.31 for every 30 days or fraction thereof that the amount
remain outstanding and unpaid plus 10% of the principal as attorney's fees,
and the cost."
In case of non-payment of the amounts adjudged, the decision also
provided for the sale at public auction of the personal properties covered by
the chattel mortgage executed by the defendants in favor of the plaintiff
Bank, and for the disposition of the proceeds in accordance with law.
After the decision had become executory, instead of having the mortgaged
personal properties sold at public auction, the parties agreed to have them
sold, and were in fact sold, at a private sale.  The net proceeds
obtained therefrom amounting to P256,941.70 were applied to the partial
satisfaction of the above judgment.
On August 11, 1964, that is, more than five years but less than ten years
from the date when the decision aforesaid became executory, the Philippine
National Bank filed in the same Court of First Instance of Manila an action
to revive it.  On October 21, 1964, the defendants filed their answer in
which, after admitting some of the allegations of the complaint and denying
others, they interposed the following affirmative defenses:
"1.  That sometime after the judgment rendered by the Court of First
Instance of Manila in Civil Case No. 33074 became final and executory,
plaintiff sold to various parties in a private sale the mortgaged properties
specifically mentioned in the judgment to be foreclosed and sold at public
auction hence the proceeds thereof must therefore be accounted by plaintiff
to the defendants in order that the same be properly and accordingly
applied to the judgment;
 2.   That notwithstanding the aforesaid sale which was effected sometime
in 1958, plaintiff never rendered an accounting of the proceeds of the sale
of the mortgaged properties to the defendants;
 3.   That plaintiff has no cause of action in reviving the aforesaid judgment
not until it has rendered proper accounting, to the defendants of the
proceeds of the aforesaid sale."
Thereafter, the parties submitted a stipulation of facts, paragraph 3 thereof
being of the following tenor:
"3. - That as of August 11, 1964, there remains the sum of P382,338.47 still
unsatisfied which is arrived at in the manner specified in Annex "A"."
After the parties had submitted their respective memorandum, the court
rendered on August 30, 1966 the appealed decision
whose dispositive portion reads as follows:
"WHEREFORE, the Court renders judgment ordering the defendants to
pay the plaintiff, jointly and severally, the amount of THREE HUNDRED
EIGHTY TWO THOUSAND THREE HUNDRED THIRTY EIGHT AND
47/100 (P382,338.47) PESOS, with interest at the legal rate from August
12, 1964 until fully paid.  Costs against the defendants."
The defendants appealed to secure a reversal of the above decision claiming
firstly, that the action instituted below is not the proper remedy; secondly,
that the private sale of the mortgaged personal properties was null and
void, and lastly, that the appellee is not entitled to a deficiency judgment.
We are of the opinion that, upon the facts of the case and the law thereto
applicable, appellants' contentions are without merit.
In relation to the first, it is true that the decision rendered in Civil Case
33074 of the Court of First Instance of Manila provided for the sale at
public auction of the personal properties covered by the chattel mortgage
executed in favor of the Bank, but it is likewise true that said personal
properties were sold at a private sale by agreement between the
parties.  Besides, We see nothing illegal, immoral or against public order in
such agreement entered into freely and voluntarily.  In line with the
provisions of the substantive law giving the contracting parties full freedom
to contract provided their agreement is not contrary to law, morals, good
customs, public order or public policy (Article 1306, Civil Code of the
Philippines), We held in Philippine National Bank vs. De Poli thus:
"Under article 1255 of the Civil Code (Art. 1306 New Civil Code), the
contracting parties may stipulate that in case of violation of the conditions
of the mortgage contract, the creditor may sell, at private sale and without
previous advertisement or notice, the whole or part of the good mortgaged
for the purpose of applying the proceeds thereof on the payment of the
debt.  Said stipulation is not contrary to law or public order, and therefore it
is valid.  (Italics supplied)."
As the disposition of the mortgaged personalties in a private sale was
by agreement between the parties, it is clear that appellants are now
in estoppel to question it except on the ground of fraud or duress - pleas
that they do not invoke.  They do not even claim that the private sale agreed
upon had caused them substantial prejudice.
Appellants contend likewise that, instead of the action to revive the
judgment rendered in its favor, the appellee Bank should have filed a
motion in Civil Case 33074 of the Court of First Instance of Manila for the
rendition of a deficiency judgment.  It is to be borne in mind, in this
connection, that the action for revival was instituted after the lapse of
five but of less than ten years from the time the decision sought to be
revived became executory.  Having thus become stale or dormant, it was
not subject to execution by mere motion.  Consequently, before the
judgment creditor could move for the rendition of a deficiency judgment
and for the issuance of the corresponding writ of execution, it had to seek
the revival of the decision in accordance with law.  In Bank, etc. vs. Greene
61 Phil. 654, We held that "A judgment foreclosing a mortgage which has
lost executory force by the lapse of five years may be revived by filing a
complaint based thereon." This, precisely, is what the appellee Bank did.
Technically, the original judgment rendered by the Court of First Instance
of Manila in Civil Case No. 33074 should have been literally revived, but the
record shows that at the hearing of the action below the parties formally
stipulated that the unpaid portion of the amount due under the decision in
favor of the Bank was the sum of P382,338.47 only, after taking into
account all the payments made by the judgment debtors up to the date the
stipulation of facts was submitted to the lower court.  Consequently, the
deficiency judgment that may be rendered in Civil Case No. 33074 and the
writ of execution that may be issued to enforce the same shall be only for
said amount.
Lastly, it is appellants' contention that the appellee Bank is not entitled to a
deficiency judgment, invoking the provisions of Article 2115 of the new Civil
Code.  The issue thus raised was already resolved in the negative
in Ablaza vs. Ignacio, G.R. No. L-11466 promulgated
on March 23, 1958 where We said, inter alia, the following:
"We are of the opinion that the trial court is in error.  It is clear from Article
2141 that the provisions of the New Civil Code on pledge shall apply to a
chattel Mortgage only in so far as they are not counter to any provision of
the Chattel Mortgage Law, otherwise the provisions of the latter shall
apply.  Here we find that the provisions of the Chattel Mortgage with regard
to the effects of the foreclosure of a chattel mortgage are precisely contrary
to the provisions of Article 2115 which were applied by the trial Court."
x        x         x
"Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other
authors in the question of chattel mortgages, have said, that in case of a sale
under a foreclosure of a chattel mortgage, there is no question that the
mortgagee or creditor may maintain an action for the deficiency, if any
should occur.  And the fact that Act No. 1508 permits a private sale, such
sale is not in fact, a satisfaction of the debt, to any greater extent than the
value of the property at the time of the sale.  The amount received at the
time of the sale, of course, always requiring good faith and honesty in the
sale, is only a payment, pro tanto, and an action may be maintained for a
deficiency in the debt." (Manila Trading and Supply Co.,
vs. Tamaraw Plantation Co., 47 Phil. 513; Italics supplied.)."
It is clear, therefore, that the proceeds of the sale of the mortgaged personal
properties of the herein appellants constitute only a pro tanto satisfaction
of the monetary award made by the court and the appellee Bank is entitled
to collect the balance.
WHEREFORE, the decision appealed from is hereby affirmed, with costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro,
Fernando, Teehankee, Barredo, Villamor, and Makasiar, JJ., concur.
 FIRST DIVISION

[G.R. No. 18700. September 26, 1922. ]

INVOLUNTARY INSOLVENCY OF PAUL STROCHECKER, Appellee, v. ILDEFONSO

RAMIREZ, creditor-appellant. WILLIAM EDMONDS, assignee.

Lim & Lim for Appellant.

Ross & Lawrence and Antonio T. Carrasco, jr., for the Fidelity & surety Co.

SYLLABUS

1. CHATTEL MORTGAGE; INTEREST IN A BUSINESS. — An interest in a business may be

the subject of mortgage, for it is a personal property, being capable of appropriation, and not
included among the real properties enumerated in article 335 of the Civil Code.

2. ID., ID., DESCRIPTION; SUFFICIENCY OF. — Where the description of the chattel
mortgaged is such as to enable the parties to the mortgage or any other person to identify the
same after a reasonable investigation or inquiry, the description is sufficient. Thus if the drug
business known as Antigua Botica Ramirez (owned by a certain person therein named and the
mortgagor) located at Nos. 123 and 125, Calle Real, District of Intramuros, Manila, P.I., the
description meets the requirements of the law.

3. ID.; PREFERENCE; PURCHASE PRICE; POSSESSION. — The vendor of a chattel, who is

a creditor for the purchase price, has no preference over a creditor holding a mortgage on that
chattel where the vendor is not in possession of the thing mortgaged.

4. ID., ID.; RETROACTIVITY; PERSONAL SECURITY. — A junior mortgage can have no

preference over a senior mortgage by the mere fact that prior to said junior mortgage a personal
security had been stipulated between the junior mortgagee and the debtor, because the second
mortgage cannot be given effect as of the date the personal security was stipulated.

DECISION

ROMUALDEZ, J.  :

The question at issue in this appeal is, which of the two mortgages here in question
must be given preference? Is it the one in favor of the Fidelity & Surety Co., or that in
favor of Ildefonso Ramirez. The first was declared by the trial court to be entitled to
preference.

In the lower court there were three mortgages each of whom claimed preference. They
were the two above mentioned and Concepcion Ayala. The latter’s claim was rejected
by the trial court, and that ruling she did not appeal.

There is no question as to the priority in time of the mortgage in favor of the Fidelity &
Surety Co. which was executed on March 10, 1919, and registered in due time in the
registry of the property, that in favor of the appellant being dated September 22, 1919,
and registered also in the registry.

The appellant claims preference on these grounds: (a) That the first mortgage above-
mentioned is not valid because the property which is the subject-matter thereof is not
capable of being mortgaged, and the description of said property is not sufficient; and
(b) that the amount due the appellant is a purchase price, citing article 1922 of the Civil
Code in support thereof, and that his mortgage is but a modification of the security
given by the debtor on February 15, 1919, that is, prior to the mortgage executed in
favor of the Fidelity & Surety Co.

As the first ground, the thing that was mortgaged to this corporation is described in the
document as follows: jgc:chanrobles.com.ph

". . . his half interest in the drug business known as Antigua Botica Ramirez (owned by
Srta. Dolores del Rosario and the mortgagor herein referred to as the partnership),
located at Calle Real Nos. 123 and 125, District of Intramuros, Manila Philippine
Islands."cralaw virtua1aw library

With regard to the nature of the property thus mortgaged which is one-half interest in
the business above described, such interest is a personal property capable of
appropriation and not included in the enumeration of real properties in articles 335 of
the Civil Code, and may be the subject of mortgage. All personal property may be
mortgage. (Sec. 7, Act No. 1508.)

The description contained in the document is sufficient. The law (sec. 7, Act No. 1508)
requires only a description of the following nature: jgc:chanrobles.com.ph

"The description of the mortgaged property shall be such as to enable the parties to the
mortgage, or any other person, after reasonable inquiry and investigation, to identify
the same." cralaw virtua1aw library

Turning to the second error assigned, numbers 1, 2, and 3 of the article 1922 of the
Civil Code invoked by the appellant are not applicable. Neither the debtor, nor the
himself, is in possession of the property mortgaged, which is, and since the registration
of the mortgage has been, legally in possession of the Fidelity Surety Co. (Sec. 4, Act.
No. 1508; Meyers v. Thein, 15 Phil., 303)

In no way can the mortgage executed in the favor of the appellant on September 22,
1919, be given effect as of February 15, 1919, the date of the sale of the drug store in
question. On the 15th of February of that year, there was a stipulation about personal
security, but not a mortgage upon property, and much less upon the property in
question.
Moreover, the appellant cannot deny the preferential character of the mortgage in favor
of the Fidelity & Surety Co. because in his mortgage was second mortgage, subordinate
to the one made in favor of the Fidelity Surety Co.

The judgment appealed from is affirmed with costs against the appellant. So ordered

Araullo, C.J., Street, Malcolm, Avanceña, Villamor, Ostrand, and Johns, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-18817             September 28, 1964

ANTONIO G. TADY-Y, petitioner-appellant,
vs.
PHILIPPINE NATIONAL BANK, Binalbagan Branch, and PROVINCIAL SHERIFF OF NEGROS
OCCIDENTAL, respondent-appellees.

Modesto Paras and Abraham D. Caña for petitioner-appellant.

R. B. de los Reyes, E. A. Huelgas & A. F. Menez for respondent-appellees.

REGALA, J.:

This is an appeal from the decision of the Court of First Instance of Negros Occidental dismissing
appellant's petition for mandamus in Civil Case No. 5251. Originally, the appeal was made to the
Court of Appeals, but since no questions of fact are involved, the case was forwarded to us by
resolution of that court dated July 25, 1961.

It appears that on February 2, 1951, Segundo Swansing acting for himself and as attorney-in-fact of
Salvador Cabasaan and Rebecca Swansing, obtained an agricultural loan from the Philippine
National Bank (called PNB, for short), in the sum of P840 and mortgaged to the latter Lot No. 1257,
Pontevedra Cadastre, Negros Occidental. The mortgage deed was duly registered on the same
date.1awphîl.nèt

On April 30, 1955, Segundo Swansing, again as attorney-in-fact of Salvador Cabasaan and
Rebecca Swansing, constituted a second mortgage on the abovementioned lot to one Marcelo G.
Aguirre for P1,600 with interest at 12%, per annum and attorney's fee in the amount of P550 in case
of default.

On December 5, 1957, Aguirre, the second mortgagee, assigned his rights and interests in the
mortgage to Antonio G. Tady-Y, herein petitioner-appellant, in a deed which was registered on
August 17, 1959.

As the mortgagors had defaulted in their obligation to the PNB, the latter extrajudicially foreclosed
the first mortgage, so that on January 31, 1958, upon petition of the Bank, the Provincial Sheriff sold
the mortgaged property at public auction. The same Bank was the purchaser for the price of
P5,093.45.

On March 31, 1959, Antonio B. Tady-Y, the assignee of the mortgage rights of Aguirre, filed with the
lower court a complaint for mandamus against the PNB and the Provincial Sheriff of Negros
Occidental praying that defendants be ordered to deliver the amount of P2,868 to him, plus P800 for
attorney's fees plus costs.

The complaint in substance, alleged that the purchase price of the property involved, in the sum of
P5,093.45, is very much in excess of the registered credit of the PNB as first mortgagee, plus
interest and attorney's fees; that deducting P1,759.60 — representing the total amount to which said
PNB was entitled as of January 31, 1958 under the mortgage contract from the purchase price of
P5,093.45 — would leave a balance of P3,279.85, which is more than enough to cover and satisfy
the total credit under the second mortgage; that plaintiff demanded from the defendants the delivery
to him of P2,868, the amount corresponding to his credit, from the surplus of the proceeds of the
sale of the property involved, but they refused to deliver said amount; that by reason of defendants'
unlawful refusal to comply with their clear duty under the law to deliver said amount to plaintiff, the
latter was constrained to hire the legal services of a counsel to whom he had bound himself to pay
P800 as attorney's fees.

In resisting the complaint, the defendants averred that the account secured by the first mortgage in
favor of the PNB included not only the sum of P840 referred to in the mortgage contract, but also
"those that the mortgagee may extend to the mortgagor, including interest and expenses or any
other obligation owing to the mortgagee whether direct or indirect, principal or secondary, as
appears in the accounts, books and records of the mortgagee"; that as of January 31, 1959, the total
unpaid obligation of the mortgagors to the defendant Bank was P9,579.08, representing the time
loan account, sugar crop loan deficits for 1952-53, 1953-54 and 1954-55, and 1951-52 palay loan,
plus interest and attorney's fees as of November 4, 1956, with the obvious result that the proceeds
of the auction sale in the amount of P5,093.45 did not leave any surplus that may be applied to the
second mortgage held by the plaintiff; that mandamus does not lie against the defendant Provincial
Sheriff, because the complaint has not singled out the defendant possessing the alleged excess
and, if it is with the defendant Bank, there can be no right of action against the defendant Provincial
Sheriff; and that there is no law imposing upon the defendant Bank the specific duty of delivering the
surplus of the proceeds from an extrajudicial foreclosure.

Issues having thus been joined, the case was submitted upon the stipulation of facts and
memorandum from each of the parties. By decision dated February 27, 1966, the lower court, after
going into the merits, dismissed the complaint. From that decision the petitioner has appealed.

It is contended by appellant that since only the sum of P840 plus interest appears in TCT 2417 (title
to the land involved) as the mortgage debt of the Swansings to the PNB, only the amount resulting
from this obligation should be paid out of the proceeds of the auction sale and that the other loans
given out by the PNB which do not appear in the said transfer certificate of title do not affect the said
property.

A scrutiny of the mortgage deed between the Swansings and the PNB, however, shows that the
property therein mortgaged was to secure the payment of P840, "as well as those that the
Mortgagee may extend to the Mortgagor, including interest and expenses or any other obligation
owing to the Mortgagee whether direct or indirect, principal or secondary, as appears in the
accounts, books and records of the Mortgagee." Even the entry on the back of TCT No. 2417
admonishes that the mortgage secured the payment of P840 plus interest "plus other obligations
arising thereunder." As aptly stated by the trial judge, this annotation should have caused any
intending junior encumbrancer to be wary and to examine the provisions of the mortgage deed for
complete details.

Indeed, the provision in the mortgage deed, including as part of the obligation future amounts that
may be borrowed by the mortgagors-debtors from the Bank, is not improper. For this Court, in the
case of Lim Julian v. Lutero, 49 Phil. 703, held that the amounts named as consideration in a
contract of mortgage do not limit the amount for which the mortgage may stand as security, if from
the four corners of the instrument the intent to secure future and other indebtedness can be
gathered.

The PNB had submitted copies of deeds of chattel mortgages in its favor, to prove that the
outstanding account of the debtors-mortgagors as of January 31, 1958 appearing in its books and
records was P9,579.08, very much more than the proceeds of P5,093.45 obtained from the
extrajudicial foreclosure. There is no showing that the mortgagors had ever questioned the
correctness of these figures.

Petitioner-appellant advances the argument that the latter loans should have also been noted on
TCT 2417. But We believe there was no necessity for such a notation because it already appears in
the said title that aside from the amount of P840 first borrowed by the mortgagors, Other obligations
would also be secured by the mortgage. As already stated, it was incumbent upon any subsequent
mortgagee or encumbrancer of the property in question to have examined the book or records of the
PNB, as first mortgagee, the credit standing of the debtors. At any rate, the subsequent obligations
incurred by the debtors-mortgagors, which are covered by chattel mortgages on standing crops,
were each executed in a public instrument and registered with the Register of Deeds to give notice
to third parties. There can be no doubt from these circumstances that the second mortgagee is
charged with notice of the other obligations of the mortgagors to the PNB. And being charged with
said notice, the petitioner-appellant as second mortgagee is only entitled to whatever surplus there
is, if any, from the proceeds of the auction sale, after covering the mortgagors' obligations to the
PNB.

PREMISES CONSIDERED, the decision appealed from is hereby affirmed. Costs against petitioner-
appellant.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Makalintal, Bengson,
J.P., and Zaldivar, JJ., concur.
Barrera, J., took no part.

Acme Shoe Rubber & Plastic Corp. vs. Court of Appeals 260 SCRA 714 FACTS:

Petitioner Chua Pac, the president and general manager of co-petitioner "Acme, executed for and in
behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of the
Philippines.  The mortgage stood by way of security for petitioner's corporate loan of three million pesos.
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the
former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such
as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust
Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or
notes and/or accommodations without the necessity of executing a new contract and this mortgage shall
have the same force and effect as if the said promissory note or notes and/or accommodations were
existing on the date thereof. This mortgage shall also stand as security for said obligations and any and all
other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such
obligations have been contracted before, during or after the constitution of this mortgage."[1]

In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it
obtained from respondent bank additional financial accommodations totalling P2,700,000.00. [2] These
borrowings were on due date also fully paid.

On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million
pesos (P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial
constraints, the loan was not settled at maturity. [3] Respondent bank thereupon applied for an
extrajudicial foreclosure of the chattel mortgage, Ultimately, the court dismissed the complaint and
ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations,
aforequoted, of the chattel mortgage. Petitioner corporation appealed to the Court of Appeals [4] which,
on 14 August 1991, affirmed, "in all respects," the decision of the court a quo.

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a
suretyship, the faithful performance of the obligation by the principal debtor is secured by
the personal commitment of another (the guarantor or surety). In contracts of real security, such as a
pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property in pledge,
the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of
the corresponding deed substantially in the form prescribed by law; in real estate

mortgage, by the execution of a public instrument encumbering the real property covered thereby; and
in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an
immovable property with the obligation to apply such fruits to the payment of interest, if owing, and
thereafter to the principal of his credit - upon the essential condition that if the principal obligation
becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of
the obligation, [7] but that should the obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character [8] of the agreement. As the law so puts it, once the
obligation is complied with, then the contract of security becomes, ipso facto, null and void.[9] -

While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so
long as these future debts are accurately described, [10] a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted can be a binding commitment that can be
compelled upon, the security itself, however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel
mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage
Law. [11] Refusal on the part of the borrower to execute the agreement so as to cover the afterincurred
obligation can constitute an act of default on the part of the borrower of the financing agreement whereon
the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time
of constitution and during the life of the chattel mortgage sought to be foreclosed.

In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was
the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel
Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., [14] the Court said "x
x x A mortgage that contains a stipulation in regard to future advances in the credit will take effect only
from the date the same are made and not from the date of the mortgage."[15]

The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had
ceased to exist coincidentally with the full payment of the P3,000,000.00 loan, [16]there no longer was
any

chattel mortgage that could cover the new loans that were concluded thereafter. ISSUE/S:

Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its
coverage to obligations yet to be contracted or incurred?

RULING:

WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without
prejudice to the appropriate legal recourse by private respondent as may still be warranted as an
unsecured creditor. No costs.

RA 3765, Sec. 3(2)

AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH

EXTENSIONS OF CREDIT. (2) "Credit" means any loan, mortgage, deed of trust, advance, or discount;
any conditional sales contract; any contract to sell, or sale or contract of sale of property or services,
either for present or future delivery, under which part or all of the price is payable subsequent to the
making of such sale or contract; any rentalpurchase contract; any contract or arrangement for the hire,
bailment, or leasing of property; any option, demand, lien, pledge, or other claim against, or for the
delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of,
any obligation of claim arising out of any of the foregoing; and any transaction or series of transactions
having a similar purpose or effect.