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Peoples Bank and Trust v.

Dahican Lumber
Dahican Lumber, a domestic corporation, obtained several loans from Peoples Bank &
Trust Company. To secure the loan, Dahican Lumber mortgaged (1) five parcels of land,
(2) all the buildings and other improvements existing thereon and (3) all the personal
properties of the Dahican Lumber in its place of business. It also stated in the Deed of
Mortgage that:
All property of every nature and description taken in exchange or replacement, and all
buildings, machinery, fixtures, tools equipment and other property which the
Mortgagormay hereafter acquire, construct, install, attach, or use in, to, upon, or in
connection with the premises, shall immediately be and become subject to the lien of this
mortgage in the same manner and to the same extent as if now included therein, and the
Mortgagor shall from time to time during the existence of this mortgage furnish the
Mortgagee with an accurate inventory of such substituted and subsequently acquired
After the Deed of Mortgage was executed, Dahican Lumber purchased various
machineries, equipment, spare parts and supplies in addition to, or in replacement of
some of those already owned and used by it. At this point, it is not clear from whom the
purchased were made. The bank requested for a list of the properties purchased but
Dahican Lumber did not provide any.
At this point, it also appeared that Dahican Lumber was indebted to other companies
including Dahican America Lumber Corporation (a foreign corporation and a stockholder
of Dahican Lumber) and Connell Bros. Company (a domestic corporation and purchasing
agent of Dahican Lumber).
A year and a half later, Dahican Lumber rescinded (in simple terms, a rescission is the
cancellation of the contract with the legal effect that it never existed) the purchase
contracts. In the rescission, Dahican America Lumber Corporation and Connell Bros.
Company were named as the original sellers of the various machineries, equipment, etc.
The bank protested, naturally, and said that it already acquired a lien over those
machineries, equipment, etc. The bank sued.
The ruling
The Supreme Court ruled that Dahican America Lumber Corporation and Connell Bros.
Company were not the sellers of the various machineries, equipment, etc. The rescission
was nothing more than an attempt by Dahican Lumber to remove such machineries,
equipment, etc. from the reach of the bank. In short, the rescission was a fake and
nothing more than a ploy to pay its other creditors, Dahican America Lumber Corporation
and Connell Bros. Company, ahead of the bank.
F: Chao Siong purchased a Chrysler Sedan from Luneta Motors co for P1.8k, secured by
18 PNs for P100 each and a CM in favor of Luneta. CM included a clause as follows:

. . it being expressly agreed further that this mortgage shall also serve as security for the
payment to the said mortgagee in addition to the aforesaid notes of the purchase price or
cost of any and all gasoline, tires, automobile accessories or parts, and repairs furnished
or made by the said mortgagee at any time up to the date this mortgage is completely
satisfied as and when the same becomes due, and of any other indebtedness of the
mortgagor in favor of the mortgagee incurred in any other manner whatever.
-Choa Siong acted as surety for P300 for a certain Angeles for paints and accessories the
latter obtained from Macondray. Macondray assigned its credit to Luneta, as Choa Siong
still had P140 balance. Chao Siong paid P40 so there was P100 left unpaid.
-Choa Siong was able to pay all the PNs though. But since there is still P100 left unpaid
arising from the surety made by Choa Siong, the credit of which was assigned to Luneta,
Luneta refused to extinguish the CM.
-Chao Siong sold the auto to Ong Liong Tiak.
-For the nonpayment of the P100, Luneta sought the forclosure of the CM. Sheriff
attached the auto (ppor Ong Liong Tiak :( )
-Ong Liong Tiak filed petition for writ of injunction and damages vs. Luneta. CFI ruled
against him
WON the surety secured by Ong Liong Tiak is included in the CM executed by Ong Liong
Tiak in favor of Luneta Motor Co?
Instruments of mortgage, as said Exhibit 2, are binding, while they subsist, not only upon
the parties executing them but also upon those who later, by purchase or otherwise,
acquire the properties referred to therein.
The right of those who so acquire said properties should not and can not be superior to
that of the creditor who has in his favor an instrument of mortgage executed for the
formalities of the law, in good faith, and without the least indication of fraud. This is all
the more true in the present case, because, when the plaintiff purchased the automobile
in question on august 22, 1933, he knew, or at least, it is presumed that he knew, by the
mere fact that the instrument of mortgage, Exhibit 2, was registered in the office of the
register of deeds of Manila, that said automobile was subject to a mortgage lien. In
purchasing it, with full knowledge that such circumstances existed, it should be presumed
that he did so, very much willing to respect the lien existing thereon, since he should not
have expected that with the purchase, he would acquire a better right than that which
the vendor then had.
Kawawa naman si OLT! Walang napunta sa kanya. May COA ba sha against Chao Siong?
SC validated an AIP w/o even explaining why. Sir included this case so that you would
know that there's a SC that contradicts what is provided in law. This case supports the

wrong position. But since it is also supported by SC, "legal practice becomes more
F: (loan 1) Sps. Alviar obtained a P250k loan from Prudential Bank and as a security, they
executed a REM over their parcels of land in San Juan. The REM contained a "blanket
clause/dragnet clause" (see below in the decision)
(loan 2) Don Alviar executed a PN for P2,640,000 in favor of Prudential Bank secured by a
"hold-out" on the mortgagor's (Alviar's) foreign currency savings account with Prudential
Bank and Alviar's passbook is to be surrendered to Prudential Bank until the amount
secured by the holdout is settled.
(loan 3) Another PN for P545,000 was executed by Don Alviar, this time in behalf of
DONALCO trading (the spouses are the Chairman and the VP of the company), in favor of
Prudential Bank. This was secured by "Clean Phase out of TOD CA 3923: meaning that the
temporary overdraft incurred by DONALCO trading is to be converted into an ordinary
loan. Prudential bank approved the straight loan. Securities were deed of assignment on
2 PNs executed by Bancom Realty Corp.and chattel mortgage on various heavy and
transpo equipment
Alviars paid Prudential Bank P2M to be applied to the obligations of Alviars (as GB Alviar
Realty and Development Inc) and for the release of the REM for P450k (cf P250k at the
start) which covered their 2 San Juan lots. Payment was acknowledged and Prudential
Bank released the mortgage over the 2 properties. STILL, PRUDENTIAL BANK MOVED
the Alviars had the total obligation of P1,608,256.68 covering 3 PNs (the first loan +
another loan + 3rd loan).
Alviars filed for DAMAGES + prayer for issuance of writ of preliminary injunction: claimed
to have paid principal loan secured by the 2 San Juan properties by payment of P2M
Vs. Prudential Bank: Payment of P2M was for the obligations of GB ALVIAR REALTY &
DEV'T CORP under a separate loan secured by a separate mortgage (and not by the
spouses! themselves)
TC: proceed with foreclosure; MFR: reverse - even awarded damages in favor of Alviars.
The REM only covers the 1st loan and not the subsequent loans.
The blanket mortgage clause relied upon by Prudential Bank applies only to
future loans obtained by the mortgagors, and not by parties other than the
said mortgagors, such as Donalco Trading, Inc., for which respondents merely
signed as officers thereof.
CA: Affirmed: while a continuing loan or credit accommodation based on only one security
or mortgage is a common practice in financial and commercial institutions, such
agreement must be clear and unequivocal. In the instant case, the parties
executed different promissory notes agreeing to a particular security for each

loan. Thus, the appellate court ruled that the extrajudicial foreclosure sale of the
property for the three loans is improper.
-However, it found that the spouses has not paid under the 1st obligation as the P2M
payment was for the obligation of the GB Alviar Realty and Development Inc and not in
their personal capacity
WON The "Blanket mortgage clause" or the "dragnet mortgage clause" expressly covers
not only the 1st loan but also the 2 subsequent loans? And if it is valid?
-Court held that the 3rd loan was clearly not covered by the "blanket mortgage clause"
because the said loan was undertaken by the spouses in behalf of DONALCO and not in
their personal capacity. No piercing of corporate veil as no evidence of evasion and fraud
was shown.
blanket mortgage clause/dragnet clause:
-one which is specifically phrased to subsume all debts of past or future origins.
-should be carefully scrutinized and strictly construed
-Mortgages of this character enable the parties to provide continuous dealings, the nature
or extent of which may not be known or anticipated at the time, and they avoid the
expense and inconvenience of executing a new security on each new transaction
-operates as a convenience and accommodation to the borrowers as it makes
available additional funds without their having to execute additional security documents,
thereby saving time, travel, loan closing costs, costs of extra legal services, recording
fees, et cetera.
-mortgages given to secure future advancements are valid and legal contracts,
and the amounts named as consideration in said contracts do not limit the amount for
which the mortgage may stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered.
In this case:
That for and in consideration of certain loans, overdraft and other credit accommodations
obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter
referred to, irrespective of number, as DEBTOR, and to secure the payment of the
same and those that may hereafter be obtained, the principal or all of which is
hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as
well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, 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, the Mortgagor does hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land which are described in the list
inserted on the back of this document, and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be erected or

constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free
from all liens and incumbrances. . . .
SC: ALL OTHER LOANS INCLUDED! Parties intended the real estate mortgage to secure
not only the P250,000.00 loan from the petitioner, but also future credit
facilities and advancements that may be obtained by the respondents. The
terms of the above provision being clear and unambiguous, there is neither need nor
excuse to construe it otherwise.
The problem: Would the "blanket Mortgage clause/dragnet clause" apply when the
subsequent loans are covered by separate securities?


Dragnet clause would not secure a note that is otherwise secured as to its entirety.
Would only cover the deficiency after exhausting the security specified therein. (so
pag may natira pang obligation, yun ung under ng dragnet clause

SC: 2nd school of thought!

RELIANCE ON THE SECURITY TEST: when the mortgagor takes another loan for which
another security was given it could not be inferred that such loan was made in reliance
solely on the original security with the dragnet clause, but rather, on the new security
Ratio: the dragnet clause in the first security instrument constituted a continuing offer
by the borrower to secure further loans under the security of the first security instrument,
and that when the lender accepted a different security he did not accept the offer
*Where deeds absolute in form were executed to secure any and all kinds of
indebtedness that might subsequently become due, a balance due on a note, after
exhausting the special security given for the payment of such note, was in the absence of
a special agreement to the contrary, within the protection of the mortgage,
notwithstanding the giving of the special security.This is recognition that while the
dragnet clause subsists, the security specifically executed for subsequent loans must
first be exhausted before the mortgaged property can be resorted to.
*any ambiguity in a contract whose terms are susceptible of different interpretations
must be read against the party who drafted it, Prudential Bank.
*BUT PRUDENTIAL BANK could still subject the properties to foreclosure proceedings for
the unpaid P250k, which both TC and CA found to have not yet been paid. If there are
deficiencies for the second loan, could also apply the proceeds as to the second loan.
Qualification to the validity of the AIO clause: Dragnet Clause

Even if there is a Dragnet Clause in REM which might have secured future obligations,
when the future obligations are secured separately,
GR: mortgagee cannot foreclose the REM to satisfy the unpaid subsequent obligations.
Exhaust first the specified collateral for the loan, not the property under the Dragnet
X: unless there's an explicit stipulation to the contrary!
Justice Tinga, who loves to cite American jurisprudence, is saying that dragnet clause is
used in mortgages to allow.he is actually describing a Mortgage Trust Indenture (the
Philippine Equivalent)!
F: Petitioners obtained a P1.5M loan from respondents, secured by REM over their Cubao
REM provides:
PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto the
MORTGAGEE or his heirs and assigns, the said indebtedness of ONE MILLION FIVE
HUNDRED THOUSAND PESOS (1,500,000.00), Philippine Currency, together with the
agreed interest thereon, within the agreed term of one year on a monthly basis then this
MORTGAGE shall be discharged, and rendered of no force and effect, otherwise it shall
subsist and be subject to foreclosure in the manner and form provided by law.
-Subsequently, petitioners obtained additional loans from the respondents in the
aggregate amount of P1,250,000.
-Petitioners only paid P291,700 but defaulted as to the rest.
-Respondents filed a complaint for foreclosure of mortgage, alleging that the loans (all of
them) were secured by the REM and as of August 31, 1997, the debt amounted to
P6,967,241.14 (with interest of 18% mo)
Vs. Petitioners: REM only covers P1.5M loan, no agreement that the 18% interest was to
be compounded mo as it was per annum!
RTC: For respondents
CA: REM was expressly intended to cover only the original P1.5M loan and the subsequent
P150k and P500k loans, not the P150k loan, the P200k loan and P250k loan. 12% interest
imposed by TC also proper
WON the 12% interest rate imposed by TC Proper
YES. As was held in Eastern shipping lines and in the law. Interest on judicial awards until
WON all five additional loans were intended to be secured by the real estate mortgage

(eto ang na-gets koung P1.5M loan lang ang kasama)
GR: a mortgage liability is usually limited to the amount mentioned in the
X: However, 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.
This stipulation is valid and binding between the parties and is known in American
Jurisprudence as the blanket mortgage clause, also known as a dragnet clause.
A dragnet clause operates as a convenience and accommodation to the borrowers as
it makes available additional funds without their having to execute additional security
documents, thereby saving time, travel, loan closing costs, costs of extra legal services,
recording fees, et cetera.
While a real estate mortgage may exceptionally secure future loans or
advancements, these future debts must be sufficiently described in the
mortgage contract. An obligation is not secured by a mortgage unless it comes fairly
within the terms of the mortgage contract. HOWEVER, it is clear from a perusal of the real
estate mortgage that there is no stipulation that the mortgaged realty shall also
secure future loans and advancements. Thus, what applies is the general rule above
What the parties could have done in order to bind the realty for the additional loans was

to execute a new real estate mortgage or

to amend the old mortgage conformably with the form prescribed by the law.

Failing to do so, the realty cannot be bound by such additional loans, which may be
recovered by the respondents in an ordinary action for collection of sums of money.
WON the amount of obligation should include interest?
YES. Rule 68.2 provides so.
No dragnet clause involved here!


F: Pila Tuason executed a CM over her car for the sum of P1k which she owed to Jose Garrido.
As she was unable to pay, Jose Garrido commenced a case for the foreclosure of the CM +
atty's fees and costs (note: not for collection of the outstanding obligation!)
TC: pay P1k + interests + P100 + costs (even if Garrido prayed for foreclosure!)
-writ of execution issued, car of Tuason was sold at a public auction for P550 with Garrido as
the highest bidder
-as there was still P450 left unsatisfied + P165 allegedly spend to carry out writ of execution
and P1,290.58 as aggregate outstanding balance due under decision, Garrido filed motions
(for alias writ of execution) which were both denied.
-Garrido commenced a civil case vs. Pila Tuason, and now with her husband, for the recovery
of the alleged balance in the earlier case. MTD filed by Tuason. TC for TUASON,
CFI: Affirmed dismissal of civil case in pursuance to Article 2115 of Civil Code:
Article 2115 provides:
". . . The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the
sale are equal to the amount of the principal obligation, interest and expenses in a proper case. If the price of the
sale is more than said amount, the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the
price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding
any stipulation to the contrary."

WON Garrido could still claim the deficiency?

NO, but based on res judicata, not because there was already foreclosure of the CM.
*Article 2115 of the Civil Code does not apply to Chattel Mortgage. Article 2115 is
inconsistent with the provisions of the Chattel Mortgage Law, and that, accordingly, the
chattel mortgage creditor may maintain an action for the deficiency.
-TC must have applied 2115 based on Article 2141 of CC which provides that provisions on
pledge shall be applicable to chattel mortgages "insofar as they are not in conflict with the
Chattel Mortgage Law". But as it does conflict, it should not be applied!
HOW CONFLICT? DI ko rin alam eh. Wehe. Eto sabi sa footnote sa case:
The last part of the second paragraph of Section 14 of Act No. 1508, provides:

SECTION 14. Sale of property at public

". . . The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale,
and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to
persons holding subsequent mortgages in their order, and the balance, after paying the mortgages, shall be paid to
the mortgagor or person holding under him on demand."

Pero hellurh, this contemplates a situation where there is excess in the proceeds of the sale,
and not when there's a deficiency. So how does this conflict?
TC might have acted under the impression that the first case was for the foreclosure of a
chattel mortgage. But the first case was an ordinary money judgment so no previous ruling
on foreclosure
...(okay eto pagkagets ko a, since di pa naman judicially ordered ang foreclosure, pede pa
magforeclosure on other properties to cover the deficiency of the money judgment. In this
case, Garrido prayed for foreclosure and not payment but since the MTC ordered payment
instead, no judicial order of foreclosure)
SC: Municipal court should have NOT DENIED plaintiff's motion for issuance of alias writ of

-but since instead of filing an appeal to the denial of his motion, the decision of the
MC have been final and executory and thus binding and res judicata on the Civil
Action he later filed.
NOTE: Why did CM arise? May sale ba or may utang lang? If may sale, A1484 would apply!
There's no explicit statement in the Chattel Mortgage law which provides that the creditor
could recover deficiency. SC interpreted it and declared that there's such right WITHOUT
EXPLAINING WHY Sir said that in previous cases, the ruling was different but he didn't
assign to us the said cases because it was not assigned to him when he was a student...


J. Carpio, 2010
FACTS: TMI came to PCI to seek a loan. Instead of
extending a loan, PCI offered to buy various
equipment TMI owned, in exchange for P2.8M.
Deeds of sale were executed.
PCI and TMI then entered into a lease agreement:
- lease the equipment it previously owned
- postdated checks for 24 monthly
- guaranty deposit of P1.03M (security for
timely performance of TMI's obligations under the
lease agreement, to be automatically forfeited
should TMI return the leased equipment before
expiration of the lease agreement)
- Sps. Dizon (President and Vice-President
of TMI) also executed in favor of PCI a Continuing
Guaranty of Lease Obligations (agreed to
immediately pay obligations in case TMI failed,

under the lease agreement)

However, to obtain additional loan from another
financing company, TMI used the leased equipment
as temporary collateral.
PCI considered the 2nd mortgage a violation of the
lease agreement. PCI sent TMI a demand letter for
payment of the latter's outstanding obligation,
which was unheeded.
PCI filed in the RTC a complaint against TMI and
sps. Dizon for recovery of sum of money and
personal property, with prayer for the issuance of a
writ of replevin.
RTC issued the writ of replevin. PCI sold the leased
equipment to a third party and collected the

proceeds amounting to P1.025M

Respondent claimed that the sale with lease
agreement was a mere scheme to facilitate the
financial lease between PCI and TMI, and that the
true agreement between them was a loan secured
by a chattel mortgage.
RTC: Lease agreement is valid; judgment in favor
of PCI
CA: Set aside the decision of the RTC; sale with
lease was a loan secured by chattel mortgage
Directed PCI to refund P1.1M to TMI
ISSUE/HELD: WON the sale with lease
agreement the parties entered into was a
financial lease or a loan secured y the chattel
mortgage Petitioner (PCI): transaction between the parties
was a sale and leaseback financing arrangement,
which is not contrary to law, morals, good customs,
public order or public policy; guaranty deposit
should be forfeited in its favor, as provided in the
lease agreement
Respondents (TMI): transfer of ownership to PCI
was never the intention of the parties; guaranty
deposit will only be forfeited if TMI returned the
leased equipment to PCI before expiration of the
lease agreement. Since TMI never returned the
lease property voluntarily, but through writ of
replevin, the guaranty deposit should not be
SC: In a true financial leasing, a finance company
purchases on behalf of a cash-strapped lessee the
equipment the latter wants to buy, but, due to

financial limitations, is incapable of doing so. The

finance company then leases the equipment to the
lessee in exchange for the latter's periodic
payment of a fixed amount of rental.
HERE, TMI already owned the subject equipment
before it transacted with PCI. Therefore the
transaction between the parties cannot be deemed
to be in the nature of a financial leasing as defined
in law.
* "Where the client already owned the equipment,
but needed additional working capital and the
finance company purchased such equipment with
the intention of leasing it back to him, the lease
agreement was simulated to disguise the true
transaction that was a loan with security."
* "The intention of the parties was not to enable
the client to acquire and use the equipment, but to
extend to him a loan."
* Financial leasing contemplates the extension of
credit to assist a buyer in acquiring movable
property which he can use and eventually own.
The transaction between the parties was
simply a loan secured by chattel mortgage.
Thus upon TMI's default, PCI was entitled to seize
the mortgaged equipment, not as owner but as
creditor-mortgagee for the purpose of foreclosing
the chattel mortgage.
PCI's sale to a third party of the mortgaged
equipment and collection of the proceeds of the
sale can be deemed in the exercise of its right to
foreclose the chattel mortgage as creditormortagee.




G.R. NO. 158635 (DECEMBER 9, 2005)




Private respondent Elias Colarina bought on instalment from Petitioner Magna Financial Services
Group, Inc., one (1) unit Suzuki Multicab.

To secure payment thereof, Colarina executed an integrated promissory note and deed of chattel
mortgage over the motor vehicle.

Colarina failed to pay the complete monthly amortization and despite repeated demands from Magna,
the former failed to make the necessary payment.

Magna then instituted a complaint for foreclosure of chattel mortgage with replevin before the MTCC
of Legaspi City. In its complaint, Magna prayed for both 1.) the payment of the principal sum with
penalty charges plus liquidated damages, and 2.) for Colarina to surrender possession of the

Ruling of the MTCC

The MTCC granted the prayer for the issuance a writ replevin and upon service of a copy of the same
to respondent by the sheriff, the respondent voluntarily surrendered possession of the motor vehicle
to said sheriff.

The MTCC then rendered its decision in favour of Magna, ordering Colarina to pay, among others, the
principal amount plus penalty charges.

The MTCC also declared that should Colarina default in paying the money judgment, the subject
motor vehicle shall be sold at a public auction to satisfy said judgment.

Ruling of the RTC

Colarina appealed to the RTC of Legaspi City. During the pendency of his appeal before the RTC,
Colarina died and was substituted in the case by his heirs.

The RTC rendered its judgment affirming in toto the decision of the MTCC.

Ruling of the CA

Colarinas heirs filed a Petition for Review before the Court of Appeal, which reversed and set aside
the decision of both the MTCC and the RTC.

Applying Article 1484 of the Civil Code of the Philippines, the CA ordered the foreclosure of the
chattel mortgage over the subject vehicle without any right on the part of Magna to seek the payment
of unpaid balance of the purchase price.

According to the appellate court, the MTC and the RTC erred in ordering the defendant to pay the
unpaid balance of the purchase price of the subject vehicle irrespective of the fact that the complaint
filed by petitioner was for the foreclosure of its chattel mortgage.

The judgment of the lower court in effect allowed Mana to retain the possession and ownership of the
subject vehicle and at the same time claim against the defendant for the unpaid balance of its
purchase price.


Whether petitioner availed of avail itself of the first and third remedies under Article 1484; and,
Whether there was actual foreclosure of the subject motor vehicle.

As to the First Issue
The Supreme Court says YES. It is unmistakable that petitioner preferred to avail itself of the
first and third remedies under Article 1484, at the same time suing for replevin. For this reason, the Court
of Appeals justifiably set aside the decision of the RTC. Perusing the Complaint, the petitioner, under its
prayer number 1, sought for the payment of the unpaid amortizations which is a remedy that is provided
under Article 1484 of the Civil Code, allowing an unpaid vendee to exact fulfillment of the obligation. At
the same time, petitioner prayed that Colarina be ordered to surrender possession of the vehicle so that
it may ultimately be sold at public auction, which remedy is contained under Article 1484. Such a scheme
is not only irregular but is a flagrant circumvention of the prohibition of the law. By praying for the
foreclosure of the chattel, Magna Financial Services Group, Inc. renounced whatever claim it may have
under the promissory note.
Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose
the chattel mortgage, he shall have no further action against the purchaser to recover any unpaid
balance of the purchase price. Any agreement to the contrary shall be void. In other words, in all
proceedings for the foreclosure of chattel mortgages executed on chattels which have been sold on the
installment plan, the mortgagee is limited to the property included in the mortgage.
In sum, since the petitioner has undeniably elected a remedy of foreclosure under Article 1484(3) of
the Civil Code, it is bound by its election and thus may not be allowed to change what it has opted for nor
to ask for more. On this point, the Court of Appeals correctly set aside the trial courts decision and
instead rendered a judgment of foreclosure as prayed for by the petitioner.
As to the Second Issue
The Supreme Court says NO. In the case at bar, there is no dispute that the subject vehicle is
already in the possession of the petitioner, Magna Financial Services Group, Inc. However, actual
foreclosure has not been pursued, commenced or concluded by it.
Where the mortgagee elects a remedy of foreclosure, the law requires the actual foreclosure of the
mortgaged chattel. As held in the case Manila Motor Co. v. Fernandez, it is actual sale of the mortgaged
chattel in accordance with Sec. 14 of Act No. 1508 that would bar the creditor (who chooses to foreclose)
from recovering any unpaid balance. And it is deemed that there has been foreclosure of the mortgage
when all the proceedings of the foreclosure, including the sale of the property at public auction, have been

Register of Deeds Manila vs. China Banking Corporation G.R. No. L-11964, April
28, 1962
Although Paragraph (c), Section 25 of Republic Act 337 allows a (foreign)
commercial bank to purchase and hold such real estate as shall be
conveyed to it in satisfaction of debts previously contracted in the course
of its dealings. However, the debts referred to in this provision are only
those resulting from previous loans and other similar transactions made
or entered into by a commercial bank in the ordinary course of its
business as such. Obviously, whatever civil liability arising from the
criminal offense of qualified theft was admitted in favor of appellant bank
by its former employee, Alfonso Pangilinan, was not a debt resulting from
a loan or a similar transaction had between the two parties in the ordinary
course of banking business.
Facts: In an information filed in the Court of First Instance of Manila (Criminal Case
No. 22908) against Alfonso Pangilinan and one Guillermo Chua, both officers of
China Banking Corporation (Chinabank), were charged with qualified theft, the
money involved amounting to P275,000.00. The Court of First Instance of Manila
both convicted them. After admitting his civil liability in favor of his employer,
Pangilinan ceded and transferred to Chinabank a parcel of land located in the City of
The Deed of Transfer executed by Pangilinan was presented for registration but the
register of deeds, after finding that China Banking Corporation, as an alien-owned
corporation, is barred from acquiring lands in the Philippines under Sec. 5, Art. XIII
of the Constitution, submitted the matter to the Land Registration Commission for
resolution which, in turn, denied the registration. Hence, respondent herein filed the
present appeal to question the resolution of the Commission. The bank contended
that Section 25 of Republic Act 337 allows a commercial bank to purchase and hold
real estate to wit:
SEC. 25. Any commercial bank may purchase, hold, and convey real estate for the
following purposes:
(c) Such shall be conveyed to it in satisfaction of debts previously contracted in the
course of its dealings; .
(d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust
deeds held by it and such as it shall purchase to secure debts due to it.

Issue: Whether or not Chinabank can acquire ownership of the residential lot of
Pangilinan to satisfy his civil liability arising from the crime.
Held: No. Chinabank is prohibited from holding lands by Sec. 5, Art. XIII of the
Constitution. The reason for the prohibition is manifestly the desire and purpose of
the Constitution to place and keep in the hands of the people the ownership over
private lands in order not to endanger the integrity of the nation.
Although Paragraph (c), Section 25 of Republic Act 337 allows a (foreign)
commercial bank to purchase and hold such real estate as shall be conveyed to it in
satisfaction of debts previously contracted in the course of its dealings. However,
the debts referred to in this provision are only those resulting from previous loans
and other similar transactions made or entered into by a commercial bank in the
ordinary course of its business as such. Obviously, whatever civil liability arising
from the criminal offense of qualified theft was admitted in favor of appellant bank
by its former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a
similar transaction had between the two parties in the ordinary course of banking
capacity as the Liquidator of Banco Filipino Savings and Mortgage Bank (July 15, 2005)
1 Manila International Construction Corporation (MICC) executed a real estate mortgage over
21 registered parcels of land (including the improvements) in favor of Banco Filipino Savings
and Mortgage Bank (Banco Filipino) in order to secure a loan of P1,885,000.00. The
mortgage was registered with the Registry of Deeds of Pasay City

Subsequently or in August 1983, MICC sold one lot together with the house thereon, to the
the Paderes spouses and on January 9, 1984, MICC sold the house built on another lot to
the petitioners in the second case, the Bergado spouses. Neither sale was registered,

For failure of MICC to settle its obligations, Banco Filipino extrajudicially foreclosed MICCs
mortgage. Banco Filipino was declared the highest bidde and a Certificate of Sale was
No redemption of the foreclosed mortgage having been made within the reglementary
period, Carlota P. Valenzuela, the then Liquidator of Banco Filipino, filed an ex parte Petition
for the issuance of a Writ of Possession of the foreclosed properties with the Regional Trial
Court (RTC) of Makati. After hearing, the Petition was granted by Order dated.
When the Writ was served on the spouses , instead of vacating the two lots, they filed
separate petitions before the Court of Appeals, assailing the validity of the Writ of
Court of Appeals dismissed the consolidated petitions for lack of merit


1 WON as buyers in good faith the Spouses Paderes and Spouses Bergado have
superior right over the MICC. NO


WON they are still entitled to redeem the properties. NO

WON their respective houses should not have been included in the auction sale of the
mortgaged properties;
WON Banco Filipino violated Section 6, Rule 39 of the Rules of Court when only a
Motion to enforce the Writ of Possession was filed although it was already 8 years
since the RTC Order granting its petition became final.

Ruling: NO

That petitioners purchased their properties from MICC in good faith is of no moment. The
purchases took place after MICCs mortgage to Banco Filipino had been registered in
accordance with Article 2125 of the Civil Code and the provisions of P.D. 1529 (property
registry decree). As such, under Articles 1312 and 2126 of the Civil Code, a real right or lien
in favor of Banco Filipino had already been established,

Cited at least two cases - Philippine National Bank v. Mallorca,- Sale or transfer
cannot affect or release the mortgage. A purchaser is necessarily bound to
acknowledge and respect the encumbrance to which is subjected the
purchased thing. a recorded real estate mortgage is a right in rem, a lien on
the property whoever its owner may be. All subsequent purchasers thereof
must respect the mortgage, whether the transfer to them be with or without
the consent of the mortgagee. For, the mortgage, until discharge, follows
the property.

Roxas v. Buan26 - As transferee, he steps into the latter's shoes. Thus, in the
instant case, considering that the property had already been sold at public
auction pursuant to an extrajudicial foreclosure, the only interest
that may be transferred by Valentin to Roxas is the right to redeem it within the
period prescribed by law. purchaser's right of possession is recognized only
as against the judgment debtor and his successor-in-interest but not
against persons whose right of possession is adverse to the latter.

The debtor in extra-judicial foreclosures under Act No. 3135, or his successor-in-interest,
has, one year from the date of registration of the Certificate of Sale with the Registry of
Deeds, a right to redeem the foreclosed mortgage,28 hence, petitioners, as MICCs
successors-in-interest, had one year from the registration of the Certificate of Sale on July
29, 1985 or until July 29, 1986 for the purpose. Petitioners, however, failed to do so.
Ownership of the subject properties was thus consolidated in favor of Banco Filipino. It is
settled that the buyer in a foreclosure sale becomes the absolute owner of the
property purchased if it is not redeemed during the period of one year after the
registration of the sale. As such, he is entitled to the possession of the said property
As to alleged new contract, SC said there was no contract perfected in the correspondences
between the bank and the spouses.

A reading of the above-quoted correspondence reveals the absence of both a definite offer and
an absolute acceptance of any definite offer by any of the parties.
The letters dated October 17, 1996 and November 4, 1996, signed by petitioners counsel, while
ostensibly proposing to redeem the foreclosed properties and requesting Banco Filipino to

suggest a price for their repurchase, made it clear that any proposal by the bank would be
subject to further action on the part of petitioners.
The letter dated October 25, 1996 signed by Luz Dacasin, Assistant Vice-President of Banco
Filipino, merely invited petitioners to engage in further negotiations and does not contain a
recognition of petitioners claimed right of redemption or a definite offer to sell the subject
properties back to them.
Petitioners emphasize that in item no. 3 of their letter dated November 8, 1996 they committed
to "subject the properties (house and lot) to a real-estate mortgage with the bank so that the
amount to be loaned will be used as payment of the properties to be redeemed." It is clear from
item no. 1 of the same letter, however, that petitioners did not accept Banco Filipinos valuation
of the properties at P7,500.00 per square meter and intended to "have the amount

Here, the record clearly shows that petitioners purchased their respective houses from
MICC, as evidenced by the Addendum to Deed of Sale dated October 1, 1983 and the Deed
of Absolute Sale dated January 9, 1984.
Being improvements on the subject properties constructed by mortgagor MICC, there is no
question that they were also covered by MICCs real estate mortgage following the terms of
its contract with Banco Filipino and Article 2127 of the Civil Code:
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing

Court categorically held that the right of the applicant or a subsequent purchaser to request
for the issuance of a writ of possession of the land never prescribes:
Manlapas and Tolentino vs. Lorente [48 Phil. 298 (1925)], which has not yet been
abandoned, that the right of the applicant or a subsequent purchaser to ask for the
issuance of a writ of possession of the land never prescribes. . .
Sta. Ana v. Menla - In special proceedings the purpose is to establish a status,
condition or fact; in land registration proceedings, the ownership by a person or a
parcel of land is sought to be established. After the ownership has been proved and
confirmed by judicial declaration, no further proceeding to enforce said ownership is
necessary, except when the adverse or losing party had been in possession of the
land and the winning party desires to oust him therefrom

However, they are not without remedy. As reflected in the challenged Court of Appeals decision,
under Section 8 of Act No. 3135, as amended, petitioners, as successors-in-interest of
mortgagor MICC, have 30 days from the time Banco Filipino is given possession of the subject
properties to question the validity of the auction sale under any of the two grounds therein
stated by filing a petition to set aside the same and cancel the writ of possession

Banco Filipino Savings and Mortgage Bank vs. CA

G.R. No. 143896, July 8, 2005, 463 SCRA 64

Facts: On Dec. 20, 1993, Santiago (Isabela) Memorial Park (SANTIAGO)filed a

complaint for redemption and specific performance against Banco Filipino (BANK).
SANTIAGO alleged that the BANK foreclosed the mortgage and became the highest
bidder in the sale. The Certicate of Sale was inscribed at the back of the TCT on Jan.
21, 1991. On Aug. 6, 1991, SANTIAGO offered to repurchase the property at P700k
which was the start of negotiation between the 2. SANTIAGO was given up to the
end of March 1992 to negotiate and make special arrangement for any satisfactory
plan of payment for the redemption. On Jan. 23, 1992, the Deputy Liquidator
directed SANTIAGO to remit at least P50k to the BANK to manifest its willingness to
redeem. On Jan. 20, 1993, SANTIAGO increased its offer to P1M.But the BANK
demanded P5.8M.
Issue: Whether or not SANTIAGO can redeem the property.
Held: NO. SANTIAGO has no cause of action for redemption against petitioner. The
right of redemption should be exercised within the specified time limit, which is one
year from the date of registration of the certificate of sale. The redemptioner should
make an actual tender in good faith of the full amount of the purchase price. In case
of disagreement over the redemption price, the redemptioner may preserve his
right of redemption through judicial action which in every case must be filed within
the one-year period of redemption. The filing of the court action to enforce
redemption, being equivalent to a formal offer to redeem, would have the effect of
preserving his redemptive rights and freezing the expiration of the one-year
period. In this case, the period of redemption expired on Jan. 21, 1992. The
complaint was filed on Dec. 20, 1992. SANTIAGO should have filed the complaint
before Jan. 21, 1992.
Moreover, while the complaint alleges that SANTIAGO made an offer to redeem the
subject property within the period of redemption, it is not alleged in the complaint
that there was an actual tender of payment of the redemption price as required by
the rules. It was alleged that SANTIAGO merely made an offer of P700k as
redemption price, which however, as stated in complaint, the redemption money
was the total bank claim of P925,448.17 plus lawful interest and other allowable
expenses incident to the foreclosure proceedings. Thus, the offer was even very
much lower than the price paid by petitioner as the highest bidder in the auction
Also, there was no categorical allegation in the complaint that the original period of
redemption had been extended. Assuming arguendo that the period for redemption
had been extended, i.e., up to end of March 1992, still private respondent failed to
exercise its right within said period.

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