1. MONTEVIRGEN,vs.COURT OF APPEALS G.R. No.

L-44943 March 17, 1982

DE CASTRO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals promulgated on
June 8, 1976 affirming in toto the Order of the Court of First Instance of Cavite, Branch III in
Civil Case No. N-1609, promulgated on September 17, 1974.
The factual background of the case is as follows:
Petitioners Montevirgen filed an action against respondent-spouses Serafin Abutin and Carmen
Senir in the Court of First Instance of Cavite, Branch III, for the annulment of a deed of sale with
pacto de retro, over a parcel of land situated in Barrio Alima, Bacoor, Cavite, title to which was
transferred to respondents upon the registration of the deed of pacto de retro sale. On July 1,
1971, the trial court, by virtue of the agreement reached by the parties, rendered a decision
declaring the transaction an equitable mortgage and fixing a period of ten (10) months from July
1, 1971 within which the petitioners must pay their obligation with legal interest, otherwise
execution would follow. 1
Petitioners having failed to pay their obligation within the ten-month period, respondents moved
for execution of the decision of July 1, 1971. Petitioners opposed the motion for execution
alleging that there must be a foreclosure of mortgage upon failure to redeem and not an outright
execution sale. Said opposition was denied by the trial court and an Order of Execution was
issued on May 10, 1972. Upon implementation of said order, the Clerk of Court issued two writs
of execution, the first, directing the Provincial Sheriff of Cavite to levy on the properties of
petitioners to satisfy the sum of P57,500.00 plus legal interest of 12% thereon commencing from
February 2, 1969 and sum of P11,104.32 plus legal interest of 12% to commence from May 15,
1969; and second, directing the Provincial Sheriff to sell at public auction the described
properties with all the improvements existing thereon.
Petitioners moved to quash the writ of execution alleging that said writ was at variance with the
decision, firstly, because the decision merely directed the imposition of legal interest which is
6% per annum and secondly, because it included the new construction on the lot in question.
On September 8, 1972, the lower court denied the motion to quash writ of execution. The
Provincial Sheriff accordingly executed the writs. Upon motion filed by respondents, the sale
was confirmed by the trial court in an Order dated September 25, 1972.
On October 5, 1972, petitioners filed a Motion to Annul the Sheriff's Certificate of Sale alleging
again that the writ of execution was at variance and contrary to the decision and at the same
time calling attention to the fact that on September 21, 1972 respondents demolished the old
house in the subject premises. In an order dated October 20, 1972, the trial court granted
petitioner's Motion and ordered the writ of execution to be amended so "that the new
construction may not be the object of the occupation by the defendant and that the interest
mentioned therein which is legal interest, must be 6%."

Respondents went to the Court of Appeals on certiorari (docketed as CA-G. R. No. SP-01813)
alleging that the confirmation of the sale on September 25, 1972 divested the trial court of its
jurisdiction and therefor its order amending the writ of execution was issued without jurisdiction.
The Court of Appeals dismissed the petition in its Resolution of June 11, 1972. On appeal to this
Court, this Court denied the petition for lack of merit in an Order dated November 6, 1973.
Motion for reconsideration was again denied on December 7, 1973.
On July 24, 1974, respondents filed in the Court of First Instance another motion for execution
sale on the ground that the previous auction sales conducted were declared void either from
failure to conform with the judgment, or with the requirements of the law in the conduct of
auction sales. This was opposed by petitioners on August 7, 1974 with prayer for the
cancellation of T.C.T. No. 35236 then registered in the name of respondents, and the issuance
of a new title in their names subject to equitable mortgage right of respondents. Replying to the
opposition, respondents asked for the enforcement of the judgment of July 1, 1971 by asking for
an auction sale. In resolving the issues posed, the trial court held:
Under the circumstances this Court holds that plaintiffs cannot demand reconveyance and there
is even no need for an auction sale of this property since this property was already titled in the
name of the defendants as early as February 24, 1969 even before this action was instituted.
xxx xxx xxx
In the case at bar, the foreclosure sale effected by the Provincial Sheriff was a ceremonial futility
because as may be gleaned in the Decision the only right recognized in favor of plaintiffs
Socorro Montevirgen was to repurchase the property within the 10 month period prescribed
therein; if they had done so, then the defendants would have been ordered to reconvey the
property to the plaintiffs; having failed to do so, they have lost the equity recognized in their
favor by the Decision. ...
WHEREFORE, in view of the foregoing, this Court denied defendants' Motion for Auction Sale
as well as the reliefs prayed for by plaintiffs in their opposition on August 7, 1974 and hereby
declares that the execution of the Decision of July 1, 1971 does not require the holding of any
auction sale; that the auction sale previously held were all unnecessary; that upon failure of
plaintiffs to pay their obligation within the ten month period from July 1, 1971, the absolute
ownership over the land with the old construction described in the Deed of Pacto de Retro Sale,
and now registered in the name of defendants under T.C.T. No. 35236 of the Register of Deeds
of the Province of Cavite has become consolidated in the defendants, and relieved of plaintiffs
equity. Plaintiff's right to remain in possession in a concept other than owner should be threshed
out in an unlawful detainer or other appropriate possessory action including the fixing of rentals
as this suit was filed for the purpose only of determining the nature of the Deed of Sale with
Pecto de Retro. 2 (Emphasis supplied)
On appeal to the Court of Appeals, the trial court's order of September 17, 1974 was affirmed in
toto in its decision of June 8, 1976, holding as follows:

But this notwithstanding, the points sticking out like a sore thumb in appellants thesis is, that he
has not to this date paid his obligation to the appellees within the 10 month period as required in
the judgment. This in fact gave occasion for the judgment to become executory. As said earlier,
the judgment was the result of an agreement by and between the parties and this being so, the
judgment became executory at the end of the 10 month period. When it was executed, the
execution may be reasonably considered as a foreclosure of the mortgage. The appellant did
not seek to redeem the same as he has not to this date moved in that direction. Therefore, his
right to redeem has long since expired. 3
Upon denial of these two Motions for Reconsideration dated August 9, 1976 and October 18,
1976, petitioners filed this instant petition raising questions of law in which, if reduced to
essential the main issue would be whether or not respondent Court of Appeals correctly affirmed
the trial court's Order of September 17, 1974 interpreting, in effect, its Decision of July 1, 1971.
Pursuant to Our Resolution of March 9, 1977, this Court issued a Temporary Restraining Order
restraining private respondents from entering into any transaction affecting or disposing of the
land in question.
The appeal is impressed with merit.
1. Perusal of the Court of Appeals' decision affirming in toto the trial court's order of September
17, 1974, shows that it has interpreted the trial court's decision of July 1, 1971 to mean that
upon failure of the petitioners to pay their obligation within the period as fixed in the judgment,
petitioners also lost the right to redeem the property and as such, the absolute ownership over
the subject premises has become consolidated in the respondents.
We do not agree with the respondent court's interpretation. It contradicts the agreement
between the parties and the declaration in the decision that the contract between the parties
was an equitable mortgage, not a pacto de retro sale. It would produce the same effect as a
pactum commissurium, a forfeiture clause that has traditionally been held as contrary to good
morals and public policy and, therefore, void. 4
Thus, in the analogous case of Guanzon vs. Argel 5 this Court speaking thru Justice JBL Reyes,
affirmed the lower court's decision denying petitioner Guanzon's prayer that the Provincial
Sheriff be ordered to execute the necessary conveyance of the property in question in her favor
and that she be placed in the possession thereof, for failure of private respondents Dumaraogs
to pay the loan of P1,500 within the period also as specified in the judgment. As therein held:
In no way can the judgment at bar be construed to mean that should the Dumaraogs fail to pay
the money within the specified period then the property would be conveyed by the Sheriff to
Guanzon. Any interpretation in that sense would contradict the declaration made in the same
Judgment that the contract between the parties was in fact a mortgage and not a pacto de retro
sale. The only right of a mortgagee in case of non-payment of a debt secured by mortgage
would be to foreclose the mortgage and have the encumbered property sold to satisfy the
outstanding indebtedness. The mortgagor's default does not operate to vest in the mortgagee
the ownership of the encumbered property, for any such effect is against public policy as
enunciated by the Civil Code. 6

The declaration, therefore, in the decision of July 1, 1971 to the effect that absolute ownership
over the subject premises has become consolidated in the respondents upon failure of the
petitioners to pay their obligation within the specified period, is a nullity, for consolidation of
ownership is an improper and inappropriate remedy to enforce a transaction declared to be one
of mortgage. 7 It is the duty of respondents, as mortgagees, to foreclose the mortgage if he
wishes to secure a perfect title to the mortgaged property if he buys it in the foreclosure sale. 8
2. Neither is the petitioners' right as a mortgagor in equity affected by the fact that the subject
property was already titled in the name of respondents as early as 1969 even before the action
was instituted. In the first place, it must be borne in mind that this equitable doctrine that deems
a conveyance intended as security for a debt to be, in effect an equitable mortgage, operates
regardless of the form of the agreement chosen by the contracting parties as the repository of
their will. Equity looks through the form and considers the substance, and no kind of
engagement can be snowed which will enable the parties to escape from the equitable doctrine
adverted to. In other words, a conveyance of land, accompanied by registration in the name of
the transferee and the issuance of a new certificate, is no more secured from the operation of
this equitable doctrine than the most informal conveyance that could be devised. 9
In the second place, the circumstance that the land has been judicially registered under the
Torrens System does not change or affect civil rights and liabilities with respect thereto except
as expressly provided in the Land Registration Act (sec. 70); and as between the immediate
parties to any contract affecting such lands, their rights will generally be determined by the
same rules of law that are applicable to unregistered land. 10
Finally, the circumstance that the original transaction was subsequently declared to be an
equitable mortgage must mean that the title to the subject land which had been transferred to
private respondents actually remained or is transferred back to petitioners herein as ownersmortgagors, conformably to the well-established doctrine that the mortgagee does not become
the owner of the mortgaged property because the ownership remains with the mortgagor (Art.
2088, New Civil Code). This is precisely the reason why this Court issued in its Resolution of
March 9, 1977 a Temporary Restraining Order, restraining private respondents from entering
into any transaction affecting or disposing the land in question.
IN VIEW OF THE FOREGOING, the decision of respondent Court of Appeals dated June 8,
1976 affirming in toto the trial court's order of September 17, 1974 is hereby reversed. The
Temporary Restraining Order issued pursuant to Our resolution of March 9, 1979 is hereby
made permanent.
The Register of Deeds of the Province of Cavite is hereby ordered to cancel T.C.T. No. 35236
registered in the name of private respondents and to issue a new title in the name of herein
petitioners subject to the equitable mortgage rights of private respondents.

2. SPOUSES UYvs. COURT OF APPEALS G.R. No. 109197

June 21, 2001

MELO, J.:
Before us is a petition seeking reversal of the decision of the Court of Appeals dated December
21, 1992 and its resolution dated March 3, 1993 denying reconsideration. The dispositive
portion of the Court of Appeals decision, which affirmed that of Branch 168 of the Regional Trial
Court of the National Capital Region stationed in Pasig rendered in favor of private respondents
herein, reads as follows:
WHEREFORE, in view of all the foregoing, the judgment, except for the portion thereof which
states "within ninety (90) days from receipt of this decision," which should be changed to "within
ninety (90) days from finality of this decision," is hereby AFFIRMED, with costs against the
appellants.
SO ORDERED.
The relevant facts are chronicled as follows:
Private respondents Nicanor de Guzman, Jr. and Ester de Guzman were the owners of three
lots, covered by Transfer Certificates Title No. 9052, 9053, and 9054, located in Greenhills
Subdivision, San Juan, Metro Manila. In 1971, they constructed, at a cost of P3 million, a 1,200
square meter residential house on two of the lots. These lots, covered by TCT Nos. 9052 and
9053, had a combined area of approximately 1,626 square meters. In 1987, the market value of
the lots already ranged from P4,000 to P5,000 per square meter while the house was worth
about P10 million.
Sometime in 1987, Nicanor de Guzman, Jr. decided to run for the position of Representative of
the Fourth District of Nueva Ecija. Sometime in April 1987, however, de Guzmans campaign
fund began to run dry and he was compelled to borrow P2.5 Million from Mario Siochi. The de
Guzman spouses were required to sign, as a sort of collateral, a deed of sale dated April 10,
1987 whereby they purportedly sold the lots covered by TCT No. 9052, 9053, and 9054, along
with the improvements thereon, to Siochi. After the execution of the "deed of sale," de Guzman
was able to obtain two more loans of P500,000.00 each from Siochi. No additional collateral
was required, the "deed of sale" being more than sufficient to cover the original P2.5 million loan
and the additional P1 million loan. Despite the "deed of sale," however, the de Guzmans
remained in possession of the property.
Aside from these loans, de Guzman also owed Siochi several debts, the latter having paid the
following, among other debts, of de Guzman: a debt to Filipinas Bank in the amount of
P1,561,460.00; P2 Million in favor of Ricardo Silverio; the levy on execution in favor of Mr.
Zuzuareggui in the sum of P245,500; the P100,000 fee of de Guzmans lawyer; and the realty
taxes on the property amounting to P97,292.32 and P51,703.12.

To repay these other loans, the de Guzmans agreed with Siochi to have their 1,411 square
meter vacant lot, covered by TCT No. 9054 (which had already been "sold" to Siochi under the
April 10, 1987 deed of sale), sold. The sale of the same amounted to P4.8 Million, the proceeds
of which were all retained by Siochi.
In the meantime, and without the knowledge of the de Guzman spouses, Siochi had TCT No.
9052 and 9053 cancelled, on the basis of the deed of sale executed by the spouses on April 10,
1987, and had new Torrens titles issued in his name. On June 20, 1987, Siochi sold the two lots
and the improvements thereon for P2.75 Million to herein petitioners Jayme and Evelyn Uy.
Thereafter, petitioners had Siochis titles over the lots cancelled and had new titles, TCT No.
277-R and 278-R, issued over the property. On July 1, 1988, petitioners entered into a contract
of lease with option to buy with Roberto Salapantan.
Salapantan was, however, unable to obtain possession of the lots since the premises were
occupied by the de Guzman spouses. Consequently, Salapantan filed a complaint for ejectment
on August 1, 1988 against the de Guzman spouses with the Metropolitan Trial Court of San
Juan, Metro Manila. It was only at this time that the de Guzmans discovered the sale of their
house and lot by Mario Siochi to petitioners and the lease executed by petitioners to
Salapantan.
On September 16, 1988, the de Guzmans filed a complaint with the Regional Trial Court of
Pasig against Siochi, Salapantan, and herein petitioners, seeking the reformation of the April 10,
1987 Deed of Absolute Sale to the end that the true intention of the parties therein be expressed
and to remove the cloud cast over TCT No. 9052, and 9053 caused by the June 20, 1987 deed
of sale between Mario Siochi and petitioners and by the issuance of TCT No. 277-R and 278-R
obtained by petitioners by virtue of said deed of sale. The complaint also sought the
reconveyance of the ownership and titles under TCT No. 277-R and 278-R to the de Guzmans.
The complaint, docketed as Civil Case No. 565893, was raffled to Branch 168 of the Regional
Trial Court of Pasig. During the trial of the case, only the de Guzmans and Siochi presented
evidence, petitioners having decided to adopt the evidence presented by Siochi.
On December 28, 1990, the trial court rendered its decision in favor of the de Guzmans,
disposing as follows:
WHEREFORE, in view of all the foregoing, the Court finds for the plaintiff and judgment is
hereby accordingly rendered as follows:
1. Declaring the Deed of Sale dated April 10, 1987, Exhibit "B", executed between plaintiffs and
defendants Mario Siochi and Erlinda Siochi, an equitable mortgage and ordering the plaintiffs to
pay defendant spouses Mario Siochi and Erlinda Siochi the admitted loan therein in the amount
of P2.5 million with legal interest of 12% per annum from April 10, 1987 and the additional
admitted loan of P1,000,000.00 also with legal interest of 12% per annum from May 1987 when
the same was incurred within ninety (90) days upon receipt of this decision;

2. Declaring as null and void the Deed of sale dated June 20, 1987, Exhibit "C", executed
between defendants Mario Siochi and Erlinda Siochi as vendors therein and Jayme O. Uy and
Evelyn C. Uy, as vendees therein;
3. Ordering defendant spouses Jayme Uy and Evelyn Uy to reconvey the questioned properties
to plaintiffs;
4. Ordering the Register of Deeds of San Juan, Metro Manila, to cancel TCT Nos. 277-R and
278-R issued in favor of the defendant spouses Jayme O. Uy and Evelyn Uy and to issue new
titles in the names of the plaintiff spouses Nicanor G. de Guzman, Jr. and Esther de Guzman;
5. Declaring as null and void the Contract of Lease with Option to Buy dated July 1, 1988
executed between defendants Jayme Uy and Evelyn Uy and defendant Roberto Salapantan;
and
6. Ordering defendants to pay plaintiffs attorneys fees in the sum of P100,000.00.
Costs against all defendants.
Aggrieved, petitioners interposed an appeal with the Court of Appeals, docketed therein as CAG.R. CV No. 30935. On December 21, 1992, the appellate court affirmed with a slight
modification as earlier mentioned. Hence, the instant recourse wherein petitioners do not
dispute that the sale by the de Guzmans to Siochi is an equitable mortgage as found by both
the trial court and the appellate court. As incisively stated by the trial court:
Art. 1602 of the New Civil Code provides:
The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending
the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may fairly be inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee
as a rent or otherwise shall be considered as interest which shall be subject to the usury law.
In view of all the foregoing, the Court is convinced and so finds that the questioned deed of sale,
Exhibit "B", is in reality a mere equitable mortgage and not an absolute sale in view of the
following circumstances:

First, the consideration of the sale of P2.5 Million is grossly and unusually inadequate. The
uncontradicted evidence is that the price alone of plaintiffs residential house in 1987 having a
floor area of 1,200 square meters is P10 Million while the two (2) lots having an aggregate area
of 1,620 square meters commanded a price of from P4,000.00 to P5,000.00 per square meter in
1987 the year when the deed of sale was executed, (Art. 1602, par. 1 in relation to Art. 1604,
New Civil Code; Capulong vs. Court of Appeals, 130 SCRA 245). The vacant lot with an area of
1,411 square meters was sold by Siochi at P4.8 Million.
Second, despite the alleged deed of sale, plaintiffs have remained in actual and physical
possession of the litigated property up to the present time (Art. 1602, par. 2, New Civil Code,
Labosan vs. Lacuesta, 86 SCRA 1622) which is a badge of an equitable mortgage.
Third, the uncontradicted evidence is that plaintiffs were driven to obtain the emergency loan
"due to urgent necessity of obtaining funds", (Labosan vs. Lacuesta, 86 SCRA 1622) and they
signed the deed of sale knowing that it did not express their real intention (Art. 1362, New Civil
Code). In fact, additional loans in the total sum of P1 million were extended to plaintiffs by Siochi
even after the execution of said sale without Siochi demanding for any additional security.
Fourth, the evidence has established that plaintiffs had obtained series of loans from defendants
Siochi which is likewise a badge of equitable mortgage (Capulong vs. Court of Appeals, 130
SCRA 245). Defendants Siochi admitted that the sum of P2.5 million, together with the amounts
paid as capital gains tax and documentary stamps and the amount of P245,500.00 paid to
Antonio Zuzuareggui, was treated as loans.
Fifth, defendants Siochi had retained for themselves the entire proceeds of P4.8 million derived
from the sale of plaintiffs vacant lot covered by TCT No. 9054. The uncontradicted evidence is
that defendants Siochi had sought the permission of plaintiffs to sell said lot notwithstanding the
questioned deed of sale.
Sixth, the admission of defendants Siochi in having granted series of loans to plaintiffs before
and after the execution of the questioned deed of sale apart from circumstances that the
emergency loan of P2.5 million was specially treated as loan by defendants Siochi, indubitably
show that the deed of sale was in reality an equitable mortgage.
However, while petitioners do not question that the April 10, 1987 Deed of Sale is an equitable
mortgage and not a sale, they make much capital out of the fact that when they purchased the
property, Mario Siochi already had Torrens titles issued in his name. Petitioners now claim that
they are purchasers in good faith who had the right to rely on the Torrens titles issued in Siochis
name. They likewise claim that the appellate court erred in not upholding the indefeasibility and
conclusiveness of the titles issued in their names.
Petitioners appeal must necessarily fail.
Whether petitioners are innocent purchasers in good faith and for value is a factual matter,
which cannot be raised in a petition for review on certiorari under Rule 45. Section 2 of Rule 45
(now Section 1 of Rule 45 of the 1997 Rules of Civil Procedure) provides that "[o]nly questions
of law may be raised in the petition and must be distinctly set forth." It is a basic rule that only

questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court
(Abalos vs. CA, 317 SCRA 14 [1999]). This Court is not a trier of facts; the resolution of factual
issues being the function of lower courts (Valmonte vs. CA, 303 SCRA 278 [1999]).
Moreover, it is a well-settled rule that the factual findings of the Court of Appeals are conclusive
on the parties and not reviewable by the Supreme Court and they carry even more weight
when the Court of Appeals affirms the factual findings of the trial court (Borromeo vs. Sun, 317
SCRA 176 [1999]), as in this case.
As stated by the trial court:
The theory of defendants Uy that TCT Nos. 277-R and 278-R obtained by them are
indefeasible, cannot be sustained under the circumstances established by the evidence. Said
defendants acted with culpable negligence amounting to a constructive fraud in having
purchased the questioned properties which have been in actual possession of plaintiffs without
ascertaining the extent of the titles and ownership of their sellers, the defendants Siochi. If
defendants Uy had been influenced to buy the questioned house and lots by the representations
of defendants Siochi that they owned the same, defendants Uy were not totally ignorant of the
actual circumstances because they cannot claim in conscience that they had not known or did
not have the means to know the real facts or state of titles and ownership of defendants Siochi.
Plaintiffs have been in actual possession of the house and lots and defendants Uy had they
acted diligently, could have easily ascertained from plaintiffs themselves the state of titles and
ownership of the questioned properties they had purchased. Defendants Uy are, therefore,
prevented under the circumstances to set up their alleged titles, TCT Nos. 277-R and 278-R,
against plaintiffs titles and ownership.
Echoing the trial court, the Court of Appeals held that:
Appellants contend that the spouses Uy "are innocent purchasers in good faith and for value"
since they were not aware of any flaw or defect in the tile of Siochi. However, the contrary is
true. The titles they obtained could not be an easy scheme for them to defraud and deprive the
appellees of their rightful ownership of the litigated property. Appellants Uy were not buyers in
good faith simply because they paid the consideration of the sale to appellant Siochi. Rather,
they were buyers in bad faith because they were fully aware that that their sellers, the spouses
Siochi, were not in possession of the property at the time they purchased it. Appellants Uy
deliberately did not look beyond the title of Siochi. Ordinary and simple prudence dictates that
they should have verified the nature of ownership of the sellers beyond the deed of sale,
considering the amount involved, the extent of the property, and knowing that the sellers were
not in possession of the property sold, and thus, could not have delivered the actual and
physical possession thereof.
Thus, while it is true, as asserted by petitioners, that a person dealing with registered lands
need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or
mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and
then claim that he acted in good faith under the belief that there was no defect in the title of the
vendor or mortgagor. His mere refusal to face up to the fact that such defect exists, or his willful

closing of his eyes to the possibility of the existence of a defect in the vendors or mortgagors
title, will not make him an innocent purchaser for value, if it afterwards develops that the title
was in fact defective, and it appears that he had such notice of the defect as would have led to
its discovery had he acted with the measure of precaution which may be required of a prudent
man in a like situation (Crisostomo vs. CA, 197 SCRA 833 [1991]).
In Torres vs. CA (186 SCRA 672 [1990]), this Court had occasion to state that where there are
circumstances in a case which should have put a party on guard and prompted him to
investigate the property being mortgaged such as the value of the property, its principal value
being its income potential in the form of monthly rentals being located at the corner of Quezon
Boulevard and Raon Street, Manila, and the registered title not yielding any information as to
the amount of rentals due from the building, much less on who is collecting them, or who is
recognized by the tenants as their landlord it was held that any prospective buyer or
mortgagee of such a valuable building and land at the center of Manila, if prudent and in good
faith, is normally expected to inquire into all these and related facts and circumstances. For
failing to conduct such an investigation, a party would be negligent in protecting his interests
and cannot be held as an innocent purchaser for value.
Admittedly, petitioners are engaged in the buying and selling of real estate property.
Paraphrasing the Courts statements in Uy vs. CA, (246 SCRA 703 [1995]), we presume
petitioners are experienced in their business. Ascertainment of the status and condition of
pieces of property offered to them for sale must be a standard and indispensable part of their
operations. Surely, they cannot simply rely on an examination of a Torrens certificate to
determine what the subject property looks like as its condition is not apparent in the document.
The land might be in a depressed area. There might be squatters on it. It might be easily
inundated. It might be an interior lot, without convenient access. These and other similar factors
determine the value of the property and so should be of practical concern to the petitioners.
Curiously, petitioners now claim that they merely relied on the certificate of title to persuade
them that the realty offered was acceptable. It would have been so easy for them to undertake
an ocular inspection of the land which, after all, was not in some remote or forbidding
wilderness.
Likewise, the Court finds it unusual that the property was sold to petitioners for only P2.75
Million when, as adverted to earlier, the house alone was already worth P10 Million at that time.
This circumstance also militates against petitioners claim that they are innocent purchasers.
Lastly, the burden of proving the status of a purchaser in good faith and for value lies upon him
who asserts that standing. In discharging the burden, it is not enough to invoke the ordinary
presumption of good faith that everyone is presumed to act in good faith. The good faith that is
here essential is integral with the very status that must be proved (Baltazar vs. CA, 168 SCRA
354 [1988]). Petitioners have failed to discharge that burden.
With the conclusion that petitioners are not innocent purchasers in good faith and for value, they
could not have acquired ownership over the property in question. As found by both the trial court
and appellate court, the April 10, 1987 deed of sale executed by the de Guzmans and Siochi
was an equitable mortgage, hence, the titles to the house and lots which were sold by Siochi to

petitioners actually remained with the mortgagors, the de Guzmans. The circumstance that the
original transaction was subsequently declared to be an equitable mortgage must mean that the
title to the subject land which had been transferred to private respondents actually remained or
is transferred back to petitioners herein as owners-mortgagors, conformably with the wellestablished doctrine that the mortgagee does not become the owner of the mortgaged property
because the ownership remains with the mortgagor (Montevirgen vs. CA, 112 SCRA 641
[1982]). The issuance of a certificate of title in Siochis favor did not vest upon him ownership of
the property. Neither did it validate the sale made by Siochi to petitioners, which is null and void.
Article 2088 of the Civil Code provides that the "the creditor cannot appropriate the things given
by way of pledge or mortgage, or dispose of them." Being null and void, the sale by Siochi of the
questioned property to petitioners, who are not innocent purchasers, produced no legal effects
whatsoever. Quod nullum est, nullum producit effectum.
WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit.
No pronouncement as to costs.

3. Crisostomo vs CA

Petitioner Estela L. Crisostomo contracted the servicesof respondent Caravan Travel and
ToursInternational, Inc. to arrange and facilitate herbooking, ticketing, and accommodation in a
tour dubbed Jewels of Europe. A 5% discount on the total cost of P74,322.70 which included
the airfare wasgiven to the petitioner. The booking fee was also waived because petitioners
niece, Meriam Menor,was respondents ticketing manager.
On June 12, 1991, Menor went to her aunts residenceto deliver petitioners travel documents
and planetickets. In return, petitioner gave the full payment forthe package tour. Menor then told
her to be at theNAIA on Saturday, June 15, 1991, two hours before herflight on board British
Airways. Without checking hertravel documents, petitioner went to NAIA and to herdismay, she
discovered that the flight she wassupposed to take had already departed the previousday. She
learned that her plane ticket was for the flightscheduled on June 14, 1991. She called up Menor
tocomplain and Menor suggested upon petitioner to takeanother tour British Pageant.
Petitioner was asked a new to pay US$785.00. Petitioner gave respondentUS$300 as partial
payment and commenced the trip.
ISSUE:
Whether or not respondent Caravan did notobserve the standard of care required of a
commoncarrier when it informed the petitioner wrongly of theflight schedule.
HELD:
The petition was denied for lack of merit. Thedecision of the Court of Appeals was affirmed.A
common carrier is defined under Article 1732 of theCivil Code as persons, corporations, firms

orassociations engaged in the business of carrying ortransporting passengers or goods or both,

by land,water or air, for compensation, affecting their servicesto the public. It is obvious from the
above definitionthat respondent is not an entity engaged in thebusiness of transporting either
passengers or goodsand is therefore, neither a private nor a commoncarrier. Respondent did
not undertake to transportpetitioner from one place to another since its covenantwith its
customers is simply to make travel arrangements in their behalf. Respondents services as a
travel agency include procuring tickets andfacilitating travel permits or visas as well as
bookingcustomers for tours. It is in this sense that the contractbetween the parties in this case
was an ordinary onefor services and not one of carriage.The standard of care required of
respondent is that of a good father of a family under Article 1173 of the CivilCode. This connotes
reasonable care consistent withthat which an ordinarily prudent person would haveobserved
when confronted with a similar situation. It isclear that respondent performed its prestation
underthe contract as well as everything else that wasessential to book petitioner for the tour.
Hadpetitioner exercised due diligence in the conduct of heraffairs, there would have been no
reason for her tomiss the flight. Needless to say, after the travel paperswere delivered to
petitioners, it became incumbentupon her to take ordinary care of her concerns.
Thisundoubtedly would require that she at least read thedocuments in order to assure herself of
the importantdetails regarding the trip.

5. REYES vs. NEBRIJA [G.R. No. L-8720. March 21, 1956.]

DECISION
BAUTISTA ANGELO, J.:
This is an action brought before the Court of First Instance of La Union to compel Defendants to
execute in favor of Plaintiffs the necessary deed of conveyance of a parcel of land in
accordance with the stipulation agreed upon and to pay damages in the amount of P5,000.
Defendants, in their answer, set up as a defense that the agreement on which Plaintiffs base
their cause of action is null and void and that the amounts claimed by the Plaintiffs represent
usurious interests and, by way of counterclaim, they asked that Plaintiffs be ordered to pay
P5,000 as damages and to return the palay and amounts unduly paid by them to said Plaintiffs
as partial payment of the principal obligation. Plaintiffs submitted a reply traversing the special
defenses and counterclaim set up by Defendants in their answer.
On December 1, 1954, Plaintiffs and Defendants, through their counsel, submitted to the court a
stipulation of facts wherein they agreed to submit as evidence the pleadings they have
respectively filed in the case with their corresponding exhibits and prayed that judgment be
rendered on the pleadings and, on the strength of this stipulation, the court rendered decision
holding that the agreement on which Plaintiffs predicated their right to a conveyance of the land
in question is null and void it containing a covenant which is known in law as pactum
commissorium and as such is contrary to law, morals and public policy. As a consequence, the
court dismissed the case with costs against the Plaintiffs, without prejudice to their right to

proceed to collect their claim as ordinary mortgage creditors under the provisions of section 7,
Rule 87, of the Rules of Court. From this decision, Plaintiffs interposed the present appeal.
The agreement on which the action of the Plaintiffs is predicated contains the following
covenant:chanroblesvirtuallawlibrary
That the conditions of this mortgage are that if I, Eduvigis Hernandez or any heirs cannot
redeem this mortgage in the same amount plus twelve (12%) per cent per annum interest, then
this considered as full payment of this parcel of land without further action in Court, within two
(2) years from that date of this contract.
Interpreting the above covenant, the lower court concluded that it embodies a pactum
commissorium for the reason that it stipulates that in case the mortgagor fails to redeem the
mortgage within the period agreed upon, the consideration of the mortgage shall be considered
as payment of the land which thereby becomes the property of the mortgagee. To this we agree.
This is the only interpretation that can be given to the terms of the covenant especially the
phrase that the money taken shall be considered as full payment of this parcel of land without
further action in court. This means that upon failure or redemption, the land automatically
passes to the mortgagee. This is what is condemned by Articles 1859 and 1884 of the old Civil
Code, as has been interpreted by this Court in a number of cases. Thus, in Tan Chun Tic vs.
West Coast Life Insurance Co. and Locsin, 54 Phil. 361, this Court
said:chanroblesvirtuallawlibrary The stipulation in the mortgage that the land covered thereby
shall become the property of the mortgagee upon failure to pay the debt within the period
agreed upon, constitutes a pactum commissorium, and is therefore null and void. And in a
recent case wherein in one of the documents involved it was stipulated that upon failure of a
party to exercise his right to redeem title to the land shall pass to and become vested,
absolutely, in the party of the second part, this Court hinted that if that clause would be
construed as giving the mortgagee the right to own the property upon failure of the mortgagor to
pay the loan, it would be a pactum commissorium which is unlawful and void (Pedro Guerrero
vs. Serapion de Yigo, 96 Phil., 37).
Appellants, however, try to differentiate the present case from the ones above cited by laying
stress on the particular circumstance that in said cases the mortgagor authorized the mortgagee
to take over the property and dispose of it upon failure to pay the debt within the period agreed
upon, whereas in the present case there is no such authority no implication in the terms of the
covenant in question. This claim is untenable for said covenant clearly stipulates that upon
failure to redeem the mortgage the transaction shall automatically become one of sale without
further action in Court. This is a typical case of a pactum commissorium.
The cases of Dalay vs. Aquiatin and Maximo, 47 Phil., 951 and Kasilag vs. Rodriguez, 69 Phil.,
217 invoked by Appellants are not applicable because the terms of the covenant therein
involved were couched in a manner different from those of the present covenant. In the first
case, the parties stipulated that if the debtor cannot pay the debt when the date agreed upon
comes, the same shall be paid with the lands given as security and this Court held that such
stipulation does not violate the law (Article 1859 of the old Civil Code) because it does not
authorize the creditor to appropriate the property pledged or mortgaged, nor to dispose thereof,

and constitutes only a promise to assign said property in payment of the obligation if, upon its
maturity, it is not paid. And in the second case, the agreement was that if the mortgagor shall
fail to redeem the mortgage she would execute a deed of absolute sale of the property in favor
of the mortgagee which does not give automatic ownership to the latter but rather constitutes a
mere promise of assignment of the property for which reason the Court held that the same is
valid and legal. Evidently, these two cases cannot be considered as authority for the
interpretation of the covenant in question.
The decision appealed from is affirmed, with costs against Appellants.

6. DALAY vs. AQUIATIN G.R. No. 20132

September 22, 1923

ROMUALDEZ, J.:
Ciriaco Villarin, being the owner of six parcels of land described in the complaint, executed on
July 4, 1917, a document (Exhibit A) in favor of Eugenio Gomez, acknowledging a debt, one of
whose clauses is as follows:
. . . and if I cannot pay the aforesaid amount, when the date agreed upon comes, the same shall
be paid with the lands given as security, the lot and house and lands described in the
aforesaid seven documents.
As the period so stipulated elapsed without Ciriaco Villarin having paid the debt, Eugenio
Gomez believing himself entitled to do so, executed a document Exhibit C on September 30,
1917, in favor of Juan Dalay, where the transfer is stated as follows:
I hereby state that I have received from Mr. Juan Dalay of the municipality of Paete, the sum of
P2,300; and for this reason I hereby transfer and sell to him the lands to me paid by Ciriaco
Villarin in accordance with the foregoing document and the title deeds of the aforesaid lands
hereto attached. Dated and signed at Pagsanjan, Laguna, September 30, 1917, Eugenio
Gomez. Acknowledged before a notary public on January 1, 1919.
By virtue of this conveyance, Juan Dalay, on the same date it was executed, entered upon the
possession of these lands and is now still in possession thereof.
On October 10, 1917, Ciriaco Villarin, in an affidavit Exhibit B, acknowledged that the title to,
and possession of, and possession of, the aforesaid lands had been transferred in a real and
absolute sale to Eugenio Gomez.
Fifteen days later, that is, on October 25, 1917, Ciriaco Villarin contracted a debt in favor of
Bernardino Aquiatin for which he gave the note set forth in the latter's complaint, filed November
7, 1917, in civil case No. 2536 of the Court of First Instance of Laguna.
After the judgment rendered in that case in favor of Bernardino Aquiatin became final, execution
was issued and levied upon the six parcels aforementioned, among other properties.

Juan Dalay brought this action against Bernardino Aquiatin and the deputy sheriff, Proceso
Maximo, to have himself declared owner of said lands, to forever prohibit the defendants, their
agents and other persons acting in the defendants, their agents and other persons acting in
their behalf, from performing any act tending to carry out the attachment and execution sale of
said realties, and to recover the costs.
The answer of the defendant Aquiatin is a general denial and a special defense wherein he
alleges that the sale upon which the plaintiff Dalay relies is simulated and fraudulent, and that
said plaintiff had not had exclusive possession of, nor title to, said lands.
After trial, the court found that the plaintiff had no cause of action for the reason that he was not,
nor could he have been, the owner of the properties given to him as security of the debt, and
dismissed the complaint, ordering the execution to be carried out upon the lands in question,
and sentencing the plaintiff to pay the costs.
From this judgment, Juan Dalay appeals, assigning as errors the failure of the court to the hold
the documents Exhibits A and B effective as a transfer and absolute waiver of the title to the
lands, and its failure to hold that the plaintiff is the absolute owner thereof and of the
improvements thereon.
This being the issue raised, the question to be decided is whether or not by virtue of the transfer
hereinabove mentioned, Juan Dalay became the owner of the parcels of land in dispute.
There is no question that Ciriaco Villarin was the original owner of these realties. Let us see
whether the contract executed by the latter in favor of Eugenio Gomez (Exhibit A), an the
transfer made afterwards by the latter in favor of Juan Dalay (Exhibit C), and the declaration
made later on by Ciriaco Villarin (Exhibit B) had the legal effect of transferring to Juan Dalay the
full title to these lands.
The document Exhibit A contains, as above stated, the clause which we again quote as follows:
. . . and if I cannot pay the aforesaid amount, when the date agreed upon comes, the same shall
be paid with the lands given as security, the lot and house and lands described in the
aforesaid seven documents.
Is this stipulation violative of the provisions of article 1859 of the Civil Code? Two things are
prohibited by this article, to wit, (a) the appropriation by the creditor of the properties pledged or
mortgaged; and (b) the disposition thereof by the same creditor.
The stipulation above set forth does not authorize either one or the other. Of course it is clear
that it does not authorize the creditor to dispose of the properties mortgaged.
Neither do we find that it authorizes him to appropriate the same. What it says is merely a
promise to pay the debt with such properties, if at its maturity it is not satisfied. It is merely a
promise made by the debtor to assign the property given as security in payment of the debt,
which promise is accepted by the creditor.

There is no doubt that a debtor may make an assignment of his properties in payment of a debt.
(Art. 1175, Civil Code.) And the assignment is not made unlawful by the fact that said properties
are mortgaged, because the title thereto remains in the debtor; nor is a promise to make such
an assignment in violation of the law.
We are, therefore, of the opinion that this case does not come under the provisions of article
1859 of the Civil Code, and therefore said article is not applicable to the stipulation in question.
Upon the expiration of the period for the payment of the debt without the same having been
paid, Eugenio Gomez did not wait nor require Ciriaco Villarin to make a formal assignment of
the mortgaged property in payment of the debt, and transferred the same to Juan Dalay in the
document Exhibit C. And in doing so, Eugenio Gomez did not dispose of property merely
mortgaged, but of property promised to be assigned in payment of the debt which had not been
paid at the expiration of the period fixed for its payment.
Gomez had not, by virtue alone of the promise of assignment of said property, any real right
thereon, but he did have a personal action against Villarin to compel him to execute the proper
deed of assignment. For this reason the conveyance made by Gomez in favor of Dalay was
defective, it having been made in advance of the actual assignment of said property in his favor.
This transfer, however, is not void per se inasmuch as Villarin consented to the said property
passing to Gomez in payment of the debt after the expiration of the period for payment, if the
debt was not paid. There is no question as to the occurrence of the other elements of this
contract made in favor of Dalay, the defect consisting in Villarin not having previously executed
the deed of assignment he had promised.
This defect, which would have been a ground for annulling this transfer made by Gomez in favor
of Dalay, had Villarin brought the proper action, was cured by the act of said Villarin in executing
the document Exhibit B, wherein he acknowledged that the title to, and possession of, said
lands were transferred to Gomez as in a real and absolute sale. This confirmation, valid and
effective under the provisions of article 1311 of the Civil Code, gave full effect to the transfer of
these properties made by Gomez in favor of Dalay.
The allegation of the defendant Aquiatin that this sale in favor of Dalay is simulated and
fraudulent cannot be held proven. It does not appear that when he executed the document
Exhibit A, Ciriaco Villarin was indebted to anybody with the exception of Gomez, nor that he
owed anything to anybody when he executed the document Exhibit B, which cured the defect of
the transfer in favor of Dalay.
As appears from the complaint of Bernardo Aquiatin himself, the debt of Ciriaco Villarin, which is
the subject-matter of the aforecited case No. 2536, was contracted by Villarin on October 25,
1917, about fifteen days after the execution of said document Exhibit B.
We do not find, therefore, in the record sufficient ground for holding fraudulent the transfer of the
lands in question in favor of the herein plaintiff Juan Dalay, who by virtue of said sale became
the absolute owner of these lands before Villarin contracted his debt in favor of Aquiatin and of
course before the filing of the complaint for the recovery of such debt and therefore before the

rendition of the judgment in that case No. 2536; so that when the execution involved in this
action was levied, Ciriaco Villarin, the judgment debtor, was no longer the owner of said parcels
of land.
The judgment appealed from is reversed and the plaintiff Juan Dalay is adjudged the sole and
absolute owner of the lands described in his complaint, and it is ordered that the defendants,
their agents, and other persons acting in their behalf, abstain forever from performing any act
whatsoever tending to carry out the attachment an execution sale complained of, or to enforce
either one in any manner whatsoever.
No special finding as to costs is made. So ordered.
Araullo,
C.J.,
Johnson,
Johns, J., concurs in the result.

Malcolm,

Avancea,

and

Villamor,

JJ.,

concur.

Separate Opinions
STREET, J., dissenting:
I wish to record an earnest dissent from the doctrine stated in this case. In an instrument
intended to operate as mortgage of seven parcels of land executed by the debtor, Ciriaco
Villarin, in favor of his creditor, Eugenio Gomez, a stipulation was inserted to the effect that in
case the specified date should arrive and Villarin should be unable to pay the amount due, it
should be paid with the land given as a guaranty. By virtue of this stipulation the debtor was
bound, so the court in effect holds, to transfer the property to the creditor in satisfaction of the
mortgaged debt, the mortgagor being unable at that time to pay the same. Said stipulation in the
opinion of the undersigned should be declared invalid, as being contrary to the spirit, if not the
letter, of article 1859 of the Civil Code, as well as directly contrary to the general principles of
jurisprudence applicable to the relation of mortgagor and mortgagee. If a stipulation of this kind
is valid, every mortgage in which such stipulation is inserted will become self-executing, and the
debtor, upon making default in the payment of the debt, will be bound to transfer the property in
satisfaction of the mortgage, with the result that the right of redemption is lost from the mere fact
that the debtor is unable to pay at the date stipulated.
There is a maxim long recognized by the equity courts of England an America to the effect that
"Once a mortgage, always a mortgage." This means that if an instrument is in its origin a
mortgage, it will be treated as such by the courts until it is satisfied or foreclosed by some legal
process; and the courts will not recognize a stipulation inserted in the instrument creating the
mortgage which is intended to vest the property in the creditor upon failure of the debtor to pay
the mortgage debt. Nor will they recognize any waiver of the equity of redemption inserted in the
contract. This doctrine is based upon a recognition of the inequality of the position of the debtor
and creditor necessarily has a power over his debtor which may be exercise inequitably, and
that the debtor is liable to yield to the exertions of such power. The doctrine embodied in the
maxim referred to protects the debtor absolutely from the consequences of his inferiority and of
his own act done through infirmity of will.

In discussing this doctrine Mr. Pomeroy, author of the leading American treatise on the subject
of Equity Jurisprudence, says:
. . . The doctrine has been firmly established from an early day that when the character of a
mortgage has attached at the commencement of the transaction, so that the instrument,
whatever be its form, is regarded in equity as a mortgage, that character of mortgage must and
will always continue. If the instrument is in its essence a mortgage, the parties cannot by any
stipulations, however express and positive, render it anything but a mortgage, or deprive it of
the essential attributes belonging to a mortgage in equity. The debtor or mortgagor cannot, in
the inception of the instrument, as a part of or collateral to its execution, in any manner deprive
himself of his equitable right to come in after a default in paying the money at the stipulated
time, and to pay the debt and interest, and thereby to redeem the land from the lien and
encumbrance of the mortgage; the equitable right of redemption, after a default is preserved,
remains in full force, and will be protected and enforced by a court of equity, no matter what
stipulations the parties may have made in the original transaction purporting to cut off this right.
(Pomeroy's Equity Jurisprudence, 4th ed., sec. 1193, vol. 3 p. 2825.)
Opposed as I am to the doctrine stated by the court with reference to the legality of the
stipulation above referred to, I also differ from the court with respect to the effect of Exhibit B. In
this connection it appears that about ten days after Gomez had transferred the property to the
plaintiff Dalay, Ciriaco Villarin, the debtor, made an affidavit in which he recites the fact that he
had failed to comply with his obligation to pay the debt which he had been contracted by himself
to Gomez and that he therefore recognized that the ownership and possession of the property in
question was to be considered as transferred in absolute title to said Gomez, in accordance with
the stipulation contained in the original contract obligating him to transfer the property as
already stated. This admission on the part of Villarin was merely a recognition of the validity of
the stipulation in question and such an admission could not impress validity upon a stipulation of
the character referred to.
It is not to be denied that a mortgagor of property may transfer the mortgaged property to the
creditor in satisfaction of the mortgage debt after the mortgage has fallen due. But such a
transfer implies the independent exercise of the power vested in the mortgagor, as owner, and
the affidavit in question is nothing more than the recognition of a situation which was supposed
by the debtor to be an accomplished fact, namely, that the property in question had passed to
the creditor upon the debtor's failure to pay the debt when due. No legal efficacy can be
conceded to such an admission.
The judgment should in my opinion be affirmed.

7.
MANILA
SURETY
VELAYO G.R. No. L-21069

and
FIDELITY
October 26, 1967

COMPANY,

INC

vs.

REYES, J.B.L., J.:

Direct appeal from a judgment of the Court of First Instance of Manila (Civil Case No. 49435)
sentencing appellant Rodolfo Velayo to pay appellee Manila Surety & Fidelity Co., Inc. the sum
of P2,565.00 with interest at 12-% per annum from July 13, 1954; P120.93 as premiums with
interest at the same rate from June 13, 1954: attorneys' fees in an amount equivalent to 15% of
the total award, and the costs.
Hub of the controversy are the applicability and extinctive effect of Article 2115 of the Civil Code
of the Philippines (1950).
The uncontested facts are that in 1953, Manila Surety & Fidelity Co., upon request of Rodolfo
Velayo, executed a bond for P2,800.00 for the dissolution of a writ of attachment obtained by
one Jovita Granados in a suit against Rodolfo Velayo in the Court of First Instance of Manila.
Velayo undertook to pay the surety company an annual premium of P112.00; to indemnify the
Company for any damage and loss of whatsoever kind and nature that it shall or may suffer, as
well as reimburse the same for all money it should pay or become liable to pay under the bond
including costs and attorneys' fees.
As "collateral security and by way of pledge" Velayo also delivered four pieces of jewelry to the
Surety Company "for the latter's further protection", with power to sell the same in case the
surety paid or become obligated to pay any amount of money in connection with said bond,
applying the proceeds to the payment of any amounts it paid or will be liable to pay, and turning
the balance, if any, to the persons entitled thereto, after deducting legal expenses and costs
(Rec. App. pp. 12-15).
Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and
execution having been returned unsatisfied, the surety company was forced to pay P2,800.00
that it later sought to recoup from Velayo; and upon the latter's failure to do so, the surety
caused the pledged jewelry to be sold, realizing therefrom a net product of P235.00 only.
Thereafter and upon Velayo's failure to pay the balance, the surety company brought suit in the
Municipal Court. Velayo countered with a claim that the sale of the pledged jewelry extinguished
any further liability on his part under Article 2115 of the 1950 Civil Code, which recites:
Art. 2115. 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.
The Municipal Court disallowed Velayo's claims and rendered judgment against him. Appealed
to the Court of First Instance, the defense was once more overruled, and the case decided in
the terms set down at the start of this opinion.

Thereupon, Velayo resorted to this Court on appeal.

The core of the appealed decision is the following portion thereof (Rec. Appeal pp. 71-72):
It is thus crystal clear that the main agreement between the parties is the Indemnity Agreement
and if the pieces of jewelry mentioned by the defendant were delivered to the plaintiff, it was
merely as an added protection to the latter. There was no understanding that, should the same
be sold at public auction and the value thereof should be short of the undertaking, the defendant
would have no further liability to the plaintiff. On the contrary, the last portion of the said
agreement specifies that in case the said collateral should diminish in value, the plaintiff may
demand additional securities. This stipulation is incompatible with the idea of pledge as a
principal agreement. In this case, the status of the pledge is nothing more nor less than that of a
mortgage given as a collateral for the principal obligation in which the creditor is entitled to a
deficiency judgment for the balance should the collateral not command the price equal to the
undertaking.
It appearing that the collateral given by the defendant in favor of the plaintiff to secure this
obligation has already been sold for only the amount of P235.00, the liability of the defendant
should be limited to the difference between the amounts of P2,800.00 and P235.00 or
P2,565.00.
We agree with the appellant that the above quoted reasoning of the appealed decision is
unsound. The accessory character is of the essence of pledge and mortgage. As stated in
Article 2085 of the 1950 Civil Code, an essential requisite of these contracts is that they be
constituted to secure the fulfillment of a principal obligation, which in the present case is
Velayo's undertaking to indemnify the surety company for any disbursements made on account
of its attachment counterbond. Hence, the fact that the pledge is not the principal agreement is
of no significance nor is it an obstacle to the application of Article 2115 of the Civil Code.
The reviewed decision further assumes that the extinctive effect of the sale of the pledged
chattels must be derived from stipulation. This is incorrect, because Article 2115, in its last
portion, clearly establishes that the extinction of the principal obligation supervenes by operation
of imperative law that the parties cannot override:
If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency
notwithstanding any stipulation to the contrary.
The provision is clear and unmistakable, and its effect can not be evaded. By electing to sell the
articles pledged, instead of suing on the principal obligation, the creditor has waived any other
remedy, and must abide by the results of the sale. No deficiency is recoverable.
It is well to note that the rule of Article 2115 is by no means unique. It is but an extension of the
legal prescription contained in Article 1484(3) of the same Code, concerning the effect of a
foreclosure of a chattel mortgage constituted to secure the price of the personal property sold in
installments, and which originated in Act 4110 promulgated by the Philippine Legislature in
1933.

WHEREFORE, the decision under appeal is modified and the defendant absolved from the
complaint, except as to his liability for the 1954 premium in the sum of P120.93, and interest at
12-1/2% per annum from June 13, 1954. In this respect the decision of the Court below is
affirmed. No costs. So ordered.

8. Macapinlac vs repide (September 20, 1922)G.R. No. 18574

Facts: The case was instituted for the purpose of declaring plaintiff as owner of a real estate
property and to nullify the Torrens title, which was in respondents name. Plaintiff also wanted to
recover possession overthe property with damages.Plaintiff owned the real estate property
located in Pampanga. Later, plaintiff acquired a loan toBachrach Garage & Taxicab for a price of
an automobile. To secure payment, plaintiff executed fourteenpromissory notes: 11 in the hands
of Bachrach and 3 in the hands of the payee of the company. Assecurity and guaranty of
payment, plaintiff executed a deed of sale with a right to repurchase.More than a year later,
respondent acquired the rights of Bachrach over the properties by payingP5000. Be it noted that
during the conveyance of rights, Repide knew of the purpose of the transfer of title to secure
the debt owing to Bachrach by the plaintiff. He also knew that the debt had been paid andthat
only a half of the debt existed.Afterwards, Repide caused for the transfer of title into his name
by making it appear that thepurported sale was true. During those times, respondent Repide
was in actual possession of the propertyand was enjoying its fruits.Plaintiff filed a case to
recover possession in which the Court of First Instance decided in favourof respondent. Due to
this, plaintiff filed for a review of the case.
Issue:
1.Whether or not the contract was a sale de retro or a mortgage.
2.What contract should govern between the parties?
Held:(1)The court held that since the conveyance was executed to secure a debt, it should
follow that inequity, said conveyance must be treated as a security or substantially as a
mortgage. This decision wassupported by the case of Cuyugan vs Santos, in which the court
discuss the conditions in which aconveyance absolute on its face may be treated as a
mortgage.
. . The doctrine has been firmly established from an early day that when thecharacter of a
mortgage has attached at the commencement of the transaction, so that theinstrument,
whatever be its form, is regarded in equity as a mortgage, that character of mortgage must and
will always continue. If the instrument is in its essence a mortgage,the parties cannot by any
stipulations, however express and positive, render it anythingbut a mortgage, or deprive it of the
essential attributes belonging to a mortgage in equity.The debtor or mortgagor cannot, in the
inception of the instrument, as a part of orcollateral to its execution, in any manner deprive
himself of his equitable right to come inafter a default in paying the money at the stipulated time,
and to pay the debt and interest,and thereby to redeem the land from the lien and encumbrance
of the mortgage; theequitable right of redemption, after a default is preserved, remains in full

force, and willbe protected and enforced by a court of equity, no matter what stipulations the
partiesmay have made in the original transaction purporting to cut off this right. (3 Pom. Eq.Jur.,
sec. 1193.)And finally, concerning the legal effects of such contracts, the same authorobserves:.
. . Whenever a deed absolute on its face is thus treated as a mortgage, theparties are clothed
with all the rights, are subject to all the liabilities, and are entitled to all the remedies of ordinary
mortgagors and mortgagees. The grantee may maintain anaction for the foreclosure of the
grantor's equity of redemption; the grantor may maintainan action to redeem and to compel a
reconveyance upon his payment of the debt secured.If the grantee goes into possession, he is
in reality a mortgagee in possession, and as suchis liable to account for the rents and profits. (3
Pom. Eq. Jur., sec. 1196.)
(2)In this case, the court cited the case of Barretto vs. Barreto, where the heirs of a mortgagee
of anestate were found in possession of mortgaged property more than thirty years after the
mortgage had beenexecuted; and it was shown that the mortgage had never been foreclosed.
In effect, the rights held by theparties, both the mortgagor and mortgagee, were essentially the
same as the ones in a contract of antichresis.
In antichresis, the non-payment of the debt does not vest the ownership to the creditor;however, the debtor cannot
recover the property for its enjoyment without paying the full amountof his indebtedness. At this time, the creditor is
under obligation to apply the fruits derived fromthe estate in satisfaction, first, of the interest on the debt, if any, and,
secondly, to the payment of the principal. By doing so, the fruits will be applied in satisfaction for the mortgage debt

9. REYES v. SIERRA
Facts:
Vicente Reyes sought to register under his name a parcel of land located in Antipolo, Rizal
--opposed by Sierra et al
TC approved Reyes application, declaring him owner of said land owing to his and his
predecessor-in-interests constructive possession of the same, particularly because theyhad
been paying the realty taxes thereon since 1926 until 1961
Origin of the dispute over land was because in 1926, the Sierras predecessor, Basilia Beltran,
borrowed P100 from Vicente Reyes, Sr. and secured the loan with the said piece of land. In so
doing, Basilias children executed together with her a document (katibayan ng
papgpapahintulot sa aming ina na ipananagutan kay Vicente Reyes sainutang na halagang
P100)
Beltran, however, died in 1938 without being able to pay the loan and Vicente Reyes,
Jr.continued in possession thereof, believing that the document executed was a contractof sale
and not of mortgage
Oppositors Sierra et al now claiming that the words sangla, ipinanagutan sa halagang
isangdaang piso manifest that the document was one of mortgage

Issue: What was the nature of the document? determinative of the lands ownership
Held/Ratio:
It is a mortgage contract. The intention of the parties at the time it was executed mustprevail,
i.e., the borrowing and lending of money with security. The terms indicate adebt and the creation
of a creditor-debtor relationship, where the land was used tosecure repayment of the loan.
Following established doctrine, once a mortgage attaches to a transaction, its characteras a
mortgage will always continue. The parties cannot by any stipulation deprive it of the essential
attributes of a mortgage in equity. Civil Code itself provides: The creditorcannot appropriate the
things given by way of mortgage
Act of Vicente Reyes in registering the property in his name after failure of mortgagor to
redeem the property constitutes a pactum commisorium which is against good moralsand public
policy.
Court also declared that possession by Reues has not been continuous (they had onlyused the
property to spend some vacation time there, but this was discontinued for thelast 23 years).
Moreover, mere failure of owner to pay taxes does not necessarily implyabandonment of a right
to property; and on the other hand, payment of realty taxes byitself does not constitute sufficient
evidence of title.
Application by Reyes for registration should therefore be dismissed. Oppositorsdirected to pay
back the P100 debt plus interest (6% p.a.) from 1926 until paid.

10. BELO VS PNB

Facts:
Eduarda Belo owned an agricultural land which she leased a portion to Sps Eslabon in
connection with the said spou
ses sugar plantation business.
To finance their business venture, respondents spouses Eslabon obtained a loan from PNB
secured by a real estate mortgage on their own four (4) residential houses located in Roxas
City, as well as on the land owned by Eduarda Belo. SPA was issued by Eduarda Belo as to the
mortgage of her property
Sps Eslabon failed to pay mortgages and thereafter extrajudicial foreclosure proceedings
against the mortgaged properties were instituted by PNB. PNB was the highest bidder at the
auction sale (P447,632.00).

PNB appraised Eduarda Belo of the sale at public auction of her agricultural land. She had
one-year period to redeem the land.
Eduarda Belo sold her right of redemption to petitioner Sps Belo under a deed of absolute sale
of proprietary and redemption rights.
Sps Belo tendered payment for the redemption of the agricultural land for (P484,482.96),
which includes the bid price of respondent PNB, plus interest and expenses as provided under
Act No. 3135.
PNB rejected payment contending that redemption price should be the
total claim of the bank on the date of the auction sale and custody of property plus charges
accrued and interests
(P2,779,978.72).
Sps Belo filed action to annul the mortgage, with an alternative cause of action to compel PNB
to accept offer of spouses Belo which is based on the winning bid price of PNB (P447,632.00)
plus interest and expenses.
RTC: Granted alternative cause of action of Sps Belo P447,632.00, plus interest and other
charges
CA: Modified TC ruling that the petitioners should pay the
e n t i r e a m o u n t d u e t o PNB under the mortgage deed at the time of the
foreclosure sale plus interest, costs and expenses . As assignees of Eduarda Belos right of
redemption, the appellees succeed to the precise right of Eduarda including all conditions
attendant to such right. Moreover, the indivisible character of a contract of mortgage (Article
2089, Civil Code) will extend to apply in the redemption stage of the mortgage.

Issue:
1. WON SPA, real estate mortgage contract, the foreclosure proceedings and the subsequent
auction sale involving Eduarda Belos property are valid. YES
2. WON the petitioners are required to pay, as redemption price, the entire claim of respondent
PNB (P2,779,978.72) NO
The facts are as follows:
Eduarda Belo owned an agricultural land with an area of six hundred sixty one thousand two
hundred eighty eight (661,288) square meters located in Timpas, Panitan, Capiz, covered and
described in Transfer Certificate of Title (TCT for brevity) No. T-7493. She leased a portion of
the said tract of land to respondents spouses Marcos and Arsenia Eslabon in connection with

the said spouses' sugar plantation business. The lease contract was effective for a period of
seven (7) years at the rental rate of Seven Thousand Pesos (P7,000.00) per year.
To finance their business venture, respondents spouses Eslabon obtained a loan from
respondent Philippine National Bank (PNB for brevity) secured by a real estate mortgage on
their own four (4) residential houses located in Roxas City, as well as on the agricultural land
owned by Eduarda Belo. The assent of Eduarda Belo to the mortgage was acquired through a
special power of attorney which she executed in favor of respondent Marcos Eslabon on June
15, 1982.
Inasmuch as the respondents spouses Eslabon failed to pay their loan obligation, extrajudicial
foreclosure proceedings against the mortgaged properties were instituted by respondent PNB.
At the auction sale on June 10, 1991, respondent PNB was the highest bidder of the foreclosed
properties at Four Hundred Forty Seven Thousand Six Hundred Thirty Two Pesos
(P447,632.00).
In a letter dated August 28, 1991, respondent PNB appraised Eduarda Belo of the sale at public
auction of her agricultural land on June 10, 1991 as well as the registration of the Certificate of
Sheriff's Sale in its favor on July 1, 1991, and the one-year period to redeem the land.
Meanwhile, Eduarda Belo sold her right of redemption to petitioners spouses Enrique and
Florencia Belo under a deed of absolute sale of proprietary and redemption rights.
Before the expiration of the redemption period, petitioners spouses Belo tendered payment for
the redemption of the agricultural land in the amount of Four Hundred Eighty Four Thousand
Four Hundred Eighty Two Pesos and Ninety Six Centavos (P484,482.96), which includes the
bid price of respondent PNB, plus interest and expenses as provided under Act No. 3135.
However, respondent PNB rejected the tender of payment of petitioners spouses Belo. It
contended that the redemption price should be the total claim of the bank on the date of the
auction sale and custody of property plus charges accrued and interests amounting to Two
Million Seven Hundred Seventy Nine Thousand Nine Hundred Seventy Eight and Seventy Two
Centavos (P2,779,978.72).6 Petitioners spouses disagreed and refused to pay the said total
claim of respondent PNB.
On June 18, 1992, petitioners spouses Belo initiated in the Regional Trial Court of Roxas City,
Civil Case No. V-6182 which is an action for declaration of nullity of mortgage, with an
alternative cause of action, in the event that the accommodation mortgage be held to be valid,
to compel respondent PNB to accept the redemption price tendered by petitioners spouses Belo
which is based on the winning bid price of respondent PNB in the extrajudicial foreclosure in the
amount of Four Hundred Forty Seven Thousand Six Hundred Thirty Two Pesos (P447,632.00)
plus interest and expenses.
In its Answer, respondent PNB raised, among others, the following defenses, to wit:
xxx

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77.
In all loan contracts granted and mortgage contracts executed under the 1975 Revised
Charter (PD 694, as amended), the proper rate of interest to be charged during the redemption
period is the rate specified in the mortgage contract based on Sec. 25 7 of PD 694 and the
mortgage contract which incorporates by reference the provisions of the PNB Charters.

Additionally, under Sec. 78 of the General Banking Act (RA No. 337, as amended) made
applicable to PNB pursuant to Sec. 38 of PD No. 694, the rate of interest collectible during the
redemption period is the rate specified in the mortgage contract.
78.
Since plaintiffs failed to tender and pay the required amount for redemption of the
property under the provisions of the General Banking Act, no redemption was validly effected;8
xxx

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xxx

After trial on the merits, the trial court rendered its Decision dated April 30, 1996 granting the
alternative cause of action of spouses Belo, the decretal portion of which reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiffs
Spouses Enrique M. Belo and Florencia G. Belo and against defendants Philippine National
Bank and Spouses Marcos and Arsenia Eslabon:
1.
Making the injunction issued by the court permanent, insofar as the property of Eduarda
Belo covered by Transfer Certificate of Title No. T-7493 is concerned;
2.
Ordering defendant Philippine National Bank to allow plaintiff Enrique M. Belo to redeem
only Eduarda Belo's property situated in Brgy. Timpas, Panitan, Capiz, and covered by Transfer
Certificate of Title No. T-7493 by paying only its bid price of P447,632.00, plus interest and other
charges provided for in Section 30, Rule 39 of the Rules of Court, less the loan value, as
originally appraised by said defendant Bank, of the foreclosed four (4) residential lots of
defendants Spouses Marcos and Arsenia Eslabon; and
3.
Dismissing for lack of merit the respective counterclaims of defendants Philippine
National Bank and spouses Marcos and Arsenia Eslabon.
With costs against defendants.
SO ORDERED.9
Dissatisfied with the foregoing judgment of the trial court, respondent PNB appealed to the
Court of Appeals. In its Decision rendered on May 21, 1998, the appellate court, while upholding
the decision of the trial court on the validity of the real estate mortgage on Eduarda Belo's
property, the extrajudicial foreclosure and the public auction sale, modified the trial court's
finding on the appropriate redemption price by ruling that the petitioners spouses Belo should
pay the entire amount due to PNB under the mortgage deed at the time of the foreclosure sale
plus interest, costs and expenses.10
Petitioners spouses Belo sought reconsideration11 of the said Decision but the same was
denied by the appellate court in its Resolution promulgated on June 29, 1998, ratiocinating,
thus:
Once more, the Court shies away from declaring the nullity of the mortgage contract obligating
Eduarda Belo as co-mortgagor, considering that it has not been sufficiently established that
Eduarda Belo's assent to the special power of attorney and to the mortgage contract was
tainted by any vitiating cause. Moreover, in tendering an offer to redeem the property (Exhibit
"20", p. 602 Record) after its extrajudicial foreclosure, she has thereby admitted the validity of
the mortgage, as well as the transactions leading to its inception. Eduarda Belo, and the

appellees as mere assignees of Eduarda's right to redeem the property, are therefore estopped
from questioning the efficacy of the mortgage and its subsequent foreclosure.12
The appellate court further declared that petitioners spouses Belo are obligated to pay the total
bank's claim representing the redemption price for the foreclosed properties, as provided by
Section 25 of P.D No. 694, holding that:
On the other hand, the court's ruling that the appellees, being the assignee of the right of
repurchase of Eduarda Belo, were bound by the redemption price as provided by Section 25 of
P.D. 694, stands. The attack on the constitutionality of Section 25 of P.D. 694 cannot be allowed,
as the High Court, in previous instances, (Dulay v. Carriaga, 123 SCRA 794 [1983]; Philippine
National Bank v. Remigio, 231 SCRA 362 [1994]) has regarded the said provision of law with
respect, using the same in determining the proper redemption price in foreclosure of mortgages
involving the PNB as mortgagee.
The terms of the said provision are quite clear and leave no room for qualification, as the
appellees would have us rule. The said rule, as amended, makes no specific distinction as to
assignees or transferees of the mortgagor of his redemptive right. In the absence of such
distinction by the law, the Court cannot make a distinction. As admitted assignees of Eduarda
Belo's right of redemption, the appellees succeed to the precise right of Eduarda including all
conditions attendant to such right.
Moreover, the indivisible character of a contract of mortgage (Article 2089, Civil Code) will
extend to apply in the redemption stage of the mortgage.
As we have previously remarked, Section 25 of P.D. 694 is a sanctioned deviation from the rule
embodied in Rule 39, Section 30 of the Rules of Court, and is a special protection given to
government lending institutions, particularly, the Philippine National Bank. (Dulay v. Carriaga,
supra)13
Hence, the instant petition.
During the oral argument, petitioners, through counsel, Atty. Enrique M. Belo, agreed to limit the
assignment of errors to the following:
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II.
THE COURT OF APPEALS ERRED IN NOT REVERSING THE TRIAL COURT ON THE
BASIS OF THE ASSIGNMENT OF ERRORS ALLEGED BY PETITIONERS IN THEIR BRIEF:
(1)
THAT THE SPECIAL POWER OF ATTORNEY EXECUTED BY EDUARDA BELO IN
FAVOR OF RESPONDENT ESLABON WAS NULL AND VOID:
(2)
THAT THE REAL ESTATE MORTGAGE EXECUTED BY RESPONDENT MARCOS
ESLABON UNDER SAID INVALID SPECIAL POWER OF ATTORNEY IS ALSO NULL AND
VOID;
III.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT PNB
ACTED IN BAD FAITH AND CONNIVED WITH RESPONDENTS-DEBTORS ESLABONS TO
OBTAIN THE CONSENT OF EDUARDA BELO, PETITIONERS' PREDECESSOR, THROUGH
FRAUD.

IV.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT PNB
WAS NEGLIGENT IN THE PERFORMANCE OF ITS DUTY AS COMMERCIAL MONEY
LENDER.
V.
THE COURT OF APPEALS ERRED IN HOLDING THAT EDUARDA BELO,
PETITIONERS' PREDECESSOR, HAD WAIVED THE RIGHT TO QUESTION THE LEGALITY
OF THE ACCOMMODATION MORTGAGE.
VI.
THE COURT OF APPEALS ERRED IN REVERSING THE TRIAL COURT BY HOLDING
THAT ON REDEMPTION, PETITIONERS SHOULD PAY THE ENTIRE CLAIM OF PNB
AGAINST RESPONDENTS-DEBTORS ESLABONS.
VII.
THE COURT OF APPEALS ERRED IN NOT ORDERING THAT SHOULD
PETITIONERS DECIDE TO PAY THE ENTIRE CLAIM OF RESPONDENT PNB AGAINST THE
RESPONDENTS-DEBTORS ESLABONS, PETITIONERS SHALL SUCCEED TO ALL THE
RIGHTS OF RESPONDENT PNB WITH THE RIGHT TO REIMBURSEMENT BY
RESPONDENTS-DEBTORS ESLABONS.
VIII.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT SHOULD PETITIONERS
DECIDE NOT TO EXERCISE THEIR RIGHT OF REDEMPTION, PETITIONERS SHALL BE
ENTITLED TO THE VALUE OF THEIR IMPROVEMENTS MADE IN GOOD FAITH AND FOR
THE REAL ESTATE TAX DUE PRIOR TO THE FORECLOSURE SALE.14
Petitioners challenge the appreciation of the facts of the appellate court, pointing out the
following facts which the appellate court allegedly failed to fully interpret and appreciate:
1.
That respondent PNB in its Answer admitted that Eduarda Belo was merely an
accommodation mortgagor and that she has no personal liability to respondent PNB.
xxx

xxx

xxx

2.
That the PNB Special Power of Attorney (SPA) Form No. 74 (Exh. "D") used to bind
Eduarda Belo as accommodation mortgagor authorized the agent Eslabons to borrow and
mortgage her agricultural land for her (Eduarda Belo) use and benefit. Instead, said PNB SPA
Form No. 74 was used by debtors Eslabons and PNB to bind Eduarda Belo as accommodation
mortgagor for the crop loan extended by PNB to the Eslabons.
3.
That the said PNB SPA Form No. 74 was signed by Eduarda Belo in blank, without
specifying the amount of the loan to be granted by respondent PNB to the respondents-debtors
Eslabons upon assurance by the PNB manager that the SPA was merely a formality and that
the bank will not lend beyond the value of the four (4) [Roxas City] residential lots located in
Roxas City mortgaged by respondents-debtors Eslabons (see Exhibit "D"; Eduarda Belo's
deposition, Exhibit "V", pp. 7 to 24).
4.
That PNB did not advise Eduarda Belo of the amount of the loan granted to the
Eslabons, did not make demands upon her for payment, did not advise her of Eslabons' default.
The pre-auction sale notice intended for Eduarda Belo was addressed and delivered to the
address of the debtors Eslabons residence at Baybay Roxas City, not to the Belo Family House
which is the residence of Eduarda Belo located in the heart of Roxas City. The trial court stated

in its Decision that the PNB witness Miss Ignacio "admitted that through oversight, no demand
letters were sent to Eduarda Belo, the accommodation mortgagor" (see p. 7, RTC Decision).
xxx

xxx

xxx

5.
As an agreed fact stated in the Pre-Trial Order of the Regional Trial Court, the loan
which was unpaid at the time of the extrajudicial foreclosure sale was only P789,897.00.
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xxx

6.
That herein petitioners Spouses Belo in making the tender to redeem Eduarda Belo's
agricultural land expressly reserved the right to question the legality of the accommodation
mortgage in the event that said tender to redeem was rejected by PNB (Exh. "I").15
Petitioners present basically two (2) issues before this Court. First, whether or not the Special
Power of Attorney (SPA for brevity), the real estate mortgage contract, the foreclosure
proceedings and the subsequent auction sale involving Eduarda Belo's property are valid.
Second, assuming they are valid, whether or not the petitioners are required to pay, as
redemption price, the entire claim of respondent PNB in the amount of P2,779,978.72 as of the
date of the public auction sale on June 10, 1991.
On the first issue, the petitioners contend that the SPA is void for the reason that the amount for
which the spouses Eslabon are authorized to borrow from respondent bank was unlimited; and
that, while the SPA states that the amount loaned is for the benefit of Eduarda Belo, it was in
fact used for the benefit of the respondents spouses Eslabon. For the said reasons petitioners
contend that the mortgage contract lacks valid consent, object and consideration; that it violates
a concept in the law of agency which provides that the contract entered into by the agent must
always be for the benefit of the principal; and, that it does not express the true intent of the
parties.
The subject SPA, the real estate mortgage contract, the foreclosure proceedings and the
subsequent auction sale of Eduarda Belo's property are valid and legal.
First, the validity of the SPA and the mortgage contract cannot anymore be assailed due to
petitioners' failure to appeal the same after the trial court rendered its decision affirming their
validity. After the trial court rendered its decision granting petitioners their alternative cause of
action, i.e., that they can redeem the subject property on the basis of the winning bid price of
respondent PNB, petitioners did not anymore bother to appeal that decision on their first cause
of action. If they felt aggrieved by the trial court's decision upholding the validity of the said two
(2) documents, then they should have also partially appealed therefrom but they did not. It is an
abuse of legal remedies for petitioners to belatedly pursue a claim that was settled with finality
due to their own shortcoming. As held in Caliguia v. National Labor Relations Commission,16
where a party did not appeal from the Labor Arbiter's decision denying claims for actual, moral
and exemplary damages and instead moved for immediate execution, the decision then became
final as to him and by asking for its execution, he was estopped from relitigating his claims for
damages.
Second, well-entrenched is the rule that the findings of trial courts which are factual in nature,
especially when affirmed by the Court of Appeals, deserve to be respected and affirmed by the
Supreme Court, provided it is supported by substantial evidence. 17 The finding of facts of the
trial court to the effect that Eduarda Belo was not induced by the manager of respondent PNB

but instead that she freely consented to the execution of the SPA is given the highest respect as
it was affirmed by the appellate court. In the case at bar, the burden of proof was on the
petitioners to prove or show that there was alleged inducement and misrepresentation by the
manager of respondent PNB and the spouses Eslabon. Their allegation that Eduarda Belo only
agreed to sign the SPA after she was assured that the spouses Eslabon would not borrow more
than the value of their own four (4) residential lots in Roxas City was properly objected to by
respondent PNB.18 Also their contention that Eduarda Belo signed the SPA in blank was
properly objected to by respondent PNB on the ground that the best evidence was the SPA.
There is also no proof to sustain petitioners' allegation that respondent PNB acted in bad faith
and connived with the debtors, respondents spouses Eslabon, to obtain Eduarda Belo's consent
to the mortgage through fraud. Eduarda Belo very well knew that the respondents spouses
Eslabon would use her property as additional mortgage collateral for loans inasmuch as the
mortgage contract states that "the consideration of this mortgage is hereby initially fixed at
P229,000.00."19 The mortgage contract sufficiently apprises Eduarda Belo that the respondents
spouses Eslabon can apply for more loans with her property as continuing additional security. If
she found the said provision questionable, she should have complained immediately. Instead,
almost ten (10) years had passed before she and the petitioners sought the annulment of the
said contracts.
Third, after having gone through the records, this Court finds that the courts a quo did not err in
holding that the SPA executed by Eduarda Belo in favor of the respondents spouses Eslabon
and the Real Estate Mortgage executed by the respondents spouses in favor of respondent
PNB are valid. It is stipulated in paragraph three (3) of the SPA that Eduarda Belo appointed the
Eslabon spouses "to make, sign, execute and deliver any contract of mortgage or any other
documents of whatever nature or kind . . . which may be necessary or proper in connection with
the loan herein mentioned, or with any loan which my attorney-in-fact may contract personally in
his own name . . .20 This portion of the SPA is quite relevant to the case at bar. This was the
main reason why the SPA was executed in the first place inasmuch as Eduarda Belo consented
to have her land mortgaged for the benefit of the respondents spouses Eslabon. The SPA was
not meant to make her a co-obligor to the principal contract of loan between respondent PNB,
as lender, and the spouses Eslabon, as borrowers. The accommodation real estate mortgage
over her property, which was executed in favor of respondent PNB by the respondents spouses
Eslabon, in their capacity as her attorneys-in-fact by virtue of her SPA, is merely an accessory
contract.
Eduarda Belo consented to be an accommodation mortgagor in the sense that she signed the
SPA to authorize respondents spouses Eslabons to execute a mortgage on her land. Petitioners
themselves even acknowledged that the relation created by the SPA and the mortgage contract
was merely that of mortgagor-mortgagee relationship. The SPA form of the PNB was utilized to
authorize the spouses Eslabon to mortgage Eduarda Belo's land as additional collateral of the
Eslabon spouses' loan from respondent PNB. Thus, the petitioners' contention that the SPA is
void is untenable. Besides, Eduarda Belo benefited, in signing the SPA, in the sense that she
was able to collect the rentals on her leased property from the Eslabons.21
An accommodation mortgage is not necessarily void simply because the accommodation
mortgagor did not benefit from the same. The validity of an accommodation mortgage is allowed
under Article 2085 of the New Civil Code which provides that "(t)hird persons who are not
parties to the principal obligation may secure the latter by pledging or mortgaging their own
property." An accommodation mortgagor, ordinarily, is not himself a recipient of the loan,
otherwise that would be contrary to his designation as such. It is not always necessary that the

accommodation mortgagor be appraised beforehand of the entire amount of the loan nor should
it first be determined before the execution of the SPA for it has been held that:
"(real) mortgages given to secure future advancements are valid and legal contracts; that the
amounts named as consideration in said contract do not limit the amount for which the
mortgage may stand as security if from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered. A mortgage given to secure advancements is a
continuing security and is not discharged by repayment of the amount named in the mortgage,
until the full amount of the advancements are paid."22
Fourth, the courts a quo correctly held that the letter of Eduarda Belo addressed to respondent
PNB manifesting her intent to redeem the property is a waiver of her right to question the validity
of the SPA and the mortgage contract as well as the foreclosure and the sale of her subject
property. Petitioners claim that her letter was not an offer to redeem as it was merely a
declaration of her intention to redeem. Respondent PNB's answer to her letter would have
carried certain legal effects. Had respondent PNB accepted her letter-offer, it would have surely
bound the bank into accepting the redemption price offered by Eduarda Belo. If it was her
opinion that her SPA and the mortgage contract were null and void, she would not have
manifested her intent to redeem but instead questioned their validity before a court of justice.
Her offer was a recognition on her part that the said contracts are valid and produced legal
effects. Inasmuch as Eduarda Belo is estopped from questioning the validity of the contracts,
her assignees who are the petitioners in the instant case, are likewise estopped from disputing
the validity of her SPA, the accommodation real estate mortgage contract, the foreclosure
proceedings, the auction sale and the Sheriff's Certificate of Sale.
The second issue pertains to the applicable law on redemption to the case at bar. Respondent
PNB maintains that Section 25 of Presidential Decree No. 694 should apply, thus:
SECTION 25. Right of redemption of foreclosed property Right of possession during
redemption period. Within one year from the registration of the foreclosure sale of real estate,
the mortgagor shall have the right to redeem the property by paying all claims of the Bank
against him on the date of the sale including all the costs and other expenses incurred by
reason of the foreclosure sale and custody of the property as well as charges and accrued
interests.23
Additionally, respondent bank seeks the application to the case at bar of Section 78 of the
General Banking Act, as amended by P.D. No. 1828, which states that
. . . In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real
estate which is security for any loan granted before the passage of this Act or under the
provisions of this Act, the mortgagor or debtor whose real property has been sold at public
auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank,
banking or credit institution, within the purview of this Act shall have the right, within one year
after the sale of the real estate as a result of the foreclosure of the respective mortgage, to
redeem the property by paying the amount fixed by the court in the order of execution, or the
amount due under the mortgage deed, as the case may be, with interest thereon at the rate
specified in the mortgage, and all the costs, and judicial and other expenses incurred by the
bank or institution concerned by reason of the execution and sale and as a result of the custody
of said property less the income received from the property.24

On the other hand, petitioners assert that only the amount of the winning bidder's purchase
together with the interest thereon and on all other related expenses should be paid as
redemption price in accordance with Section 6 of Act No. 3135 which provides that:
SECTION 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successor in interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the property subsequent to the mortgage
or deed of trust under which the property is sold, may redeem the same at any time within the
term of one year from and after the date of the sale; and such redemption shall be governed by
the provisions of sections four hundred and sixty-four to four hundred and sixty six, inclusive, of
the Code of Civil Procedure25 , in so far as these are not inconsistent with the provisions of this
Act.
Section 28 of Rule 39 of the 1997 Revised Rules of Civil Procedure states that:
SECTION 28. Time and manner of, and amounts payable on, successive redemptions; notice
to be given and filed. The judgment obligor, or redemptioner, may redeem the property from
the purchaser, at any time within one (1) year from the date of the registration of the certificate
of sale, by paying the purchaser the amount of his purchase, within one per centum per month
interest thereon in addition, up to the time of redemption, together with the amount of any
assessments or taxes which the purchaser may have paid thereon after purchase, and interest
on such last named amount at the same rate; and if the purchaser be also a creditor having a
prior lien to that of the redemptioner, other than the judgment under which such purchase was
made, the amount of such other lien, with interest. (Italic supplied)
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This Court finds the petitioners' position on that issue to be meritorious.

There is no doubt that Eduarda Belo, assignor of the petitioners, is an accommodation
mortgagor. The Pre-trial Order and respondent PNB's brief contain a declaration of this fact. The
dispute between the parties is whether Section 25 of P.D. No. 694 applies to an accommodation
mortgagor, or her assignees. The said legal provision does not make a distinction between a
debtor-mortgagor and an accommodation mortgagor as it uses the broad term "mortgagor". The
appellate court thus ruled that the provision applies even to an accommodation mortgagor
inasmuch as the law does not make any distinction. We disagree. Where a word used in a
statute has both a restricted and a general meaning, the general must prevail over the restricted
unless the nature of the subject matter or the context in which it is employed clearly indicates
that the limited sense is intended.26 It is presumed that the legislature intended exceptions to its
language which would avoid absurd consequences of this character.27 In the case at bar, the
qualification to the general rule applies. The same provision of Section 25 of P.D. No. 694
provides that "the mortgagor shall have the right to redeem the property by paying all claims of
the Bank against him". From said provision can be deduced that the mortgagor referred to by
that law is one from whom the bank has a claim in the form of outstanding or unpaid loan; he is
also called a borrower or debtor-mortgagor. On the other hand, respondent PNB has no claim
against accommodation mortgagor Eduarda Belo inasmuch as she only mortgaged her property
to accommodate the Eslabon spouses who are the loan borrowers of the PNB. The principal
contract is the contract of loan between the Eslabon spouses, as borrowers/debtors, and the
PNB as lender. The accommodation real estate mortgage (which secures the loan) is only an
accessory contract. It is our view and we hold that the term "mortgagor" in Section 25 of P.D.
No. 694 pertains only to a debtor-mortgagor and not to an accommodation mortgagor.

It is well settled that courts are not to give a statute a meaning that would lead to absurdities. If
the words of a statute are susceptible of more than one meaning, the absurdity of the result of
one construction is a strong argument against its adoption, and in favor of such sensible
interpretation.28 We test a law by its result. A law should not be interpreted so as not to cause
an injustice. There are laws which are generally valid but may seem arbitrary when applied in a
particular case because of its peculiar circumstances. We are not bound to apply them in
slavish obedience to their language.29
The interpretation accorded by respondent PNB to Section 25 of P.D. No. 694 is unfair and
unjust to accommodation mortgagors and their assignees. Forcing an accommodation
mortgagor like Eduarda Belo to pay for what the principal debtors (Eslabon spouses) owe to
respondent bank is to punish her for the accommodation and generosity she accorded to the
Eslabon spouses who were then hard pressed for additional collateral needed to secure their
bank loan. Respondents PNB and spouses Eslabons very well knew that she merely consented
to be a mere accommodation mortgagor.
The circumstances of the case at bar also provide for ample reason why petitioners cannot be
made to pay the entire liability of the principal debtors, Eslabon spouses, to respondent PNB.
The trial court found that respondent PNB's application for extrajudicial foreclosure and public
auction sale of Eduarda Belo's mortgaged property30 was filed under Act No. 3135, as
amended by P.D. No. 385. The notice of extrajudicial sale, the Certificate of Sheriff's Sale, and
the letter it sent to Eduarda Belo did not mention P. D. No. 694 as the basis for redemption. As
aptly ruled by the trial court
In fairness to these mortgagors, their successors-in-interest, or innocent purchasers for value of
their redemption rights, PNB should have at least advised them that redemption would be
governed by its Revised Charter or PD 69, and not by Act 3135 and the Rules of Court, as
commonly practiced . . . This practice of defendant Bank is manifestly unfair and unjust to these
redemptioners who are caught by surprise and usually taken aback by the enormous claims of
the Bank not shown in the Notice of Extrajudicial Sale or the Certificate of Sheriff's Sale as in
this case.31
Moreover, the mortgage contract explicitly provides that ". . . the mortgagee may immediately
foreclose this mortgage judicially in accordance with the Rules of Court or extrajudicially in
accordance with Act No. 3135, as amended and Presidential Decree No. 385 . . .32 Since the
mortgage contract in this case is in the nature of a contract of adhesion as it was prepared
solely by respondent, it has to be interpreted in favor of petitioners. The respondent bank
however tries to renege on this contractual commitment by seeking refuge in the 1989 case of
Sy v. Court of Appeals33 wherein this Court ruled that the redemption price is equal to the total
amount of indebtedness to the bank's claim inasmuch as Section 78 of the General Banking Act
is an amendment to Section 6 of Act No. 3135, despite the fact that the extrajudicial foreclosure
procedure followed by the PNB was explicitly under or in accordance with Act No. 3135.
In the 1996 case of China Banking Corporation v. Court of Appeals,34 where the parties also
stipulated that Act No. 3135 is the controlling law in case of foreclosure, this Court ruled that;
By invoking the said Act, there is no doubt that it must "govern the manner in which the sale and
redemption shall be effected." Clearly, the fundamental principle that contracts are respected as

the law between the contracting parties finds application in the present case, specially where
they are not contrary to law, morals, good customs and public policy.35
More importantly, the ruling pronounced in Sy v. Court of Appeals and other cases,36 that the
General Banking Act and P.D. No. 694 shall prevail over Act No. 3135 with respect to the
redemption price, does not apply here inasmuch as in the said cases the redemptioners were
the debtors themselves or their assignees, and not an accommodation mortgagor or the latter's
assignees such as in the case at bar. In the said cases, the debtor-mortgagors were required to
pay as redemption price their entire liability to the bank inasmuch as they were obligated to pay
their loan which is a principal obligation in the first place. On the other hand, accommodation
mortgagors as such are not in anyway liable for the payment of the loan or principal obligation of
the debtor/borrower The liability of the accommodation mortgagors extends only up to the loan
value of their mortgaged property and not to the entire loan itself. Hence, it is only just that they
be allowed to redeem their mortgaged property by paying only the winning bid price thereof
(plus interest thereon) at the public auction sale.
One wonders why respondent PNB invokes Act No. 3135 in its contracts without qualification
and yet in the end appears to disregard the same when it finds its provisions unfavorable to it.
This is unfair to the other contracting party who in good faith believes that respondent PNB
would comply with the contractual agreement.
It is therefore our view and we hold that Section 78 of the General Banking Act, as amended by
P.D. No. 1828, is inapplicable to accommodation mortgagors in the redemption of their
mortgaged properties.
While the petitioners, as assignees of Eduarda Belo, are not required to pay the entire claim of
respondent PNB against the principal debtors, spouses Eslabon, they can only exercise their
right of redemption with respect to the parcel of land belonging to Eduarda Belo, the
accommodation mortgagor. Thus, they have to pay the bid price less the corresponding loan
value of the foreclosed four (4) residential lots of the spouses Eslabon.
The respondent PNB contends that to allow petitioners to redeem only the property belonging to
their assignor, Eduarda Belo, would violate the principle of indivisibility of mortgage contracts.
We disagree.
Article 2089 of the Civil Code of the Philippines, provides that:
A pledge or mortgage is indivisible, even though the debt may be divided among the successors
in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things given in
mortgage or pledge, each one of them guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as
the portion of the debt for which each thing is specially answerable is satisfied.

There is no dispute that the mortgage on the four (4) parcels of land by the Eslabon spouses
and the other mortgage on the property of Eduarda Belo both secure the loan obligation of
respondents spouses Eslabon to respondent PNB. However, we are not persuaded by the
contention of the respondent PNB that the indivisibility concept applies to the right of redemption
of an accommodation mortgagor and her assignees. The jurisprudence in Philippine National
Bank v. Agudelo37 is enlightening to the case at bar, to wit:
xxx

xxx

xxx

However, Paz Agudelo y Gonzaga (the principal) . . . gave her consent to the lien on lot No.
878 . . . . This acknowledgment, however, does not extend to lots Nos. 207 and 61 . . .
inasmuch as, although it is true that a mortgage is indivisible as to the contracting parties and as
to their successors in interest (Article 1860, Civil code), it is not so with respect to a third person
who did not take part in the constitution thereof either personally or through an agent x x x.
Therefore, the only liability of the defendant-appellant Paz Agudelo y Gonzaga is that which
arises from the aforesaid acknowledgment but only with respect to the lien and not to the
principal obligation secured by the mortgage acknowledged by her to have been constituted on
said lot No. 878 . . . . Such liability is not direct but a subsidiary one.38
xxx

xxx

xxx

Wherefore, it is hereby held that the liability contracted by the aforesaid defendant-appellant
Paz Agudelo y Gonzaga is merely subsidiary to that of Mauro A. Garrucho (the agent), limited to
lot No. 87.
xxx

xxx

xxx

From the wording of the law, indivisibility arises only when there is a debt, that is, there is a
debtor-creditor relationship. But, this relationship is wanting in the case at bar in the sense that
petitioners are assignees of an accommodation mortgagor and not of a debtor-mortgagor.
Hence, it is fair and logical to allow the petitioners to redeem only the property belonging to their
assignor, Eduarda Belo.
With respect to the four (4) parcels of residential land belonging to the Eslabon spouses,
petitioners being total strangers to said lots lack legal personality to redeem the same.
Fair play and justice demand that the respondent PNB's interest of recovering its entire bank
claim should not be at the expense of petitioners, as assignees of Eduarda Belo, who is not
indebted to it. Besides, the letter39 sent by respondent PNB to Eduarda Belo states that "your
(Belo) mortgaged property/ies with PNB covered by TCT # T-7493 was/were sold at public
auction . . . .". It further states that "You (Belo) have, therefore, one year from July 1, 1991 within
which to redeem your mortgaged property/ies, should you desire to redeem it." Respondent
PNB never mentioned that she was bound to redeem the entire mortgaged properties including
the four (4) residential properties of the spouses Eslabon. The letter was explicit in mentioning
Eduarda Belo's property only. From the said statement, there is then an admission on the part of
respondent PNB that redemption only extends to the subject property of Eduarda Belo for the
reason that the notice of the sale limited the redemption to said property.
WHEREFORE, the petition is partially granted in that the petitioners are hereby allowed to
redeem only the property, covered and described in Transfer Certificate of Title No. T-7493Capiz registered in the name of Eduarda Belo, by paying only the bid price less the

corresponding loan value of the foreclosed four (4) residential lots of the respondents spouses
Marcos and Arsenia Eslabon, consistent with the Decision of the Regional Trial Court of Roxas
City in Civil Case No. V-6182.

11. SPOUSES DE VERA vs. AGLORO [G.R. No. 155673. January 14, 2005]
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari with urgent application for temporary restraining
order/preliminary injunction of the March 22, 2002 Decision[1] of the Court of Appeals
(CA) in CA-G.R. SP No. 67164.
On March 25, 1996, the Spouses Salvador F. De Vera and Feliza V. De Vera secured a
loan in the amount of P1,200,000.00 from the BPI Family Savings Bank, Inc. (the Bank,
for brevity).[2] To secure the payment thereof, the Spouses executed a Real Estate
Mortgage over their property located in Guiguinto, Bulacan, with an area of 232 square
meters covered by Transfer Certificate of Title (TCT) No. T-85716.[3] When the Spouses
De Vera defaulted in the payment of the balance of their loan amounting to
P1,091,484.01 and failed to pay despite demands of the Bank, the latter filed a
petition[4] with the ex-officio sheriff of the Regional Trial Court (RTC) of Malolos,
Bulacan, for the extrajudicial foreclosure of the real estate mortgage. At the public
auction scheduled on October 9, 1998, the Bank was declared the highest bidder for the
property. On October 18, 1998, the Sheriff executed a certificate of sale[5] in favor of the
Bank. On November 18, 1999, the Bank filed in the Office of the Register of Deeds an
affidavit for the consolidation of its ownership over the property.[6] Thus, on December
1, 1999, TCT No. T-133862 was issued in the name of the Bank.[7]
On February 11, 2000, the Spouses De Vera filed a Complaint[8] for the nullification of
the real estate mortgage against the Bank and the Sheriff with the RTC of Malolos,
Bulacan, as well as the extrajudicial sale of the property at public auction. The Spouses
prayed that, after due proceedings, judgment be rendered in their favor as follows:
WHEREFORE, it is most respectfully prayed that, after hearing, judgment be rendered:
1. Setting aside the Mortgage Loan Agreement and any/all contracts, accessory or
subsidiary thereto;
2. Setting aside the foreclosure proceedings and the issuance of new title to the
defendant Bank;

3. Allowing the plaintiffs to pay to the defendant Bank what is legal, just and equitable
under the premises;
4. Sentencing defendant Bank to pay plaintiffs the following items of damages:
a. At least P500,000.00 as actual or compensatory damages;
b. At least P100,000.00 as moral damages;
c. At least P100,000.00 as exemplary damages;
d. 25% of total recovery as attorneys fees;
e. Cost of suit.[9]
The case was docketed as Civil Case No. 109-M-2000 and was raffled to Branch 83 of
the court. On February 23, 2000, the Bank filed an Ex Parte Petition for Writ of
Possession with the RTC of Malolos, Bulacan, docketed as LRC Case No. P-97-2000.
The case was raffled to Branch 83 of the court. The Bank impleaded the Spouses as
respondents and prayed that after an ex parte hearing, an order be issued as follows:
1. Granting petitioner a writ of possession over the properties covered by TCT No. T133862 of the Registry of Deeds of Bulacan, together with all the improvements
thereon; and
2. Ordering the Sheriff or any of his duly authorized deputies to immediately place
petitioner in possession thereof.
3. Petitioner further prays for such other reliefs as may be deemed just and equitable
under the premises.[10]
The trial court set the petition for hearing at 8:30 a.m. of August 16, 2000 at the Building
of the Bulwagan ng Katarungan, Provincial Capitol Compound in Malolos, Bulacan.[11]
When the petition was called for hearing on August 16, 2000, no oppositor appeared.
Forthwith, the trial court authorized its Branch Clerk of Court to receive the evidence of
the Bank ex parte,[12] and the Bank adduced its testimonial and documentary evidence
ex parte on August 28, 2000.
On September 8, 2000, the Spouses De Vera filed in LRC Case No. P-97-2000 an
Urgent Motion to Suspend Proceedings to await the resolution of Civil Case No. 109-M2000 or for the consolidation of the two cases. The Spouses cited the rulings of this

Court in Barican v. IAC[13] and Sulit v. Court of Appeals.[14] Opposing the motion, the
Bank alleged that the pendency of Civil Case No. 109-M-2000 was not a bar to the
petition for a writ of possession because the issuance of the said writ was ministerial on
the part of the trial court. The petitioner cited the rulings of this Court in Ong v. Court of
Appeals[15] and Vaca v. Court of Appeals.[16]
In an Order[17] dated February 13, 2001, the trial court denied the motion of the
Spouses. Citing the case of Vda. de Zaballero v. CA,[18] the trial court ruled that the
purchaser of the foreclosed property, upon ex parte application and the posting of the
required bond, has the right to acquire possession of the foreclosed property during the
12-month redemption period. According to the trial court, this is sanctioned under
Section 7 of Act No. 3135, as amended by Act No. 4118. The trial court also declared
that considering that the redemption period had already expired, the Bank as purchaser,
can, and with more reason, demand for a writ of possession.
The trial court emphasized that it is its ministerial duty to issue the writ of possession in
favor of a purchaser at public auction, and that such duty could not be defeated by the
pendency of a civil case, in this instance Civil Case No. 109-M-2000.[19]
A motion for reconsideration was filed by the Spouses De Vera which was denied in an
Order[20] dated September 7, 2001. The trial court cited the case of Banco Filipino
Savings and Mortgage Bank v. IAC,[21] which reiterated the rule that a purchaser in a
foreclosed sale of mortgaged property is entitled to a writ of possession and that upon
an ex parte petition of the purchaser, it is ministerial upon the trial court to issue such
writ in the latters favor. It added that the pendency of a separate civil action
questioning the validity of the mortgage or its foreclosure cannot be a legal ground for
refusing the issuance of the writ of possession.
Aggrieved, the Spouses De Vera filed a petition for certiorari and mandamus with
temporary restraining order and writ of preliminary injunction before the CA docketed as
CA-G.R. SP No. 67164. Therein, they alleged that:
A.
PUBLIC RESPONDENT GRAVELY ABUSED HIS DISCRETION IN NOT SUSPENDING
THE PETITION FOR WRIT OF POSSESSION DESPITE THE PENDENCY OF CIVIL
CASE NO. 109-M-2000, WHICH IS A VIRTUAL REFUSAL TO PERFORM A BOUNDEN
DUTY ENJOINED BY LAW AND JURISPRUDENCE, TENDING TO RENDER SAID
CASE MOOT AND ACADEMIC, AND EXPOSING THE PETITIONERS TO GREAT AND
IRREPARABLE INJURIES AS THEY STAND TO BE OUSTED FROM THEIR HOUSE
AND LOT.

B.
PUBLIC RESPONDENT GRAVELY ABUSED HIS DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN DENYING PETITIONERS MOTION FOR
RECONSIDERATION DESPITE CLEAR GROUND TO RECONSIDER THE ORDER
DATED FEBRUARY 11, 2001.
The Bank posited that Section 7 of Act No. 3135, as amended by Act No. 4118,
authorizes it to obtain a writ of possession by filing a petition under oath in the
registration or cadastral proceedings in the form of an ex parte motion. It further
emphasized that the issuance of a writ of possession is a ministerial duty of the trial
court, as held in Spouses Ong v. Court of Appeals.[22]
On March 22, 2002, the CA rendered a decision denying due course to and dismissing
the petition. The dispositive portion reads:
WHEREFORE, premises considered, the present petition is hereby DENIED DUE
COURSE and accordingly DISMISSED, for lack of merit.[23]
The CA ruled that the respondent judge did not act with grave abuse of discretion when
he denied the petitioners motion to suspend proceedings. It reasoned that since the
subject parcel of land (with all its improvements) was not redeemed within one (1) year
from the registration of the extrajudicial foreclosure sale, it follows that the bank, as
purchaser thereof, acquired an absolute right to the writ of possession. It emphasized
that the land registration court has the ministerial duty to issue the writ of possession
upon mere motion, conformably to Section 7, Act No. 3135, as amended. Thus, the CA
found that the Spouses De Vera failed to show that the injunctive relief prayed for was
warranted.
The Spouses filed a motion for reconsideration which the appellate court denied in a
Resolution[24] dated October 15, 2002.
The Spouses forthwith filed their petition for review on certiorari under Rule 45 of the
Rules of Court assailing the decision and the October 15, 2002 Resolution of the CA,
asserting that:
A. THE COURT OF APPEALS ERRED IN NOT SUSPENDING THE PROCEEDINGS
IN LRC CASE NO. N-3507 BECAUSE OF THE PENDENCY OF CIVIL CASE NO. 109M-2000 FILED BY PETITIONERS SEEKING THE NULLITY, NOT ONLY OF THE
FORECLOSURE AND AUCTION SALE, BUT ALSO OF THE MORTGAGE ITSELF.[25]

B. THE RESPONDENT JUDGE SHOULD [HAVE] CONSOLIDATED THE P-97-2000

LRC CASE NO. 3507 WITH CIVIL CASE NO. 109-M-2000 (BRANCH 83, RTC,
BULACAN).[26]
The petition has no merit.
Section 6 of Act No. 3135[27] provides that the mortgagor or his successor-in-interest
may redeem the foreclosed property within one (1) year from the registration of the sale
with the Register of Deeds. Under Section 7[28] of the law, if the mortgagor fails to
redeem the property, the buyer at public auction may file, with the RTC in the province
or place where the property or portion thereof is located, an ex parte motion for the
issuance of a writ of possession within one (1) year from the registration of the Sheriffs
Certificate of Sale, and the court shall grant the said motion upon the petitioners
posting a bond in an amount equivalent to the use of the property for a period of twelve
(12) months. On the strength of the writ of possession, the Sheriff is duty-bound to
place the buyer at public auction in actual possession of the foreclosed property.[29]
After the one-year period, the mortgagor loses all interest over it.[30] The purchaser,
who has a right to possession that extends after the expiration of the redemption period,
becomes the absolute owner of the property when no redemption is made.[31] Thus,
the bond required under Section 7 of Act No. 3135 is no longer needed. The possession
of land becomes an absolute right of the purchaser as confirmed owner.[32] The
purchaser can demand possession at any time following the consolidation of ownership
in his name and the issuance to him of a new transfer certificate of title. After the
consolidation of title in the buyers name for failure of the mortgagor to redeem the
property, the writ of possession becomes a matter of right. Its issuance to a purchaser
in an extrajudicial foreclosure sale is merely a ministerial function.[33]
In the present case, the petitioners-mortgagors failed to redeem the property within one
(1) year from the registration of the Sheriffs Certificate of Sale with the Register of
Deeds. The respondent, being the purchaser of the property at public auction, thus,
had the right to file an ex parte motion for the issuance of a writ of possession; and
considering that it was its ministerial duty to do so, the trial court had to grant the motion
and to thereafter issue the writ of possession.
The bare fact that the petitioners were impleaded in the ex parte petition for a writ of
possession filed by the respondent did not alter the summary nature of the proceedings
in Act No. 3135. Indeed, there was no need for the respondent to implead the
petitioners as parties-respondents in its petition with the RTC. Hence, the petitioners
cannot claim that they were denied due process when the RTC took cognizance of the
respondents petition without prior service of copies of the petition and of the notice of
hearing thereof on them.

Neither was there a need for the court to suspend the proceedings merely and solely
because the petitioners filed a complaint in the RTC for the nullification of the real estate
mortgage, the sale at public auction and the Sheriffs Certificate of Sale issued in favor
of the respondent.
First. An ex parte petition for the issuance of a possessory writ under Section 7 of Act
No. 3135 is not, strictly speaking, a judicial process as contemplated in Article 433 of
the Civil Code.[34] It is a judicial proceeding for the enforcement of ones right of
possession as purchaser in a foreclosure sale. It is not an ordinary suit filed in court, by
which one party sues another for the enforcement of a wrong or protection of a right, or
the prevention or redress of a wrong. It is a non-litigious proceeding authorized in an
extrajudicial foreclosure of mortgage pursuant to Act No. 3135, as amended.[35] It is
brought for the benefit of one party only, and without notice to, or consent by any person
adversely interested.[36] It is a proceeding where the relief is granted without an
opportunity for the person against whom the relief is sought to be heard.[37] No notice
is needed to be served upon persons interested in the subject property. Hence, there is
no necessity of giving notice to the petitioners since they had already lost all their
interests in the property when they failed to redeem the same.[38]
Second. As a rule, any question regarding the validity of the mortgage or its foreclosure
cannot be a legal ground for refusing the issuance of a writ of execution.[39] The right of
the purchaser to have possession of the subject property would not be defeated
notwithstanding the pendency of a civil case seeking the annulment of the mortgage or
of the extrajudicial foreclosure.[40] Indeed, under Section 8 of Act No. 3135,[41] even if
the mortgagor files a petition assailing the writ of possession granted to the buyer and
the sale at public auction within thirty (30) days from the issuance of a writ of
possession in favor of the buyer at public auction of the property, and the court denies
the same, the buyer may appeal the order of denial. However, the buyer at public
auction remains in possession of the property pending resolution of the appeal. We
have consistently ruled that it is the ministerial duty of the court to issue writ of
possession in favor of the purchaser in a foreclosure sale. The trial court has no
discretion on this matter.[42]
On the issue of whether the RTC was mandated to consolidate LRC Case No. P-972000 and Civil Case No. 109-M-2000, we agree with the following ruling of the CA:
Neither can the prayer for mandamus be granted under the present circumstances.
The reason is simple: Mandamus as a remedy applies only where petitioners right is
founded clearly in law and not when it is doubtful. It will not issue to give to him
something to which he is not clearly and conclusively entitled.

Here, respondent JUDGEs ministerial duty in issuing the questioned issuance of the
writ of possession finds ample support not only in the jurisprudence laid down by the
Supreme Court in Navarra, but also in the case of Philippine National Bank v. Adil:
The rule, therefore, is that after the redemption period has expired, the purchaser of the
property has the right to be placed in possession thereof. Accordingly, it is the
inescapable duty of the Sheriff to enforce the writ of possession especially as in this
case, a new title has already been issued in the name of the purchaser. (Emphasis
supplied)
Therefore, petitioners, who failed to establish a clear right, cannot compel respondent
JUDGE to deviate from his duty to issue the writ of possession which is ministerial in
nature, not requiring the exercise of sound discretion, especially since, as we have said,
the redemption period has expired and a new title has already been issued in the name
of BPI. As correctly pointed out in the assailed Order dated February 13, 2001:
x x x it is its ministerial duty to issue the writ of possession in favor of a purchaser in a
foreclosure sale and the right of the petitioner cannot be defeated notwithstanding the
pendency of Civil Case No. 109-M-2000 being invoked by herein oppositor. [43]
Section 1, Rule 31 of the Rules of Court, as amended, reads:
Section 1. Consolidation. When actions involving a common question of law or fact
are pending before the court, it may order a joint hearing or trial of any or all the matters
in issue in the actions; it may order all the actions consolidated; and it may make such
orders concerning proceedings therein as may tend to avoid unnecessary costs or
delay.
It is plain as day that the trial court is not mandated to consolidate two or more related
cases. The trial court is vested with discretion whether or not to consolidate two or
more cases.[44] The grant of discretion to the trial court is incompatible with the clear
legal duty, the existence of which is essential to warrant the issuance of a writ of
mandamus.
It bears stressing that consolidation is aimed to obtain justice with the least expense
and vexation to the litigants. The object of consolidation is to avoid multiplicity of suits,
guard against oppression or abuse, prevent delays and save the litigants unnecessary
acts and expense.[45] Consolidation should be denied when prejudice would result to
any of the parties or would cause complications, delay, prejudice, cut off, or restrict the
rights of a party.[46]

In the present case, the trial court acted in the exercise of its sound judicial discretion in
denying the motion of the petitioners for the consolidation of LRC Case No. P-97-2000
with Civil Case No. 109-M-2000.
First. The proceedings in LRC Case No. P-97-2000 is not, strictly speaking, a judicial
process and is a non-litigious proceeding; it is summary in nature. In contrast, the action
in Civil Case No. 109-M-2000 is an ordinary civil action and adversarial in character.
The rights of the respondent in LRC Case No. P-97-2000 would be prejudiced if the said
case were to be consolidated with Civil Case No. 109-M-2000, especially since it had
already adduced its evidence.
Second. The matter of whether or not consolidation is proper has certainly become
moot and academic. The RTC had already issued an order granting the writ of
possession in favor of the respondent herein, and declared that the latter had already
been placed in actual possession of the property per its Order of November 8, 2002.
The petitioners herein had already appealed the said order of the RTC granting the writ
of possession to the CA on December 2, 2002. In the meantime, Civil Case No. 109M-2000 is still pending trial in Branch 83 of the RTC of Malolos, Bulacan.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The
decision of the Court of Appeals in CA-G.R. SP No. 67164 is AFFIRMED. Costs against
the petitioners.

12. Diaz vs. De Mendezona

VILLAMOR, J.:
It appears from the record that the plaintiffs-appellees commenced an action in the Court of First
Instance of Leyte for the collection of a mortgage credit of P10,000. Defendant-appellant was
adjudged in default and the court rendered judgment, ordering the sale of the mortgaged
properties. Before the expiration of the period of ninety days that the law grants the debtor
within which to pay the amount of the indebtedness, a writ of execution was issued on March
24, 1919, which was duly enforced by the sheriff, selling the mortgaged properties and giving
possession thereof to the plaintiff-appellees on June 18, 1919.
Upon motion of the defendant-appellant, the lower court on September 22, 1920, annulled all
the proceedings had under the writ of execution, including the sale of the mortgaged property.
The plaintiff-appellees appealed from said order, which was affirmed by this court in a decision
rendered June 9, 1922 (R. G. No. 17536).1

The record having been remanded to the court of origin proceeding was again had for the sale
of the mortgaged property, the same having been sold to the mortgaged creditor. The court
annulled said proceeding and the second sale to the mortgage creditor in view of certain
irregularities committed in the proceeding. The plaintiffs appealed to this court, and this court, in
a decision published December 16, 1924, affirmed the order appealed from (R. G. No. 22735). 2
The record having been remanded for the second time to the court of origin, the defendantappellant, on March 14, 1925, reviving his motions dated December 20, 1920, and June 24,
1922, petitioned the court that the plaintiffs be ordered to render an account beginning June 18,
1919, when they took possession of the mortgaged premises. The court denied the motion, and
for the third time the mortgaged property was ordered sold, the sale having been held March 16,
1925, and made to the plaintiffs who were in possession of the premises since June 18, 1919.
The court approved and affirmed the sale and adjudication of the said property to the plaintiffs,
over the objection of the defendants.
This appeal is concerned with the order of the court approving the sale and adjudication of the
property to the plaintiffs, and with the order overruling the motion of the defendant for rendition
of account by the plaintiffs.
In the two decisions of this court, affirming the orders appealed from, the question now
submitted to this court was neither raised nor discussed. In the said two decisions this court
limited itself to ordering the remanding of the record is remanded, the subsequent proceedings
to be had are the giving of a new notice for the sale of the mortgaged property, and the making
of a demand upon by the mortgage, with the advice that upon failure of payment, the mortgaged
premises would be sold. The instant case, however, is a peculiar one in that the plaintiffs have
been in possession of the mortgaged property since the date of the first sale which was
annulled, and continued in said possession until the present time. This circumstance gave rise
to the right of the defendant-appellant to ask in turn that an account be rendered by the plaintiffs
who had been in possession of the mortgaged property by virtue of sales that were annulled on
account of irregularities in the proceedings.
In 19 R. C. L., 329, paragraph 104, we find the following:
Purchaser at invalid foreclosure sale. Though there is authority to the contrary, the
great majority of the decision are to the effect that, since a purchaser at a foreclosure
sale, which by reason of some invalidity, fails to pass the interest of the mortgagor
acquired the interest of the mortgagee, he becomes, if he takes possession of the
mortgaged property with the acquiesce of the mortgagor, a mortgagee in possession,
entitled to the rights, and chargeable with the liabilities, of a person in that capacity, and
the same has been held true as to one who takes possession under meson
conveyances from a purchaser at a void foreclosure sale of a valid mortgage. And the
proposition has even been enunciated and applied that the consent of the mortgagor is
not necessary to establish the relation of mortgagee in possession, where possession is
taken under an invalid an invalid foreclosure proceeding. . . .

And in 27 Cyc., 1237, note 71 to paragraph 4, it is also held that:

Where possession was gained under foreclosure proceedings, the mortgagee occupies
the position of a mortgagee in possession, although such proceedings were defective or
even voidable for irregularity. (Blain vs. Rivard, 19 Ill., 477; Bryan vs. Branius, 162 U. S.,
415; 16 S. Ct., 803; 40 Law. ed., 1022; Stevens vs. Lord, 2 Jur., 92) . . .. And "the term
mortgagee in possession is applied to one who has lawfully acquired actual or
constructive possession of the premises mortgaged to him, standing upon his rights as
mortgagee and not claiming under another title, for the purpose of enforcing his security
upon such property or making its income help to pay his debt. . . .
We might consider this phase of the question from the standpoint of the contract of antichresis
which is regulated by the Civil Code in articles 1881 et seq.
By antichresis the creditor acquires the right to receive the fruits of real property
belonging to his debtor, under the obligation of applying them to the payment of the
interest, if any, and afterwards to the principal of his credit.
Under the provisions of the Civil Code, the creditor in antichresis does not acquire title to the
property by the failure of payment of the debt, nor can the debtor recover the possession and
enjoyment thereof without first paying the creditor all that he owes. On the other hand, the
creditor is obliged to apply the fruits of the property to the payment, first, of the interest upon the
debt, if these is any, and then to the payment of the principal. Hence, the duty of the creditor to
render an account of said fruits to the debtor and the corresponding right of the debtor that the
said fruits be applied to the mortgage debt. (Barretto vs. Barretto, 37 Phil., 234.)
In the case of Macapinlac vs. Gutierrez Repide (43 Phil., 770) this court said:
The respective rights and obligations of the parties to a contract of antichresis, under the
Civil Code, appear to be similar and in many respects identical with those recognized in
the equity jurisprudence of England and America as incident to the position of a
mortgagee in possession, in reference to which the following propositions may be taken
to be established, namely, that if the mortgagee acquires possession in any lawful
manner he is entitled to retain such possession until the indebtedness is satisfied and
the property redeemed; that the non-payment of the debt within the term agreed does
not vest the ownership of the property in the creditor; that the general duty of the
mortgagee in possession towards the premises is that of the ordinary prudent owner;
that the mortgagee must account for the rents and profits of the land, or its value for
purposes of use and occupation, any amount thus realized going towards the discharge
of the mortgage debt; that if the mortgagee remains in possession after the mortgage
debt has been satisfied, he becomes a trustee for the mortgagor as to the excess of the
rents and profits over such debt; and, lastly, that the mortgagor can only enforce his
rights to the land by an equitable action for an account and to redeem. (3 Pom. Eq. Jur.,
secs. 1215-1218.)

The objection of the appellees to appellant's petition for an accounting is based on the doctrine
laid down by this court in the case of Shioji vs. Harvey (43 Phil., 333), in which it was held that:
Inferior courts cannot be very the mandate of the superior court, or examine it, for any
other purpose than execution; nor give any other or further relief; nor review it, upon any
matter decided on appeal for error apparent; nor intermeddle with it further than to settle
so much as been remanded. (Sibbald vs. United States [1838]. 12 Pet., 488, followed.)
This doctrine, however, is not applicable to the instant case, not only because the question as to
rendition of account by the plaintiffs, mortgagees in possession of the premises, was not
considered before, but also because the aforesaid two decisions of this court in the former
appeals did not decide except the question as to the annulment of the two sales of the
mortgaged property, decreed in the two orders of the court below which were appealed from. It
is clear that the judgment of the court dated February 11, 1919, ordering the defendant to pay
the debt within ninety days and directing the sale at public auction of the mortgaged property in
case the failure of payment has become final; but since the proceedings for the foreclosure of
the mortgage were annulled, the case must relate back to the date of the judgment of the trial
court, which was February 11, 1919, for the further proceedings. If the defendant should pay his
debt within the legal period, there would be no reason for issuing any writ of execution. If he has
a valid claim against the mortgagee by reason of the latter having been in possession of the
property, as he does in the present case, such a claim should be settled before the mortgage for
the reason that claim arose from the first sale that was later annulled.
For the foregoing, the order of the lower court of July 27, 1925, approving the sale and
adjudication of the mortgaged property to the appellees must be, as is hereby, reversed. The
sale made by the sheriff on March 16, 1925, is hereby set aside and annulled. The order of July
7, 1925, denying the plaintiff's motion of March 14th of the same year, is reversed and the
plaintiffs-appellees are ordered to render an account to the court of the fruits obtained from the
mortgaged property from the time they took possession thereof, to wit, June 18, 1919, until the
date when they shall submit the account to the court for approval. The lower court, after
considering the account and the facts of the case, shall determine the amounts to be applied to
the payment of the interest of the debt, if any, and the rest to the payment of the principal,
making such orders as may be necessary to enforce compliance with the judgment rendered by
the court on February 11, 1919. So ordered.

13. Miranda vs. Imperial

G.R. No. L-49090

February 28, 1947

TEODORA L. VDA. DE MIRANDA Y OTROS, demandantes-apelantes,

vs.
FELICIANO IMPERIAL Y JUANA DE IMPERIAL, demandados-apelados.

D. Manuel M. Calleja y D. Ramon C. Fernandez en representacion de los apelantes.

D. Toribio P. Perez en representacion de los apelados.
BRIONES, J.:
Este es un asunto de anteguerra. Se presento la demanda ante el Juzgado de Primera
Instancia de Albay el 25 de Noviembre de 1941, es decir, casi en visperas de estallar la
guerra del Pacifico. El Juzgado dicto su sentencia el 17 de Marzo, 1943. Se elevo el
asunto para ante esta Corte Suprema, en virtud de la apelacion interpuesta por la
demandante el 9 de Junio, 1943. Antes de que pudiera decidirse, el expediente se
quemo juntamente con los demas expedientes de esta Corte en la conflagracion de
Manila con motivo de la batalla de liberacion. Lo que tenemos, por tanto, ante Nos es
un expediente reconstituido con documentos proporcionados por los abogados de la
apelante, a saber: (a) copias del expediente de apelacion (record on appeal); (b) copias
del alegato sometido por los abogados de la apelante. La apelada no ha presentado
ningun alegato ni por si, ni por medio de su abogado. Los abogados de ambas partes
fueron debidamente notificados de las diligencias de reconstitucion por el comisionado
de esta Corte, pero los unicos que han comparecido han sido los abogados de la
apelante, entregando las copias de que se ha hecho mencion.
Se alega en la demanda que antes del 17 de Noviembre de 1938 los conjuges
demandados, Feliciano Imperial y Juana de Imperial, debian a Elias Imperial la cantidad
de P1,000; que en consideracion a esta deuda y para garantizar su pago habian
cedido, en calidad de anticresis, al citado Elias Imperial la posesion y goce de tres
parcelas de terreno arrozal de su propiedead; que en la referida fecha 17 de
Noviembre, 1938, los demandados propusieron a la demandante, Teodora L. Vda. De
Miranda, que les prestase la cantidad de P1,000 para rescatar de Elias Imperial los
terrenos, subrogandose ella como acreedora en lugar de elias bajo los mismos
terminos y condiciones del contrato de anticresis celebrado con este ultimo; que como
quiera que la demandante tenia la cantidad pedida y, ademas, la demandada es su
cunada, siendo viuda de un hermano de esta, acepto la proposicion, entregando
efectivamente la cantidad de P1,000 a los demandados, quienes a su ves la
devolvieron a Elias Imperial para el rescate de las fincas; que, tratandose de parientes,
el contrato no se redujo a escritura, pero despues del rescatey de haberlo hecho
constar Elias Imperial al pie de los documentos de propiedad sobre las tres parcelas de
terreno, dichos documentos se entregaron en el mismo acto de la redencion a la
demandante que entonces estaba presente en compania de la demandada, como
prueba del prestamo y del traspaso del nuevo contrato de anticresis; que desde
entonces la demandante estuvo disfrutando de los productos, recibiendo su
participacion en las cosechas correspondientes a 1939 y 1940 a razon de dos
cosechas al ano, y en la primera cosecha de 1941, o sea un total de 5 cosechas desde
el 17 de Noviembre de 1938 hasta el Abril de 1941; que la demandante ya no pudo
disfrutar de la segunda cosecha de 1941, o sea la correspondiente a Octubre, pues los
demandados resolvieron desde entonces apropiarse de tal cosecha y de las
subsiguientes hasta la presente; que la cosecha recogida por los demandados en
Octubre, 1941, y que debia pertenecer a la demandante, era de 50 cavanes de palay,

cuya cotizacion en el mercado era a P2.50 el cavan esto es, un importe total de p120.
Por tanto, la demandante pide que, "bajo el primer motivo de accion, se condene a los
demandados a que otorguen un documento de hipoteca en favor de la demandante
garantizando las tres parcelas de terreno mencionadas arriba para asegurar el pago a
la demandante de los mil pesos abonados por ella al Sr. Elias Imperial por cuenta de
dichos demandados, fijando en dicho documento un plazo de tres meses para el pago,
o el plazo que sea razonable segun el prudente juicio del Juzgado y mediante un
interes al tipo de doce (12%) por ciento al ano;" y "bajo el segundo motivo de accion, se
condene a los demandados a pagar a la demandante la suma de P120 como valor de
la cosecha de palay levantada de las parcelas de terreno descritas en esta demanda y
apropiada ilegalmente por dichos demandados, ademas de las costas del juicio;" y
"pide, por ultimo, cualquier otro remedio justo y equitativo."
Respecto del primer motivo de accion los demandados se defienden alegando que solo
recibieron de la demandante la cantidad de P500, a la cual anadieron otros P500 para
rescatar los terrenos de Elias Imperial; y que dicha deuda de P500 quedo mas que
pagada con los productos de los terrenos que recibio la demandante en 5 cosechas
consecutivas, "extinguiendose de esta manera automaticamente los derechos y
obligaciones contractuales de las partes." Respecto del segundo motivo de accion, lo
niegan, y dicen que la cosecha recogida en Octubre de 1941 y todas las que se
recogieron despues pertenecian legalmente a ellos los demandados; y que dicha
cosecha de Octubre, al igual que en los aos anteriores, les reporto como participacion
70 cavanes de palay.
Los demandados plantean, ademas, en su contestacion una reconvencion alegando (1)
que entre la demandante y la demandada, Juana de Imperial, se celebro un convenio
verbal en vitud del cual esta recibio de aquella la suma de P500 para rescatar los
refefridos terrnos, en la inteligencia de que la demandante haria suyos todos los
productos bajo los mismos terminos y condiciones del anterior contrato con Elias
Imperial, hasta que su credito quedase enteramente pagado con tales productos: (2)
que, en efecto, el rescate se efectuo devolviendo Elias los documentos a Juana con
una nota de cancelacion de la deuda al pie de los mismos, pero que despues la
demandante tomo prestados dichos documentos bajo el pretexto de familiarizarse con
los colindantes de los terrenos, siendo esta la explicacion de como los documentos
fueron a parar en manos de la demandante reteniendolos hasta el dia de la vista; (3)
que, ademas de las 3 parcelas de que se trata, la demandante disfruto de los productos
de una cuarta parcela de los demandados, montantes a 10 cavanes de palay en cada
cosecha; (4) que las 4 parcelas de terreno la demandante llego a recibir como
participacion en las 5 cosechas que recogio un total de 400 cavanes de palay, y que el
cavan entonces se cotizaba a P2.50 en el mercado; (5) que, por tanto, la demandante
hizo no menos de P1,000 con los productos recibidos por ella, y descontando de dicha
suma los P500 adeudados por los demandados, mas P100 en concepto de intereses al
tipo legal, todavia queda a favor de estos un saldo de P400, por lo que piden se dicte
sentencia contra la demandante por esta ultima cantidad.

Despues de visto el asunto el Juzgado dicto su sentencia en la que se estiman

probados concluyentemente los diguientes hechos: (1) que por unos 10 anos anteriores
al 17 de Noviembre de 1938 los demandados llevaban debiendo a Eleas Imperal la
cantidad de P1,000: (2) que entre el acreedor y los deudores se habia celebrado el
contrato accesorio de anticresis en virtud del cual aquel disfrutaria como efectivamente
disfruto durante dicho periodo de 10 anos de todos los productos de los 3 terrenos de
que se ha hecho mencion, considerandose dichos productos como intereses del dinero
prestado; (3) que, durante y disfrute los terrenos, ni un solo grano de palay producido
se aplicio para pagar o amortizar el capital del prestamo; (4) que el 17 de Noviembre de
1938 los demandados recibieron de la demandante no P500, como aquellos alegan,
sino P1,000, para rescatar las fincas de manos de Elias Imperial siendo el convenio
entre las partes que la demandante se subrogaria como acreedora en lugar de dicho
Elias Imperial bajo los mismos terminos y condiciones del contrato de anticresis
celebrado con este; que "despues de cuidadosa consideracion de las pruebas y de
todas las circunstancias concomitantes, el Juzgado concluye y, por tanto, asi declara,
que la demandante presto atualmente a los demandadosP1,000 y que el convenio
entre las partes era que la demandante recibiria los productos de las 3 parcelas
anteriormente puestas en anticresis a favor de Elias Imperial, como intereses del
prestamo hasta que el mismo fuese enteramente pagado"; que, en efecto, la
demandante estuvo recibiendo tranquilamente los productos en 5 cosehcas
consecutivas, pero despues de la cosecha de Abril, 1941, los demandados
desposeyeron completamente a la actora, apropiandose de todas las cosechas.
De los hechos establecidos en la sentencia, tal como esta queda extractada, resulta
evidente que el contato de anticresis sobre que versa este asunto es el definido en el
articulo 1885 del Codigo Civil que preceptua lo siguiente: "Los contratantes pueden
estipular que se compensen los intereses de la deuda con los frutos de la finca dada en
anticresis." Sin embargo, el Juzgado a quo, en vez de aplicar dicho articulo como debia
por imperativo de los hechos que declara probados y establecidos en el juicio, hace el
siguiente pronunciamiento: "Empero, no obstante este convenio, la pretension de los
demandados de que el importe de los productos recibidos por la demandante debe
aplicarse al pago del capital de su deuda desues de deducidos los intereses al tipo
legal, debe ser sostenida." Es decir, el Juzgado aplica al caso no el articulo 1885 ya
citado sino el articulo 1881 del Codigo Civil cuyo texto es, a saber: "Por la anticresis el
acreedor adquiere el derecho de percibir los frutos de un inmueble de sus deudor con
la obligacion de aplicarlos al pago de los intereses, si se debieren, y despues al del
capital de su credito." Y el Juzgado funda su conclusion en la sentencia dictada por el
anterior Tribunal de apelaciones en el asunto de Santa Rosa contra Noble (R.G. No.
43769, 35 Off. Gaz., 2734; The Lawyer's Journal, Vol. V, No. 23, p. 1109), ponencia del
Magistrado Hon. Jose Lopez Vito.
Asi que el tribunal a quo, despues de hacer la correspondiente operacion aritmetica
aplicando los productos, primero, al pago de los intereses, y despues al del capital de la
deuda, adjudica a favor de la demandante un saldo de P435.17 y ordena que se
continue aplicando a satisfacerlo los productos de los terrenos hasta su completo pago,
o que los demandados lo solventen de una vez con intereses a razon de 6 por ciento al

ano desde el 1. de Mayo de 1941. Contra el fallo asi dictado la demandante ha

interpuesto la presente apelacion, no planteando mas que cuestiones de derecho, a
saber: que el Juzgado incurrio en error al no aplicar al presente caso en todo su rigor al
articulo 1885 del Codigo Civil; que el Juzgado no podia, de un fiat, crear arbitrariamente
para las partes un contrato no celebrado entre las mismas; que el articulo 1885 se
refiere concretamente a un tipo de anticresis y el articulo y el articulo 1881 a otro; que
cuando el convenio es, como en el caso que nos ocupa, que los productos de la finca
dada en en anticresis se compensen con los intereses de la deuda, ninguna parte de
los productos debe aplicarse a la amortizacion del capital; y que por tanto, ella, la
apelante, tiene derecho a que se le devuelva integro el capital de su credito, o sea la
cantidada de P1,000, mas los productos o intereses correspondientes.
El Tribunal a quo funda su fallo en la mencionada sendos asuntos enteramente
analogos, sobre todo porque ambos proceden de una misma region la bicolana y
se refieren a un contrato muy comun en dicha region, el contrato llamado alli
vulgarmente "sangla" o "prenda," y que en las Visayas donde se habla el dialecto
cebuano y en Mindanao se llama "saop" y tambien "prenda" a veces.
Parece superfluo decir que solamente las sentencias de esta Corte Suprema sientan
jurisprudencia o doctrina en esta jurisdiccion. Sin embargo, esto no empece que una
conclusion o pronunciamiento del Tribunal de apelaciones que cubre algun punto de
derecho no resuelto todavia en nuestra jurisprudencia pueda servir de norma juridica a
los tribunales inferiores, y que esa conclusion o pronunciamiento se eleve a doctrina si,
despues de sometido a prueba en elcrisol del analisis y revision judicial, hallaramos que
tenia meritos y quilates suficientes para su consagracioncomo regla de jurisprudencia.
A este efecto y para este fin hemos examinado cuidadosa y detenidamente la sentencia
del Tribunal de apelaciones en el referido asunto de Santa Rosa contra Noble,
procedente, como queda dicho, de la region bicolana lo mismo que este que nos
ocupa.
Sin suscribir no estamos ahora llamados para ello, ni es necesario que lo hagamos
las interesantes apreciaciones que el Tribunal de Apelaciones hace en dicha
sentencia, creemos, sin embargo que el Juzgado a quo erro al aplicarla al presente
caso, pues hay entre ambos casos diferencias fundamentales, a saber:
Primera diferencia: En el asunto del Tribunal de Apelaciones la usura fue un "issue," un
punto capital en controversia. Por eso dice aquel Tribunal en su sentencia: "Pero los
demandados arguyen que el contrato consignado en el Exhibit E es usurario, con lo
cual se plantea la cuestion de si la Ley No. 2655 conocida por Ley de Usura que
establece la tasa del inters que es permisible cobrar en los prestamos, es aplicable a
los contratos de anticresis." Aunque no lo dice de un modo, el Tribunal de Apelaciones,
al dictaminar que la Ley de Usuara era aplicable, fijando consiguientemente el interes
cobrable en el tipo legal de 6 por ciento, practicamente enjuicio y declaro como usurario
el contrato de anticresis de que se trataba.

En el caso que tenemos ante Nos la cuestion de la usura no se suscito jamas ni en las
alegaciones ni enel juicio; y en la sentencia no hay ningun pronunciamento de hecho
sobre usura; y como quiera que en esta apelacion no se planteam mas que cuestiones
de derecho dandose por establecidos y admitidos sin discusion los hechos consignados
en la sentenica, dicho se esta que nuestra facultad de revision tiene que cenirse
estricta e inflexiblemente a tales hechos, sin que nos sea permitido ir mas alla de su
radio. Despues de todo, no es extrano que los demandados no hayan suscitado
ninguna cuestion sobre usura, pues popr 10 anos habian sido deudores de Elias
Imperial sin, al parecer, diferencias que empenaran sus relaciones (de hecho Elias
declaro en la vista a favor de los demandados), y ya hemos visto que la demandante no
ha hecho mas que subrogarse en lugar de Elias en el contrato de anticresis.
Segunda diferencia: Resulta evidente que la anticresis de que trata el asunto citado de
Santa Rosa contra Noble es la definida en el articulo 1881 del Codigo Civil, anticresis
en que "el acreedor adquiere el derecho de percibir los frutos de un inmueble de su
deudor con la obligacion de aplicarlos al pago de los intereses, si se debieren, y
despues al del capital de su credito." He aqui lo que dice el Tribunal de Apelaciones, en
su sentencia que comentamos, sobre este respecto: "En cuanto a si la misma tasa
establecida por la Ley contra la Usura debe aplicarse cuando hay una estipulacion
expresa de que los frutos se comensaran con los intereses de la deuda con arreglo al
articulo 1885, quaere: no siendo este el caso que se somete hoy a nuestra
consideracion, habiendo nosotros declarado que el Exhibit "E" cae bajo las
dispocisiones del articulo 1881 del Codigo Civil." (Las cursivas son nuestras.)
En cambio, la anticresis sobre que versa el presente asunto es la definida en el articulo
1885, el cual dispone "que los contratantes pueden estipular que se compensen los
intereses de la deuda con los frutos de la finca dada en anticresis." He aqui el
terminante pronunciamiento del Juzgado a quo sobre el particular: "After a careful
consideration of the evidence and all the attending circumstances, the court concludes,
and therefore holds, that the plaintiff actually loaned the defendants P1,000, and that
the agreement between the parties was that the plaintiff would receive the products of
the three parcels of land formerly conveyed in antichresis to Elias Imperial as interests
on said loan until the same is paid."1(Las cursivas son nuestras.)
Existiendo, segun conclusion misma del tribunal a quo, ese pacto de que los productos
de las fincas se compensen con los intereses de la deuda, de acuerdo con el articulo
1885 del Codigo Civil, resulta arbitrario el cambiarlo judicialmente, haciendo para las
partes uncontrato que ellas no han celebrado, o para decirlo mas especificamente,
transformando el pacto verdaderamente convenido en algo que cae bajo un articulo del
codigo que no estaba ni en la mente ni en la voluntad de los contratantes. El articulo
1255 del Codigo Civil prescribe que "los contratantes pueden establecer los pactos,
clausulas y condiciones que tengan por conveniente, siempre que no sean contrarios a
las leyes, a la moral, ni al orden publico." Esto excluye de los contratos el fiat judicial.
Los tribunales pueden interpretar los contratos; lo que no pueden hacer es moldearlos,
for jarlos para las partes.

Convenimos con el Tribunal de Apelaciones en que el contrato llamado "sangla" o

"prenda" (sobre inmueble) en Bicol, "soap" o "prenda" en Visayas y Mindanao, tiene
realmente los caracteres de la anticresis y, por tanto, puede considerarse como tal.
Ademas de la venta con pacto de retro, ese contrato es el mas conocido y usual en
nuestros pueblos y barrios rurales de el echa mano el campesino y labriego, ya para
mejorar y expandir sus cultivos, ya para comprar nuevas tierras con que aumentar sus
posesiones, ya para casar a sus hijos y dotarlos, y aun a veces para dar un entierro
digno y adecuado a sus muertos. Y por que no decirlo? La desdichada pasion per el
juego culmina a veces tambien en ese contrato para amargar la existencia si nor para
labrar la ruina del pequeno propietario.
La cuestion que ahora tenemos que determinar es, a saber: es automatica o
ministerialmente aplicable a la anticresis la de usura, como parece colegirse de la
sentencia apelada? Indudablemente que no. La anticresis, como contrato ya sea
bajo el articulo 1881, ya bajo el articulo 1885 del Codigo Civil no es necesariamente
usuraria; puede ser, eso si, usuraria. Pero para que asi pueda declararse, no solo es
absolutamente necesario que la usura sea un "issue," un punto capital contencioso en
las alegaciones y en el juicio, a fin de que cada parte tenga su "day in court," es decir,
que pueda defenderse debida y adecuadamente, sino que, ademas, debe demostrarse
y establecerse positivamente que la usura es de tales proporciones que, sobre
repugnar a la conciencia, incline el animo a creer que, el contrato se ha utilizado como
un disfraz o artilugo para violar o evadir la ley de usura. La razon de esto es bien
sencilla: en la anticresis hay un elemento contingente, aleatorio, por naturaleza. La
percepcion de los productos por el acreedor, que es su caracteristica principal, esta
sujeta a varias contingencias y eventualidades. Puede venir una mala cosecha, o bien
ninguna, ya porque ha desfogado un tifon, ya porque se han desbordado los rios
sobreviniendo una inundacion, ya porque una bandada de langostas ha devastado las
siembras y plantaciones, y porque profundas convulsiones sociales han subvertido la
paz y el orden impidiendo la labranza de los campos, etcetera, etcetera. Asi que a la
anticresis no se pueden aplicar automaticamente, ministerialmente, los articulos 2, 3 y 8
de la Ley No. 2655 sobre usura, pues estos se refieren a la percepcion de una cantidad
fija de productos: el deudor los tiene que entregar indeclinablemente, o su equivalente
en dinero, sea buena o mala la cosecha, la haya o no la haya. El hecho de que a veces
en la anticresis el importe de los frutos, al hacerse la liquidacion, exceda las tasas
fijadas por la ley de usura, no hace el contrato usurario, porque la ley da por supuesto
que tal exceso es el dividendo que recoge el acreedor a cambio de la prima de riesgos
y contingencias que ha pagado encima del capital de su credito.
En la jurisprudencia americana tambien se conocen ciertos tipos de contrato analogos
a nuestro "sangla" o "saop." como lo demuestren las siguientes autoridades:
In view, however, of the rule that a creditor's return need not be limited to the
statutory rate when it is affected by a contingency putting the whole of it at
hazard, a contract is ordinarily not usurious under which the creditor is to receive,
in consideration of his loan or forbearance, property or services of uncertain
value, even though the probable value is greater than lawful interest, unless the

excess is so palpable as to show a corrupt intent to violate or evade the usury

laws, unless the contract is made for the purpose of such violation or evasion. 2
(66 C.J., 212.)
Where the lender is to receive something else than money for his loan, as
property or services, the value of such profit being necessarily uncertain, the
contract is not usurious, even though the probable value is greater than legal
interest, unless the consideration so given is so palpably in excess of the cetain
profit allowed by law as to show a corrupt intent to violate the usury laws." 2 39
Cyc. 959; Wright vs. McAlezander, 11 Ala., 236; Rapier v. Gulf City Paper C., 77
Ala., 126. (102 Southern Reporter, p. 204.)
So, an agreement that instead of interest, the lender of money should receive the
rents and profits of certain land for a term of years, is not usurious where no
intention to evade the statue is shown; and the fact that such rents and profits
happen to amount to more than lawful interests does not render the contract
usurious.3(Webb on Usury, p. 85.)
Manresa, disertando sobre las conveniencias relativas de la anticresis a pesar de que a
veces se presta como instrumento de usura, hace las siguientes atinadas
observaciones:
Al proceder de esta modo los autores del Codigo, respondieron con gran acierto
a una necesidad impuesta por los modernos principios en que se inspiran las
leyes del mutuo, segun los que no hay razon alguna economica ni juridica para
condenar la anticresis. Ademas, procuraron de este modo evitar daos y
perjuicios al deudor que, en otro caso, eran inevitables, pues la experiencia bien
palpablemente habia demostrado que, a pesar de la prohicion de las leyes, el
pacto anticretico era muy frecuente en la practica, porque se eludian las
disposiciones prohibitorias, disfrazando la convencion con la forma o el nombre
de ventas a pacto de retro, con lo que lejos de favorecerse al prestatario, como
se propuso el legislador, se le causaba gran quebranto, toda vez que no
pudiendo conceder al acreedor el goce de los frutos para aplicarlos a la
amortizacion de los intereses o al pago parcial de capital, se veian obligados a
enajenar los bienes en la forma indicada, desprendiendose de una propiedad
que dificilmente podian volver a adquirir. (Manresa, Com. al Cod. Civ. Espanol,
tomo 12, pag. 545.)
La regla, pues, es, o debe ser, la siguiente: (a) la anticresis que se conoce en este pais
con el nombre vernaculo de "sangla" o "saop" no puede enjuiciarse y declararse como
usuraria, a menos que la usura en si misma se suscite ocmo un "issue," un punto
contencioso entre las partes, de acuerdo con las normas procesales estatuidas sobre el
particular; (b) y para que dicho contrato se considere y declare usurario no es bastante
que los productos del inmueble dado en anticresis, al perciberse por el acreedor,
excedan algun tanto las tasas legales en materia de intereses, sino es preciso que el
exceso sea tan palpable, tan repulsivo y tan chocante a la conciencia que de

necesariamente la sensacion de que el contrato se ha fraguado para ocultar la

intencion aviesa de infringir o evadir la ley de usura; (c) no mediando estas
circunstancias, el "sangla" o "saop" debe respetarse y su cumplimiento dejarse
expedito bajo el articulo 1881 o el articulo 1885 del Codigo Civil, segun fuere el caso, y
los tribunales nada haran para cambiar los terminos de la anticresis, la cual debe ser
ley entre las partes.
El caso que nos ocupa ofrece algunas dificultades en lo que respecta al fallo que debe
dictarse. La demandante pide que se condene y oblique a los demandados a otorgar a
su favor un documento de hipoteca sobre las tres parcelas de terreno para garantizar el
pago del al deuda de P1,000, "fijando en dicho documento un plazo de tres meses para
el pago, o el plazo que se razonable segun el preduente juicio del Juzgado y mediante
un interes al tipo de 12 por ciento al ano; o en su lugar, cualquier otro remedio que
fuere procedente." A nuestro juicio, esto no haria mas que demorar la disposicion y
liquidacion definitiva del asunto en perjuicio de las partes y de una expedita
administracion de justicia.
Habiendose posesionado los demandados de las parcelas de terreno por ellos
traspasadas en anticresis a los demandantes y disfrutado de sus frutos desde el mes
de Octubre de 1941 hasta a la fecha, y demostratod los demandantes su conformidad
en dar por teminado el contrato anticretico al presentar la demanda el 25 de Noviembre
de 1941, no para recuperar dichas parceles de terreno, sino para exigir el pago de las
deuda con los intereses correspondientes desde la citada fecha, previa revocacion de
la sentenciaapelada, dictamos el siguiente fallo:.
(1) Se condena a los demandados a pagar a los demandantes la cantidad de mil pesos
(P1,000), importe del credito de estos ultimos, con intereses a razon de 6 por ciento al
ano a partir del 25 de Noviembre de 1941 en que se presento la demanda, y las costas
judiciales, debiendo pagarse dicha suma con sus intereses y las costas a los
demandantes, o depositarse en el Juzgado de Primera Instancia de Albay dentro del
plazo de tres meses contado desde que oficialmente se levante la presente moratoria;
(2) En defecto de pago, conforme se ordena en el parrafo anterior, las tres parcelas de
terreno sobre que versa este asunto se venderan por el Sheriff en publica subasta de
acuerdo con la ley sobre cobro de credito hipotecario;
(3) Entretanto no se efectue el pago, conforme se ordena en esta sentencia, la suma
adeudada con sus intereses legales y las costas judiciales pasaran como un gravamen
(lien) preferente sobre las tres parcelas de terreno en cuestion. Asi se ordena.
Moran, Pres., Feria, Bengzon, Padilla y Tuazon, MM., estan conformes.

Separate Opinions

PARAS, J., dissenting:

Although the trial court held that "the plaintiff actually loaned the defendants P1,000,
and that the agreement between the parties was that the plaintiff would receive the
products of the three parcels of land formerly conveyed in antichresis to Elias Imperial
as interests on said loan until the same is paid," it nevertheless sustained, citing the
decision of the Court of Appeals in the case of Santa Rosa vs. Noble (35 Off. Gaz.,
2724), "the contention of the defendants that the value of the products received by the
plaintiff, after deducting therefrom the interests at legal rate, should be applied to the
principal of their debt."
The plaintiff has appealed; does not controvert the correctness of the appraisal made by
the trial court of the value of the products received by her from the lots in question: but
contends that said court should have applied article 1885 of the Civil Code which
provides that "the contracting parties may stipulate that the interest of the debt be set off
against the fruits of the estate given in antichresis." In other words, it is the view of the
plaintiff that the products, regardless of their value, should belong to her in payment of
the interest on defendant's loan of P1,000. This is also the view expressed in the
majority opinion.
I dissent. The right of the contracting parties to establish any pacts, clauses, and
conditions they may deem advisable, is subject to the proviso that "they are not contrary
to law, morals, or public order." (Article 1255, Civil Code.) After the enactment of the
Usury Law (Act No. 2655), which fixes the rate of interest, in the absence of express
stipulation, at six per centum per annum (section 1) and provides (section 8) that "all
loans under which payment is to be made in agricultural products or seed or in any
other kind of commodities shall also be null and void unless they provide that such
products or seeds or other commodities shall be appraised at the time when the
obligation falls due at the current local market price," article 1885 of the Civil Code must
be considered modified, if not repealed under the repealing clause (section 11) of the
Usury Law. In other words, any antichretic agreement, under either article 1881 or
article 1885, may now be validly enforced only in the light of the provisions of the Usury
Law. The unrestricted freedom conceded in article 1855 was good before the
Government had laid down its policy regarding interest on loans.
El articulo 1881 sanciona, pues, la regla general que ha de regir forzosa y
necesariamente siempre que no exista el pacto especial indicado, y el 1885
establece la excepcion de esa regla para el caso de que se estipule dicho pacto.
Este es consecuencia de la libertad concedida para la fijacion de los intereses,
pues abolida la tasa legal por la ley de 1856, las partes pueden fijar libremente la
cuantia y condicion de dichos intereses, pudiendo percibirse los mismos en
dinero que en especie, y, por consiguiente, compensarse los intereses con los
frutos. (12 Manresa, Codigo Civil, pag. 482.)

The majority argue that the Usury Law cannot be applied because the defense of usury
was not set up. It appears, however, that, as amitted by the majority, the defendant
alleged in his answer that "la demandante hizo no menos de P1,000 en los productos
recibidos por ella, y descontando de dicha suma los P500 adeudados por los
demandados, mas P100 en concepto de intereses al tipo legal, todavia queda a favor
de estos un saldo de P400, por lo que piden se dicte sentencia contra la demandante
por esta ultima cantidad." If this allegation did not amount to a charge that the plaintiff
received more than the legal interest, it was sufficient to apprise the court and the
plaintiff that it was the contention of the defendant that the plaintiff had no right to apply
the products entirely in compensation of the interest notwithstanding their agreement,
and this issue should be decided in the light of existing law which it was not necessary
for the defendant to specify in his answer. We would not thus be digressing from the
issues raised by the parties, or creating new ones, by simply adjudicating concrete
cases conformably to law.
. . . es manifiesto que los Tribunales pueden en cada caso concreto apreciar la
naturaleza de la obligacion y condiciones a ella anejas, si determinado pacto la
constituye para los efectos procedentes en derecho. . . . (11 Manresa, Codigo
Civil, pag. 550.)
The contingent character of the arrangement contemplated by Article 1885, cannot
warrant its continued existence. The Usury Law, which is of later date and therefore
controlling, protects borrowers and at the same time eliminate the element of chance
that may prove disadvantageous to lenders who are to be paid in agricultural products.
The appealed judgment should be affirmed.

14. TRILLANA vs. MANANSALA G.R. No. L-6752

April 29, 1955

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:
(a) Plaintiff the contract of absolute sale (exhibit A) executed in his favor in June
1948 by Vicenta Bernardo, daughter and the only surviving heirs of Marcos Bernardo;
(b) Defendants the document Exhibit 1, in tagalog, which is translated as follows:

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 . . . .
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, the thru prescription, land obtained under
Exhibit 1, we gave due course to the petition 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
impression 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, the 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 especial damages too. Costs against
defendants. So ordered.

16. Serra vs. Rodriguez

G.R. No. L-25546 April 22, 1974

EVA ARANETA SERRA, Petitioner, vs. HONORABLE JESUS S. RODRIGUEZ, Judge
of the Court of First Instance of Iloilo, MANUEL LORING, JR., MILAGROS L.
LORING, and THE PROVINCIAL SHERIFF OF ILOILO, Respondents.
Manuel O. Soriano and Associates for petitioner.
E. B. Treas and C. Miraflores for respondent.
MAKASIAR, J.:
Petitioner Eva Araneta Serra interposed this appeal by certiorari praying for the
nullification of the order dated December 27, 1965 of the respondent Judge.
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It is undisputed that on September 13, 1965, private respondents-spouses Manuel

Loring Jr. and Milagros L. Loring filed a complaint for the recovery of P101,000.00
against spouses Enrique Ordoez and Maria G, Ordoez based on a promissory note,

docketed as Civil Case No. 6846 of the respondent Court of First Instance of Iloilo.
Upon motion of said private respondents-spouses as plaintiffs in said civil case,
pursuant to their prayer in their complaint, a writ of preliminary attachment was issued
and on September 14, 1965, a notice of levy of said attachment was registered on TCT
No. T-18847 covering the residential lot and the residential house of strong materials
thereon of the Ordoez spouses. Because the value of the debtors' real estate levied
upon as aforestated was insufficient to satisfy the claim, their personal properties
consisting of pieces of furniture, chandeliers, silverware, electrical appliances, etc., were
also attached on September 14, 1965.
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On September 30, 1965, debtor Maria G. Ordoez, alone by herself without the prior
consent of or authority from her husband, debtor Enrique Ordoez, executed a deed of
chattel mortgage over the aforementioned personal properties in favor of herein
petitioner Eva Araneta Serra allegedly as security for a loan of P20,000.00 which was
duly registered on October 1, 1965 (pp. 19-20, rec.) By virtue of said chattel mortgage,
on November 2, 1965, about a month and two days from its execution, petitioner Serra
filed a third-party claim over the attached personal assets with the respondent provincial
sheriff alleging that the aforementioned enlisted properties are valued no less than
P35,000.00 (Annex C, pp. 15-18, rec.). By virtue of the said third-party claim, the
respondent provincial sheriff accordingly informed the Loring spouses and required
them to file a bond in the amount of P22,000.00 within three days from receipt,
otherwise, he will be obliged to turn over the personal properties to the third-party
claimant, herein petitioner Eva Araneta Serra (Annex B, p. 27, rec.). In a motion dated
November 23, 1965, private respondents Manuel Loring and Milagros L. Loring prayed
for the disapproval of the third-party claim of Serra as improper and invalid on the
ground that Serra has neither title to the personal assets of the debtors nor right of
possession thereof within the purview of Section 13 of Rule 57 of the Revised Rules of
Court; because a chattel mortgagee is not entitled to the possession of the mortgaged
personal properties as the chattel mortgage is merely a security for the loan and if
possession is delivered to the chattel mortgagee, the contract becomes a pledge and
ceases to be a chattel mortgage (Art. 2140 of the New Civil Code of the Philippines).

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law library

Sustaining the position of herein private respondents as creditors, respondent Court

issued the questioned order dated December 27, 1965 directing the respondent
provincial sheriff to re-attach the personal properties of the Ordoez spouses as listed in
the third-party claim of herein petitioner Serra (Annex F, pp. 32-34).
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We affirm.

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Under Section 14 of Rule 57 of the Revised Rules of Court, a third-party claimant to a

property levied upon by a writ of attachment must show that he has title thereto or right

to the possession thereof. This excludes a chattel mortgagee because a chattel

mortgage is merely a security for a loan and does not transfer title of the property
mortgaged to the chattel mortgagee. Neither is a chattel mortgagee entitled to the
possession of the property upon the execution of the chattel mortgage for otherwise the
contract becomes a pledge and ceases to be a chattel mortgage (see concurring
opinion of Mr. Justice Padilla in Contreras vs. Felix, 78 Phil. 570, 582). The old view that
a chattel mortgage is a conditional sale and therefore transfers immediately the title to
the chattel mortgagee who may thus properly file a third-party claim to a property
subject matter of attachment (Contreras vs. Molina, 64 Phil. 1), has been expressly
repudiated by Article 2140 of the new Civil Code, which defines a chattel mortgage,
thus:
ART. 2140. By chattel mortgage, personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation. If the movable, instead of
being recorded, is delivered to the creditor or a third person, the contract is a pledge
and not a chattel mortgage.
The change was deliberate according to the Code Commission, which categorically
stated that the "definition of the chattel mortgage even in the Chattel Mortgage Law is
inaccurate for it considers a chattel mortgage as a conditional sale. Therefore, a new
definition is given in Article 2140" (Report of the Code Commission, p. 158).
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From the denial of a third-party claim to defeat the attachment caused to be levied by a
creditor, neither an appeal nor a petition by certiorari is the proper remedy (see Santos
vs. Mojica, L-19618, Feb. 18, 1964, 10 SCRA 318, 320-321; Potenciano vs. Dineros, 97
Phil. 196, 200). The remedy of petitioner would be to file a separate and independent
action to determine the ownership of the attached property or to file a complaint for
damages chargeable against the bond filed by the judgment creditor in favor of the
provincial sheriff.
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Or herein petitioner could have filed a motion for intervention. However, such a motion
is addressed to the wise discretion of the trial judge whose denial thereof may not be
reviewed by this Court in the absence of grave abuse on his part.
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Moreover, the chattel mortgage executed alone by the wife, Maria G. Ordoez, is of
doubtful validity since only the husband, as administrator of the conjugal assets (Art.
165, New Civil Code), has the power to dispose of the same for the benefit of the family,
especially for the purposes specified in Articles 161 and 162 of the New Civil Code (Art.
171, New Civil Code). And the wife cannot bind the conjugal partnership without the
husband's consent, except in cases provided by law (Art. 172, New Civil Code). There is
no showing that the consent of the husband was obtained for the wife to execute the

chattel mortgage or that the wife was granted special authority by the husband
embodied in a public instrument to administer the conjugal assets (Art. 168, New Civil
Code).
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Furthermore, the chattel mortgage may be rescinded on the ground that it refers to
things under litigation and entered into by the defendant debtor "without the knowledge
and approval of the litigants or of competent judicial authority" or that the same was
executed "in fraud of creditors when the latter cannot in any other manner collect the
claim from them" (pars. 3 & 4, Art. 1381, New Civil Code). It should be recalled that the
personal assets were levied by virtue of the writ of preliminary attachment on
September 14, 1965; while the chattel mortgage was executed on September 30, 1965
and registered only on October 1, 1965. The execution of said chattel mortgage was
without the knowledge and approval of the private respondents creditors much less the
court, in which case said chattel mortgage is patently rescissible under paragraph 4 of
Article 1381 of the New Civil Code. As heretofore intimated, said chattel mortgage may
likewise be rescinded as a fraudulent scheme to defeat the right of herein private
respondents creditors under paragraph 3 of Article 1381 of the New Civil Code if it is
shown that the creditor has no other remedy to completely recover his claim (Panlillo vs.
Victoria, 35 Phil. 706), or because it is presumed to be fraudulent as the personal
assets mortgaged had been levied upon under a writ of attachment 16 days prior to the
execution of the chattel mortgage which was registered only on October 1, 1965, about
17 days after the writ of attachment (Art. 1397, New Civil Code; see Gaston vs,
Hernaez, 58 Phil. 823; Gaspar vs. Dorado, et al., L-17884, Nov. 29, 1965, 15 SCRA
331).
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17. NORTHERN MOTORS VS. COQUIAG.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 20taxicabs, 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.

18. Meyers vs. thein G.R. No. L-5577

February 21, 1910

ARELLANO, C.J.:
William Thein is indebted to J. W. Meyers for a loan in the sum of P1,000. As security
for payment of the loan, William Thein mortgaged to J. W. Meyers certain furniture
owned by him which constitutes the fittings of a saloon situated in Calle Real, No. 124,
in the district of Intramuros, Manila, to which effect a public instrument was executed on
the 20th of June, 1908.

The premises at No. 124 Calle Real, district of intramuros, are owned by Flora Broto,
who leased the place to William Thein. The latter opened a saloon therein, of which the
said furniture formed a part.
William Thein, as lessee, was indebted to the lessor, Flora Broto in the sum of P215, for
rent due for the months of June and July, 1908.
In the months of June and July, 1908, the furniture in questions was in the place leased
by William Thein, and, at the request of J.W. Meyers, was removed therefrom by the
sheriff, notwithstanding the protest of Flora Broto, the lessor.
The said furniture was sold by the sheriff, and the proceeds of the sale amounted to
P972.30.
Preference with respect to payments to be made from the above sum is claimed on the
one hand by J.W. Meyers, as mortgage creditor, or rather as pledgee under contract,
and on the other by Flora Broto, as mortgage creditor by operation of the law.
The contract of mortgage, or rather of pledge, invoke by J.W. Meyers, appears in the
record. The mortgage or legal pledge invoked by Flora Broto arises under article 1922
of the Civil Code, which provides:
With regard to specified personal property of the debtor, the following are preferred:
1. . . .
xxx

xxx

xxx

7. Credits rents and leases for one year with regard to the personal property of
the lessee existing on the estate leased and on the fruits therefore.
Paragraph 2 of said article also contains the following:
Credits secured by a pledge which may be in the possession of the creditor, with
regard to the thing pledged and to the extent of its value.
Were this contest as to preference to be based only on the provisions of article 1922,
paragraph 7, in favor of the lessor who is a defendant herein, and on paragraph 2 in
favor of the creditor-pledgee who is the plaintiff, it would have to be decided in favor of
the lessor, for the reason that, in order that the creditor-pledgee may enjoy the
preference over the thing pledged to him, it is a necessary condition that the same shall
be in his possession. As in this case, however, the furniture in question was not in the

possession of the creditor Meyers, but in that of the debtor, William Thein, it follows that
the creditor Meyers can not claim the preference prescribed by paragraph 2 of article
1922 of the Civil Code; while the lessor Broto, on the other hand should have the
preference specified in paragraph 7 over such personal property existing on the
premises leased and in possession of the debtor Thein.
But the present contention as to preference does not rest upon the above-mentioned
paragraphs 2 and 7 of article 1922 of the Civil Code; on the part of the lessor it is based
upon said paragraph 7 of article 1922 of the Civil Code, and, on the part of the creditorpledgee, upon Act No. 1508 of the Philippine Commission, enacted July 2, 1906, under
the provisions of which a chattel mortgage was executed by Thein in favor of Meyers.
Between the said Act and paragraph 2 of article 1922 already cited, as well as article
1863 of the Civil Code, there is now radical difference.
While according to the Civil Code it is an essential requisite, in constituting a contract of
pledge, that the creditor, or a third person named by common accord, be placed in
possession of the pledge, under Act No. 1508 of the Philippine Commission this is not
necessary in order to make the pledge valid and efficient as against the debtor; it is only
necessary, to constitute a valid pledge as against third persons; notwithstanding this
exception, the registration of the contract of pledge or mortgage of the personal property
so given as security, in the registry of titles of the province, is equivalent to the actual
delivery of possession to the creditor-pledgee.
The instrument of pledge or chattel mortgage executed by Thein in favor of Meyers is
recorded in the registry of mortgages of its proper class (B. of E., 7).
Taking into consideration the different legal grounds on which each party bases his
claim for preference over the other with respect to the personal property of the common
debtor, it becomes necessary to determine in whose favor the contention should be
decided, inasmuch as the proceeds of the sale of the said personal furniture is not
sufficient to pay both claims.
The Court of First Instance of the city of Manila decided the question in favor of the
lessor, granting to the defendant, Flora Broto, preference in the payment of her claim;
the judgment "sentences William Thein, the other defendant, to pay the said Flora Broto
the sum of P200, which sum must, as far as possible, be paid to the said defendant out
of the proceeds of the sale of the furniture made by the sheriff on the petition of the
plaintiff, Meyers, to which end the latter is ordered to deliver to the said defendant out of
the proceeds of said sale the above-mentioned sum of P200, being the amount of the
aforesaid rent. And the plaintiff is further ordered to pay the cost of the action."

Against the foregoing judgment the plaintiff, Meyers, has appealed and, among other
assignments of error, alleges the fact that preference was granted in favor of the claim
for rent by the defendant, Flora Broto, over a credit secured by pledge executed and
registered in accordance with the provisions of Act No. 1508 of the Philippine
Commission. This is the only question to be resolved in this instance, for the reason that
it was the only one decided by the court below. The grounds upon which the trial court
has based its opinion are the following:
1. That Act No. 1508 does not repeal the provisions of the Civil Code with respect
to this matter, because it does not mention such repeal.
2. That although the registration of a mortgage or pledge of personal property
prejudices a third party, a privileged creditor, such as a lessor claiming the rent
for his leased property, who, in law, has a mortgage upon the furniture of the
lessee existing upon the premises, can not be considered as such third party, but
any other third party by any other title different from that derived from the lease,
recognizing no superior claim except one of pledge of personal property, and this
only when the property is in the possession of the creditor-pledgee.
3. That said privilege or right of retention on the part of the lessor would be vain
and illusory if preference were given to a credit secured by a pledge for the mere
reason that it was registered, and such registration would be contrary to the "right
of possession," arising by operation of law and in favor of the lessor, over the
furniture existing upon the premises leased.
4. That it being unnecessary that a legal mortgage, such as that of the lessor, be
entered in the registry for the reason that it is created by the law itself, a
contractual mortgage can not take preference over it for the mere reason that it is
registered.
5. That as the debt of the lessee Thein in favor of the lessor Broto bears a date
prior to that of the debtor Thein in favor of the creditor-pledgee Meyers, the
mortgage created by law in favor of the former became effective before the
contractual mortgage; so that, when the latter was registered, the former was
already a lien upon the furniture pledged in favor of another.
It becomes necessary to pass upon the nature of the contract of mortgage or pledge of
personal property, in accordance with the provisions of section 3 of the said Act No.
1508 which prescribes that "a chattel mortgage is a conditional sale of personal property
as security for the payment of a debt, or the performance of some other obligation
specified therein, the condition being that the sale shall be void upon the seller paying to

the purchaser a sum of money or doing some other act named. If the condition is
performed according to its terms the mortgage and sale immediately become void, and
the mortgage is thereby divested of his title."
From the language of the law it now appears: (1) That by the operation of Act No. 1508
the actual contract of pledge of the Civil Code degenerates into one of sale by mutual
consent; (2) that, under Act No. 1508, a chattel mortgage is a sale with pacto de retro,
almost equivalent to that under the same name in the Civil Code; (3) that as in a
contract of sale with pacto de retro where the juridical dominion and possession of the
thing sold pass to the purchaser as soon as the sale is consummated, so also in a
chattel mortgage the dominion and possession of the mortgaged personal property pass
to the creditor-pledgee, because, as the law provides, it is nothing more than a
conditional sale; (4) that, in the same manner that a contract of sale is consummated by
the delivery, either actual or symbolic, of the thing sold, which symbol of the delivery
may be the inscription of the instrument in the registry, so also a chattel mortgage is
consummated by a similar delivery, actual or symbolic, by means of an analogous
inscription in the registry.
Therefore, so long as the mortgage exists, the dominion, with respect to the mortgage
personal property, rest with the creditor-pledgee from the time of the inscription of the
mortgage in the registry, and the furniture ceases to be the property of the debtor for the
reason that it has become the property of the creditor, in like manner as the dominion of
a thing sold is transferred to the purchaser and ceases to belong to the vendor from the
moment of the delivery thereof, as a result of the sale. According to the Civil Code, a
thing given in pledge never becomes the property of the creditor-pledgee; the debtor
continues to be the owner thereof (art. 1869); the creditor does not become the owner;
he is nothing more than a creditor with a real right over the thing in his possession as a
pledge, which he can dispose of through a notary at a public sale according to the Civil
Code, the same as the creditor-pledgee may now, under the provisions of Act No. 1508,
sell the pledge through the sheriff. (Civil Code, 1872; Act No. 1508, sec. 14.)
In view of the above it must be conclude: (1) That from June 20, 1908, the furniture
belonging to Thein, which existed in the house leased by Flora Broto, ceased to be the
property of the first named and passed to the dominion and juridical possession of J.W.
Meyers, the material possession alone continuing in the hands of Thein, and the
property actually remaining in the leased building; (2) that when the lessor tried to
collect the rent due for the months of June and July, 1908, the furniture that existed in
the building was to longer the property of the lessee but belonged to the third person
who had acquired it as a pledge which, under the law, is a sale, and as such the
ownership is transferable, although conditionally and depending upon whether the
debtor (the conditional seller) fulfills the condition subsequent, and is similar to a sale

with pacto de retro; (3) the preference in the payment of rents due for one year, granted
by paragraph 7 of article 1922, refers to "personal property of the lessee;" hence, as the
furniture existing in the house leased no longer belongs to Thein but to J.W. Meyers,
according to the public instrument recorded in the public registry, the said right of
preference has not existed since the 20th of June, 1908; (4) the registration of a chattel
mortgage, executed in accordance with Act No. 1508, is not in violation of the right of
possession, supposed to have been acquired ex lege by the lessor over the furniture
existing upon the leased premises, because no such right of possession is granted by
the law to the lessor over the personal property of the lessee upon the estate leased; it
is subject only to the payment of rent for one year, a condition which may become vain
and illusory by a transaction like the one now in question, to wit, when the lessee
executes a mortgage upon such personal property in favor of a third person, in the
same manner as he could have previously performed these or other acts of disposal in
respect thereto, inasmuch as his right to dispose of the same was not then, and is not
now limited by reason of their being in a leased building; against this contingency the
lessor should take proper precautions in order to ensure the payment of rent by means
of an express lien thereon, since the personality is merely affected by a tacit lien under
the circumstances presumed by the law, to wit, that it belongs to the lessor and
continues upon the premises and is liable only for the rent for one year.
The mortgage executed by Thein in favor of Meyers being a valid one, and considering
the latter merely as a mortgage creditor (passing over the juridical effects of a sale with
which the law has compared a chattel mortgage), he is entitled to have the property
sold, as he did, through the sheriff, and to pay himself from the proceeds thereof in
preference to subsequent mortgages, in accordance with said section 14 of Act No.
1508. Against this preference, that claimed in this case under paragraph 7 of article
1922 of the Civil Code can not prevail from the moment that it is admitted that, over and
above the claim for rent, that described in paragraph 2 of the same article has the
superior preference, whenever, in accordance with its provisions, the pledge is in the
possession of the creditor. The case at bar falls within the circumstances prescribed by
section 4 of Act No. 1508 which reads as follows:
A chattel mortgage shall not be valid against any persons except the mortgagor,
his executors or adiministrators, unless the possession of the property is
delivered to and retained by the mortgagee or unless the mortgage is recorded in
the office of the register of deeds of the province. . . .
The above provisions does not, in this respect, repeal paragraph 2 of the said article
1922, but extends the provisions thereof by providing that the property pledged is to be
considered as being delivered to the mortgage creditor and to be in his possession, if
the mortgage is recorded in the office of the register of deeds of the province. The code

only refers to the actual delivery of the pledge; Act No. 1508 provides both for the actual
and for the symbolic delivery thereof by means of the registration of the title.
The judgment appealed from is reversed, without any special rulings as to the costs of
both instances.
It is hereby decided and decreed that, from the proceeds of the sale, preferential
payment shall be made to the plaintiff J. W. Meyers; provided, however, that the debtor
William Thein alone is adjudged to pay the claim of the latter as prated for in the
complaint. So ordered.
19. BACHRACH MOTOR COMPANY, INC., vs. SUMMERS
G.R. No. L-17393

July 21, 1921

STREET, J.:
On March 9, 1920, Elias Aboitiz executed a chattel mortgage upon a Nash automobile,
bearing the Factory No. 143643, in favor of the Bachrach Motor Company, Inc., to
secure a debt for P3,675, payable in twelve installments. In the month of November of
the same year, the mortgagor defaulted in the payment of the installment for that month;
and as a consequence the Motor Company determined to have the car sold for the
purpose of foreclosing the mortgage, in the manner prescribed in section 14 of the
Chattel Mortgage Law (Act No. 1508). It accordingly requested Ricardo Summers, as
sheriff of the city of Manila, to take the car from the debtor and to expose it to public
sale, as provided in said section. Acting in pursuance of this authority the sheriff applied
to the mortgagor for the automobile; but the mortgagor refused to surrender possession;
and the Motor Company instituted an action of replevin to recover the car. However, its
effort to get possession were again destined to be temporarily baffled, as Aboitiz gave
bond for the retention of the automobile pendente lite. The Motor Company thereupon
filed the present petition in this court for the writ of mandamus to compel the sheriff to
seize the car from the mortgagor and sell it. To this petition the sheriff demurred, and the
cause is now before us for the determination of the issues thus presented.
The question to which we shall first address ourselves and which is really the vital
point in the case is whether, after default by the mortgagor in the performance of the
conditions of a chattel mortgage, the sheriff is unconditionally bound to seize the
mortgaged property, at the instance of the creditor, and sell it to satisfy the debt. The
petitioner supposes that the sheriff must so proceed and that, upon failure to do so, he
can be compelled thereto by the writ of mandamus.

In commercial usage the property which is the subject of a chattel mortgage is, as well
known, almost invariably left in the possession of the mortgagor, and this possession is
not disturbed until the mortgagor defaults in the payment of the secured debt or
otherwise fails to comply with the condition of the mortgage.
When default occurs and the creditor desires to foreclose, he must necessarily take the
mortgaged property into his hands; and his right to do this is clearly implied in the
provision which gives the right to sell. Says the statue: "The mortgagee . . . may, after
thirty days from the time of condition broken, cause the mortgaged property, or any part
thereof, to be sold at public auction by a public officer at a public place in the
municipality where the mortgagor resides," etc. (Sec. 14, Act No. 1508.) As will be seen,
this provision supposes that the creditor has possession of the mortgaged property, for
the power to sell imports a power to make delivery of the thing sold to the purchaser;
and without actual possession delivery would be impossible. The right of the mortgagee
to have possession after condition broken must therefore be taken to be
unquestionable; and to this effect is the great weight of American authority. (11 C.J.,
560; 28 Am. and Eng. Encyc. of Law, 2d ed., 782; 5 R.C., 462; St. Mary's Machine Co.
vs. National Supply Co., 96 Am. St. Rep., 677, 684, note.)
Where, however, the debtor refuses to yield up the property, the creditor must institute
an action, either to effect a judicial foreclosure directly, or to secure possession as a
preliminary to the sale contemplated in the provision above quoted. He cannot lawfully
take the property by force against the will of the debtor. Upon this point the American
authorities are even more harmonious than they are upon the point that the creditor is
entitled to possession. As was said many years ago by the writer of this opinion in a
monographic article contributed to an encyclopedic legal treatise, "if possession cannot
be peaceably obtained the mortgagee must bring an action." (Trust Deeds and Power of
Sale Mortgages, 28 Am. and Eng. Encyc. of Law, 2d ed., 783.) In the article on Chattel
Mortgages, in Corpus Juris, we find the following statement of the law on the same
point: "The only restriction on the mode by which the mortgagee shall secure
possession of the mortgaged property after breach of condition is that he must act in an
orderly manner and without creating a breach of the peace, subjecting himself to an
action for trespass." (11 C.J., 560; see also 5 R.C.L., 462.)
The reason why the law does not allow the creditor to possess himself of the mortgaged
property with violence and against the will of the debtor is to be found in the fact that the
creditor's right of possession is conditioned upon the fact of default, and the existence of
this fact may naturally be the subject of controversy. The debtor, for instance, may claim
in good faith, and rightly or wrongly, that the debt is paid, or that for some other reason
the alleged default is nonexistent. His possession in this situation is as fully entitled to
protection as that of any other person, and in the language of article 446 of the Civil

Code he must be respected therein. To allow the creditor to seize the property against
the will of the debtor would make the former to a certain extent both judge and
executioner in his own cause a thing which is inadmissible in the absence of
unequivocal agreement in the contract itself or express provision to that effect in the
statute.
It will be observed that the law places the responsibility of conducting the sale upon "a
public officer;" and it might be supposed that an officer, such as the sheriff, can seize
the property where the creditor could not. This suggestion is, we think, without force, as
it is manifest that the sheriff or other officer proceeding under the authority of the
language already quoted from section 14 of the Chattel Mortgage Law, becomes pro
hac vice the mere agent of the creditor. There is nothing in this provision which creates
a specific duty on the part of the officer to seize the mortgaged property; and no
intention on the part of the law-making body to impose such a duty can be implied. The
conclusion is clear that for the recovery of possession, where the right is disputed, the
creditor must proceed along the usual channels by action in court. Whether the sheriff,
upon being indemnified by the creditor, could safely proceed to take the property from
the debtor, is a point upon which we express no opinion.
In the brief of counsel attention is directed to the circumstance that in section 3 of Act
No. 1508, the chattel mortgage is said to be a conditional sale; and an inference is
drawn therefrom supposedly favorable to the contention of the petitioner. It is
undeniable that the language there used supports the view that the mortgagee is the
owner of the mortgaged property and therefore entitled to possession after condition
broken, but that provision is in no wise concerned with the problem as to how
possession may be acquired if the mortgagor refuses to yield it up. In this connection a
few words of comment exhibiting the true import of that provision will not be out of
place. The language referred to is as follows:
Sec. 3. A chattel mortgage is a conditional sale of personal property as security
for the payment of a debt, or the performance of some other obligation specified
therein, the condition being that the sale shall be void upon the seller paying to
the purchaser a sum of money or doing some other act named. If the condition is
performed according to its terms the mortgage and sale immediately become
void, and the mortgagee is thereby divested of its title.
The use of the term conditional sale in connection with the chattel mortgage is apt to be
misleading to a person unacquainted with the common-law history of the contract of
mortgage; and it is unfortunate that such an expression should have been incorporated
in a statute intended to operate in the Philippine Islands. As will be readily seen, the
idea is totally foreign to the conception of the mortgage which is entertained by the civil

law. What is worse it does not even reflect with fidelity the actual state of the American
and English law on the same subject.
Rightly understood, in connection with the common-law history of the mortgage, the
meaning of the section quoted may be exhibited in some such proposition as the
following:
A chattel mortgage is a contract which purports to be, and in form is, a sale of personal
property, intended as security for the payment of a debt, or the performance of some
other obligation specified therein, upon the condition subsequent that such sale shall be
void upon payment of the debt or performance of the specified obligation according to
the terms of the contract.
Now, while the proposition which we have here formulated contains a true description of
the external features of the chattel mortgage, it does not by any means embody a
correct statement of its judicial effects. A visit to any recorder's office in a common-law
State will supply abundant proof that chattel mortgages are commonly drawn in the form
of a straight sale, to which a clause of defeasance is added, declaring that in case the
debt is paid or other obligation performed the contract will be void. But the form of the
contract is merely a heritage from the remote past, and does not be any means reveal
the exact import of the transaction. Every person, however superficially versed in
American and English law, knows that in equity the mortgage, however drawn, is to be
treated as a mere security. The contract in fact merely imposes on the mortgaged
property a subsidiary obligation by which it is bound for the debt or other principal
obligation of the mortgagor. This is the equitable conception of the mortgage; and ever
since the English Court of Chancery attained to supremacy in this department of
jurisprudence, mortgages have been dealt with in this sense in every land where
English law has taken root. The old formulas may, it is true, remain, but a new spirit has
been breathed into them. And of course sooner or later the ancient forms are discarded.
Look, for instance, at the form of a chattel mortgage given in section 5 of Act No. 1508,
where it is said that the mortgagor "conveys and mortgages." This means "conveys by
way of mortgage;" and the word "mortgages" alone would of course be equally effective.
In fact we note that in the contract executed in the present case, it is merely said that
Elias Aboitiz "mortgages" the automobiles to which the contract relates. In describing
the chattel mortgage as a conditional sale we are merely rattling the bones of an
antiquated skeleton from which all semblance of animate life has long since departed.
The author of Section 3 of the Chattel Mortgage Law was most unhappy in his effort to
elucidate to civilian jurists the American conception of the contract of mortgage.
But whatever conclusion may be drawn in the premises with respect to the true nature
of a chattel mortgage, the result must in this case be the same; for whether the

mortgagee becomes the real owner of the mortgaged property as some suppose
or acquires only certain rights therein, it is none the less clear that he has after default
the right of possession; though it cannot be admitted that he may take the law into his
own hands and wrest the property violently from the possession of the mortgagor.
Neither can he do through the medium of a public officer that which he cannot directly
do himself. The consequence is that in such case the creditor must either resort to a
civil action to recover possession as a preliminary to a sale, or preferably he may bring
an action to obtain a judicial foreclosure in conformity, so far as practicable, with the
provisions of the Chattel Mortgage Law.
Only a few words will be added with reference to the question whether this court has
jurisdiction to entertain the present proceeding. In this connection it is insisted by the
attorneys for the respondent that the sheriff is an officer of the Court of First Instance
and the petitioner should, so it is insisted, address himself to that court as the proper
court to control the activities of the sheriff. While this criticism would be valid if the
purpose were to control the sheriff in the matter of carrying into effect any judgment,
order, or writ of a Court of First Instance, it is not applicable in a case like the present
where the act to be done is defined by general law and has no relation to the office of
sheriff as the executive officer of the Court of First Instance. As to such activities this
court must be considered to have concurrent jurisdiction with the Court of First Instance
under section 515 of the Code of Civil Procedure.
The demurrer must be sustained, and the writ prayed for will be denied. It is so ordered,
with costs against the petitioner.
G.R. No. L-32674 February 22, 1973
NORTHERN
MOTORS,
INC.,
petitioner,
vs.
HON. AMEURFINA MELENCIO HERRERA, Judge of the Court of First Instance of Manila,
Br. XVII, and RALPH R. TAGUBA, respondents.
Sycip, Salazar, Luna, Manalo and Feliciano for petitioner.
Manuel L. Querubin for respondents.

ANTONIO, J.:

Original action for certiorari and mandamus to annul the Orders dated July 1, 1970 and July 28,
1970 of the Court of First Instance of Manila, Branch XVII, in its Civil Case No. 80179, and to
command respondent Judge to issue a writ of replevin.
On June 25, 1970, petitioner filed a complaint against respondent Ralph Taguba and another
person designated as "John Doe," alleging inter alia that on February 13, 1970 Taguba
executed in favor of plaintiff a promissory note, a copy of which was attached to the complaint
as "Annex A", binding himself to pay plaintiff the sum of P18,623.75 in monthly installments as
follows: P528.75 on March 15, 1969 and P517.00 every 15th day of the month for 35 months
beginning April 15, 1969 until February 15, 1972, with 12% interest per annum on the unpaid
installments; that as security for the payment of the promissory note, defendant Taguba on the
same date executed in favor of plaintiff a chattel mortgage over a 1966 Impala sedan, which
deed of mortgage under which it appears in effect that the said car was purchased by
defendant Taguba from plaintiff on installment basis was duly registered in the chattel
mortgage registry of Laguna, a copy of which deed was also attached thereto as "Annex B"; that
under the terms of the mortgage, upon default in the payment of any installment or interest due,
the total principal sum remaining unpaid, with accrued interest, shall at once become due and
payable and the mortgaged car shall, on demand, be delivered by the mortgagor to the
mortgagee, otherwise the mortgagee is authorized to take possession of the car wherever it
may be found and have it brought to Manila at the expense of the mortgagor, and the
mortgagee shall have the option of (a) selling the mortgaged property, (b) cancelling the
contract of sale with the mortgagor, (c) extrajudicially foreclosing the mortgage, (d) judicially
foreclosing the mortgage, or (e) exacting fulfillment of the mortgage obligation by ordinary civil
action, the mortgagee be entitled to attorney's fees equivalent to 25% of the sum due in case
attorney's services are availed of, it being agreed upon that any legal action arising from the
promissory note may be instituted in the courts of Manila; that defendant Taguba paid only the
sum of P964.26 representing the installment due March 15, 1969, and another sum of P35.74
as interest up to June 18, 1969, but failed and refused, in spite of repeated demands, to pay
P81.49 of the installment due April 15, 1969, and the 13 installments due May 15, 1969 to May
15, 1970, thereby making the entire unpaid balance of the promissory note in the sum of
P17,659.49 due and demandable, with interest thereon from June 19, 1969; that plaintiff has
elected to avail itself of the option of extrajudicially foreclosing the mortgage; that the mortgaged
vehicle is in the province of Rizal in the possession of defendant Taguba, who has no legal right
to the possession thereof, plaintiff having demanded the delivery to it of said vehicle, pursuant
to the terms of the chattel mortgage, but defendant Taguba failed and refused to make such
delivery; that the value of the car is P18,000.00, and said car has not been taken for a tax
assessment or fine pursuant to law, or seized under an execution or an attachment against
plaintiff's property; and plaintiff is ready to give a bond executed in defendants' favor in double
the value of the car, for the return thereof to defendants if it be so adjudged, and for payment to
them of such sums as they may recover from plaintiff in the action. Plaintiff prayed that upon
approval of the bond a writ of replevin be issued for the seizure of the car wherever it may be
found and for its delivery to plaintiff, and after hearing, plaintiff be adjudged as having the
rightful possession and ownership thereof and that in default of delivery, defendants be
sentenced to pay plaintiff the sum of P17,659.49 with interest thereon at the rate of 12% per

annum from June 19, 1969, until said principal sum is fully paid, and a sum equivalent to 25% of
the amount due as and for attorney's fees and costs of collection, and the costs of suit.
Attached to the complaint is a bond for P36,000.00 and an "Affidavit of Replevin" executed by
an officer of plaintiff corporation.
On July 1, 1970, an Order was issued by respondent judge denying petitioner's prayer for a writ
of replevin because the rules "require that an affidavit be submitted alleging that the plaintiff is
the owner of the property claimed, or that he is entitled to its possession"; and therefore the
affidavit attached to the complaint is insufficient, for it is clear therefrom that plaintiff "is not the
owner of the motor vehicle mortgaged to it; and it is not entitled to its possession merely
because the mortgagor has failed to pay the account guaranteed by the mortgage."
A motion for reconsideration was filed by petitioner on July 10, 1970, but the same was, in an
Order dated July 28, 1970, likewise denied by respondent judge. It is Her Honor's view that after
the mortgagor has breached the chattel mortgage and refused to deliver the mortgaged chattel
to a public officer for foreclosure sale, a replevin suit should be instituted by the mortgagee, "but
only for the purpose of delivering the chattel to the public officer for foreclosure sale".
Respondent judge further stated that there being no allegation that plaintiff mortgagee has
asked or directed a public officer to foreclose the mortgage and that the mortgagor had refused
to surrender the mortgaged chattel to said public officer, it cannot be held that either the public
officer or the mortgagee is entitled to replevin; that the present complaint seeks "that plaintiff be
adjudged to have rightful possession" over the chattel without qualification whatsoever which, in
the practical sense, can revest ownership in it of the repossessed chattel in contravention of
Article 2088 of the Civil Code, and that even if the mortgagee has a right of possession, that
right is not unqualified but is subject to the obligation of delivering the possession of the
mortgaged chattel to the public officer for foreclosure.
We reverse the challenged orders.
1. There can be no question that persons having a special right of property in the goods the
recovery of which is sought, such as a chattel mortgagee, may maintain an action for replevin
therefor. Where the mortgage authorizes the mortgagee to take possession of the property on
default, he may maintain an action to recover possession of the mortgaged chattels from the
mortgagor or from any person in whose hands he may find them. This is irrespective of whether
the mortgage contemplates a summary sale of the property or foreclosure by court action
(Podrat v. Oberndorff 207 Cal. 457; 63 A.L.R. 1308). As early as the case of Bachrach Motor
Co. v. Summers (42 Phil. 6) We explained that when the debtor defaults, and the creditor
desires to foreclose the mortgaged chattel, he must necessarily take the mortgaged property in
his hands, but when the debtor refuses to yield the possession of the property, the creditor must
institute an action, either to effect a judicial foreclosure directly, or to secure possession as a
preliminary to the sale contemplated under Section 14 of Act No. 1508. The right of the
mortgagee to have possession of the mortgaged chattel after the condition of the mortgage is
breached must be therefore deemed to be well settled.

The Rules do not require that in an action for replevin, the plaintiff should allege that the
"mortgagee has asked or directed a public officer to foreclose the mortgage and that the
mortgagor has refused to surrender the mortgaged chattel to such public officer."
All what is required by Section 2 of Rule 60 is that upon, applying for an order for replevin, the
plaintiff must show that he is "the owner of the property claimed, particularly describing it, or is
entitled to the possession thereof"; that the property is wrongfully detained by the defendant
with, an allegation on the cause of detention; that the same has not been taken for any tax
assessment or fine levied pursuant to law nor seized under any execution, or an attachment
against the property of such plaintiff or if so seized that it is exempt from seizure. The affidavit
must also state the actual value of the property. The affidavit of S.M. Laureola, Assistant to the
General Manager of Northern Motors, Inc. attached to the complaint, substantially complies with
the aforecited requirements.
In determining the sufficiency of the application for writ of replevin, the allegations thereof and
the recitals of the documents appended thereto and made part thereof should be considered.
Thus it is alleged in the complaint that "it is also expressly agreed between the parties that in
case of default on the part of defendant, as mortgagor therein, the mortgaged motor vehicle
shall be delivered, on demand, to plaintiff, as mortgagee therein, free of all charges, and should
the mortgagor not deliver the same as aforesaid, the mortgagee is authorized to take
possession of said property wherever it may be found ..." (par. 4); that defendant Taguba "failed
and refused, as he fails and refuses, in spite of repeated demands, to pay the plaintiff P81.49 of
the said installment due 15 April 1969 and the thirteen (13) installments due 15 May 1969 thru
15 May 1970, thereby making the balance of said note, the sum of P17,659.49, and interest
from 19 June 1969, to become immediately due, payable and defaulted" (par. 6); and that "the
mortgaged motor vehicle is now in Rizal in the possession of defendants who have no legal
right to the possession thereof plaintiff having made demand for the delivery of the said
motor vehicle pursuant to the terms of the chattel mortgage notwithstanding which demand
defendants have failed and refused to do so" (par. 7). These allegations of the complaint were
by reference made part of J. M. Laureola's affidavit.
We find nothing from the provisions of Section 14 of the Chattel Mortgage Law (Act 1508) that
would justify the trial court's insistence, that after default by the mortgagor and before the
mortgagee can file an action to recover possession of the mortgaged chattel, the mortgagee
must first ask the sheriff to foreclose the mortgage and it is only when the mortgagor refuses to
surrender the chattel to the sheriff that the action of replevin can be instituted. We clearly
explained in Bachrach Motor Co. v. Summers, supra, that, while Section 14 of Act 1508 places
upon "a public officer" the responsibility of conducting the sale of the mortgaged chattel, there is
nothing in said statute which would authorize the officer to seize the mortgaged property; and
that for the recovery of possession of said property, where the right is disputed, "the creditor
must proceed along the channels by action in court." The basic reason why the creditor should
initiate such action is because of the circumstances that the creditor's right of possession of the
subject-matter of the chattel mortgage, as a preliminary to an extra-judicial foreclosure
proceeding, is conditioned upon the fact of actual default on the part of the principal obligor, and

the existence of this fact may naturally be the subject of controversy. In case of such default and
the mortgagee refuses upon demand, to surrender possession of the mortgaged chattel so that
it may be sold at public auction pursuant to Section 14 of Act 1508, it would certainly be an
exercise in futility for the mortgagee to first request or direct the sheriff to "foreclose the
mortgage" or take possession of the property, before filing an action in court to recover its
possession. Such a procedure is completely unnecessary not only because the sheriff has no
duty or authority in the first instance to seize the mortgaged property, but also because
whenever the sheriff proceeds under section 14 of the Chattel Mortgage Law, he becomes pro
hac vice the mere agent of the creditor. In any event it is only upon receiving the order of the
Court requiring the sheriff to take forthwith such property into his custody, that the duty of said
officer to take possession of the mortgaged chattel arises (Section 4, Rule 60, Revised Rules of
Court). It was therefore error for the court a quo to hold that petitioner has not sufficiently
averred its right to the possession of the property sought to be recovered.
2. There is also no support for the assertion that the petitioner seeks to appropriate the property
given by way of mortgage or dispose of it in a manner violative of Article 2088 of the new Civil
Code.
The essence of pacto commissorio, which is prohibited by Article 2088 of the Civil Code, is that
ownership of the security will pass to the creditor by the mere default of the debtor (Guerrero v.
Yigo, et al., 96 Phil. 37, 41-42; Puig v. Sellner, et al., 45 Phil. 286, 287-88). In the present case,
the petitioner, exercising one of the options open to it under the terms of the chattel mortgage,
elected to extrajudicially foreclose the mortgage, and as a step preliminary to such foreclosure,
sought for the possession of the mortgaged car and in the alternative, prayed for the payment
by the private respondent of the principal sum of P17,659.49 due to it, plus interest thereon at
12% per annum from June 19, 1969 until fully paid and attorney's fees. No automatic revesting
of title on the creditor was ever contemplated, for the exercise of the remedies granted to the
creditor by the deed of chattel mortgage of foreclosing the chattel mortgage or exacting the
fulfillment of the obligation thru court action is by its very nature anathema to the concept of
pacto commissorio.
WHEREFORE, the writs prayed for are granted. The orders complained of are accordingly set
aside, and the court a quo is hereby ordered to issue the writ of replevin prayed for by petitioner.
Costs against private respondent.

20. ALBERTA B. CABRAL and RENATO CABRAL vs. TEODORA EVANGELISTA,

and JUAN N. EVANGELISTA G.R. No. L-26860
July 30, 1969
TEEHANKEE, J.:
In this appeal from a decision of the Court of First Instance, and certified by the Court of
Appeals to this Court upon agreement of the parties as involving only questions of law,

we reaffirm the well settled principle that the rights of a mortgage creditor over the
mortgaged properties are superior to those of a subsequent attaching creditor.
On December 12, 1959, defendant George L. Tunaya had executed in favor of plaintiffsappellees a chattel mortgage covering a "MORRISON" English piano, made in England,
Concert model, Serial No. 6079 and a Frigidaire General Motors Electric Stove with four
burners and double oven bearing Serial No. 21009298, as security for payment to the
plaintiffs-mortgagees of a promissory note in the sum of P1,000.00 executed on the
same date by said defendant Tunaya with his wife, Esperanza N. Angeles. The chattel
mortgage deed was duly inscribed in the Chattel Mortgage Register of Rizal province on
December 14, 1959. The promissory note, which provided for payment of 12% interest
per annum and of an additional 15% of the total amount due for attorney's fees and cost
of collection was not paid within the two-month maturity period therein provided.
Meanwhile, defendants-appellants, the Evangelista spouses, obtained on January 4,
1960, a final money judgment against defendant Tunaya in Civil Case No. 5550 of the
Court of First Instance of Rizal. They caused the levy in execution on personal
properties of said defendant Tunaya, including the piano and stove mortgaged to
plaintiffs. The said mortgaged chattels, together with other personal properties of the
judgment debtor, were sold at public auction on June 24, 1960, after the corresponding
notice of sheriff's sale, to the defendants-appellants as the highest bidders for the total
sum of P2,373.00. The judgment credit of defendants-appellants, as judgment creditors
in said Civil Case No. 5550, was considered paid up to the said amount and the Sheriff
of Rizal issued the corresponding certificate of sale in their favor.
Subsequently, on October 11, 1960, or 8 months after the maturity of Tunaya's
promissory note and his having defaulted in the payment thereof, plaintiffs filed their
complaint in the City Court of Manila against Tunaya and the Evangelista spouses,
alleging the above facts and that the Evangelista spouses had refused their demands to
pay the amount due on Tunaya's promissory note or to exercise their right of redemption
and praying for judgment, ordering the defendants, jointly and solidarity, to pay them the
amounts stipulated on the note, and in case of the failure to make such payment, to
order defendants to deliver to the Sheriff of Manila the mortgaged chattels for sale at
public auction to satisfy their mortgage credit.
The City Court, on November 29, 1960, rendered judgment in favor of plaintiffs against
the mortgage debtor, Tunaya, on confession of the latter, but granted the motion to
dismiss of the defendants Evangelista spouses on the ground of failure to state a cause
of action and dismissed the complaint as against said spouses.

On appeal from the City Court's adverse decision, the court a quo upheld the superior
rights of plaintiffs-appellees as mortgage creditors to the personal properties in
question, holding that defendants-appellants, "being subsequent judgment creditors in
another case, have only the right of redemption." 1 It therefore rendered the following
judgment:
(1) Ordering defendant George L. Tunaya and spouses Teodora Evangelista and
Juan Evangelista, jointly and solidarily, to pay to plaintiff Alberta B. Cabral and
Renato Cabral the sum of P1,000.00, with interest at 12% per annum, plus the
costs of suit and attorney's fees at 15% of the whole amount due conformably to
the provisions of the chattel mortgage deed; and
(2) In the event of their failure to pay, ordering defendants to deliver to the Sheriff
of Manila the properties mortgaged to plaintiffs, for the sheriff to sell the same at
public auction to satisfy the judgment debt.
The counterclaim 2 of defendant Teodora Evangelista and Juan Evangelista is
dismissed.31wph1.t
It should be noted that the lower Court rendered its above-quoted judgment only on
February 22, 1965, since defendants-appellants, after the lower court denied their
motion to affirm the judgment of the City Court and to dismiss plaintiffs' appeal
therefrom, moved further for the remand of the case to the City Court and contested the
lower court's jurisdiction to try the case as in contravention of Rule 40, section 10, of the
Rules of Court. Upon denial by the lower court of their motion for the remand of the
case, defendants-appellants filed a petition for certiorari and prohibition with this Court,
docketed as Case L-20416, which writs this Court denied in its decision of January 30,
1964, holding that "once (defendants-appellants) had assented to the exercise of the
court's jurisdiction, (they) are not permitted thereafter to alter the position thus
voluntarily chosen, and to insist once that the case be returned to the Municipal Court.
Any other rule would allow the parties to confuse and delay at will the course of
litigation." 4
Defendants-appellants' appeal from the lower courts above-quoted judgment is now
before us. In their first four assignments of error, defendants-appellants claim that their
right over the mortgaged chattels as purchasers at the public sale in execution of their
judgment against their debtor, defendant Tunaya, should not be held subordinate to the
mortgage lien of plaintiffs-appellees as mortgagees, by virtue of prescription and laches
on the part of said mortgagees as well as of their having purchased the chattels at a
public sheriffs sale. We find no merit in these contentions. Appellants' contention of
prescription is based on a patent reading of the provisions of section 14 of the Chattel

Mortgage Law (Act No. 1508) that "the mortgagee ... may after thirty days from the time
of condition broken, cause the mortgaged property, or any part thereof, to be sold at
public auction." It does not follow from this provision, as wrongly contended by
appellants, that failure on the part of plaintiff to immediately foreclose their chattel
mortgage within the 30-day period from February 12, 1960 (when the promisory note
matured) to March 12, 1960, resulted in the prescription of plaintiff's mortgage right and
action. This thirty-day period is the minimum period after violation of the mortgage
condition for the mortgage creditor to cause the sale at public auction of the mortgaged
chattels, with at least ten days notice to the mortgagor and posting of public notice of
the time, place and purpose of such sale, and is a period of grace for the mortgagor,
who has no right of redemption after the sale is held, to discharge the mortgage
obligation. 5 The prescription period for recovery of movables for foreclosure purposes
such as in the present case is eight years as provided in Article 1140 of the Civil Code, 6
and here plaintiffs had timely filed their action within 8 months from the mortgage
debtor's default. By the same token, neither could laches properly be imputed against
plaintiffs, who filed their action promptly after they had been advised by their debtor,
defendant Tunaya, of the public auction sale on June 24, 1960 of the chattels at the
instance of defendants-appellants as his judgment creditors. 7
Defendants-appellants' purchase of the mortgaged chattels at the public sheriff's sale
and the delivery of the chattels to them with a certificate of sale did not give them a
superior right to the chattels as against plaintiffs-mortgagees. Rule 39, section 22 of the
old Rules of Court (now Rule 39, section 25 of the Revised Rules), cited by appellants
precisely provides that "the sale conveys to the purchaser all the right which the debtor
had in such property on the day the execution or attachment was levied." It has long
been settled by this Court that "The right of those who so acquire said properties should
not and cannot be superior to that of the creditor who has in his favor an instrument of
mortgage executed with 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." 8 In another case between
two mortgagees, we held that "As between the first and second mortgagees, therefore,
the second mortgagee has at most only he right to redeem, and even when the second
mortgagee goes through the formality of an extrajudicial foreclosure, the purchaser
acquires no more than the right of redemption from the first mortgagee." 9 The
superiority of the mortgagee's lien over that of a subsequent judgment creditor is now

expressly provided in Rule 39, section 16 of the Revised Rules of Court, which states
with regard to the effect of levy on execution as to third persons that "The levy on
execution shall create a lien in favor of the judgment creditor over the right, title and
interest of the judgment debtor in such property at the time of the levy, subject to liens
or incumbrances then existing."
In the fifth assignment of error, appellants contend that the lower court erred in ordering
them to pay solidarity with defendant Tunaya the amount due on Tunaya's note in favor
of plaintiffs, and in the event of their failure to pay, to deliver the chattels to the Sheriff
for sale at public auction. Article 559 of the Civil Code providing that "If the possessor of
a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the
price paid therefor..." cited by appellants has no application in the present case, for as
pointed above, they acquired the chattels subject to the existing mortgage lien of
plaintiffs thereon. Appellants state in their brief that they paid for the chattels the amount
of P2,373.00. 10 As pointed out by appellees, the record shows that defendantsappellants had disposed of the mortgaged chattels "to other persons at a discounted
rate" 11 and had, therefore, appropriated the same as if the chattels were of their
absolute ownership, in complete derogation of plaintiffs' superior mortgage lien and in
disregard of plaintiffs' demands to them prior to the filing of their complaint on October
11, 1960, to pay or exercise their right of redemption. Appellants by their act of
disposition of the mortgaged chattels, whose value were admittedly more than adequate
to secure Tunaya's mortgage obligation, have thus practically nullified plaintiffs' superior
right to foreclose the mortgage and collect the amount due them. Considering the long
period that has elapsed since October 11, 1960 when plaintiffs tried to enforce their
claim and defendants-appellants' adamant resistance thereof and unjust refusal to
recognize plaintiffs' clearly superior right to the chattels, which appellants admittedly
disposed of without lawful right to other unknown persons obviously to defeat plaintiffs'
right over the same, we are satisfied that justice and equity justify the lower court's
judgment holding the defendants-appellants solidarily liable for the amount due
plaintiffs-appellees.
WHEREFORE, the lower Court's judgment ordering defendant Tunaya and the
defendants-appellants Teodora Evangelista, jointly and solidarity, to pay plaintiffs the
sum of P1,000.00 with interest at 12% per annum, plus the costs of suit and attorney's
fees at 15% of the whole amount due, conformably to the provisions of the chattel
mortgage deed, modified so as to expressly provide that the interest accrues from the
date of the execution of the promissory note on December 12, 1959, is hereby affirmed.
As the chattels have been disposed of to unknown persons, Paragraph 2 of the
dispositive part of the judgment providing for the delivery to the Sheriff of the mortgaged

chattels in the event of defendants' failure to pay the judgment is eliminated. No

pronouncement as to costs.
21. XXX
[G.R.

22.

No.

L-13373.

July

26,

1960.]

LUNETA MOTOR COMPANY, Plaintiff-Appellant, v. MAXIMINO SALVADOR, ANGEL

DIMAGIBA and JOHN DOE, Defendants. ANGEL DIMAGIBA, Defendant-Appellee.
SYLLABUS

1. SALE OF PERSONAL PROPERTY ON INSTALLMENT; REMEDIES OF VENDOR

ALTERNATIVE; FORECLOSURE OF THE CHATTEL MORTGAGE RENOUNCES
ACTION ON THE PROMISSORY NOTE; PROMISSOR AND GUARANTOR
RELEASED. Paragraph 3 of the above-quoted provision is clear that foreclosure of
the chattel mortgage and recovery of the unpaid balance of the price are alternative
remedies and may not be pursued conjunctively. It appearing in the case at bar that the
vendor had already foreclosed the chattel mortgage constituted on the property and had
taken possession thereof, the lower court acted rightly in dismissing the complaint filed
for the purpose of recovering the unpaid balance of the purchase price, because by
seizing the truck and foreclosing the mortgage at the progress of the suit, the plaintiff
renounced whatever claim it may have had under the promissory note, and
consequently, he has no more cause of action against the promissor and the guarantor.
2. ID.; FORECLOSURE OF CHATTEL MORTGAGE; WHEN MORTGAGEES RIGHT
TO POSSESSION AND OWNERSHIP OF CHATTEL MORTGAGE BEYOND
QUESTION. When the fact of foreclosure is not denied and when the very
mortgagee itself bought the chattel at the auction sale, the latters right to the
possession and ownership of the said property is beyond question.
DECISION
GUTIERREZ DAVID, J.:
This

is

an

appeal

from

an

order

of

dismissal.

On May 11, 1955, the Luneta Motor Company sold a Reo Truck, for P16,995.00, on
installment basis, to Maximino Salvador. Five days later, after having made a down
payment of P1,001.00, the purchaser, jointly and severally with one Angel Dimagiba,
executed in favor of the seller a promissory for P15,984.00 to cover the balance of the

purchase price, payable in eighteen (18) monthly installments, with interest at the rate of
12% per annum. On the same day, the purchaser also executed in favor of the seller a
chattel mortgage on the property to secure payment of the said balance.
For alleged failure on the part of the purchaser to pay the installments, the Luneta Motor
Company, on September 9, 1955, filed with the Court of First Instance of Manila a
complaint against the vendee Maximino Salvador, Angel Dimagiba and John Doe,
praying for the seizure of the truck, for the confirmation of the companys possession
and ownership thereto, and that defendants be ordered to pay the unpaid balance of the
purchase
price,
plus
interests,
attorneys
fees
and
costs.
Only the defendant Dimagiba answered the complaint. And so upon plaintiffs motion,
the
defendant
Maximino
Salvador
was
declared
in
default.
By virtue of a writ of seizure, the truck subject of the action was, on behalf of the
plaintiff, seized on December 19, 1955. But upon payment by the defendant Salvador of
a substantial amount and a promise on his part to settle the balance of the obligation,
the truck was released. Later, however, as no further payments were made, the plaintiff
petitioned for the issuance of an alias writ of seizure, which was accordingly issued on
February 1, 1956. The writ was returned uncomplied with, because, according to the
sheriffs
return,
the
truck
could
not
be
located.
By virtue of another court order, a special sheriff was appointed again for the seizure of
the property in question, and on January 2, 1957, the said sheriff made his return on
that second alias writ of seizure, stating that on December 24, 1956, he took possession
of the property from defendant Maximino Salvador, and the latter having failed to file a
counterbond, the seized property was turned over to the plaintiff.
On May 10, 1957, the plaintiff sold the truck at public auction and itself bought the truck.
As a consequence, the defendant Dimagiba on November 20, 1957 filed a motion to
dismiss the complaint on the ground that the plaintiff has no more case against him, the
said plaintiff having already foreclosed the chattel mortgage upon the property. The
plaintiff opposed the motion and the defendant Dimagiba filed a reply. Sustaining
Dimagiba,
the
court
dismissed
the
complaint.
Motion for reconsideration of the order of dismissal having been denied, the plaintiff
interposed
this
appeal
raising
only
questions
of
law.
Here is a situation where the vendor in a sale of personal property in installments, upon
failure of the vendee to pay his obligations, had commenced, through court action, to
recover the unpaid balance of the purchase price, but later, at the progress of the said
action, foreclosed the chattel mortgage constituted on the property. The question that
arises is whether the complaint may be dismissed upon the foreclosure of the mortgage.
Section

1484

of

the

New

Civil

Code

provides:

jgc:chanrobles.com.ph

"In a contract of sale of personal property the price of which is payable in installments,
the
vendor
may
exercise
any
of
the
following
remedies:

jgc:chanrobles.com.ph

"(1)

Exact

fulfillment

of

the

obligation,

should

the

vendee

fail

to

pay;

"(2) Cancel the sale, should the vendees failure to pay cover two or more installments;
"(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendees failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the price.
Any
agreement
to
the
contrary
shall
be
void."
cralaw

virtua1aw

library

Paragraph 3 of the above-quoted provision is clear that foreclosure of the chattel

mortgage and recovery of the unpaid balance of the price are alternative remedies and
may not be pursued conjunctively. It appearing in the case at bar that the vendor had
already foreclosed the chattel mortgage constituted on the property and had taken
possession thereof, the lower court acted rightly in dismissing the complaint filed for the
purpose of recovering the unpaid balance of the purchase price. By seizing the truck
and foreclosing the mortgage at the progress of the suit, the plaintiff renounced
whatever claim it may have had under the promissory note, and consequently, it has no
more cause of action against the promissor and the guarantor. And it has no more right
either to the costs and attorneys fees that would go with the suit.
Plaintiff-appellants principal theory in maintaining that the action must continue is that
the foreclosure of the chattel mortgage must be established in court and its possession
and ownership of the truck must be judicially confirmed. We do not think there would still
be necessity for the lower court to pass upon the fact of foreclosure for this had not
been denied by the plaintiff-appellant. As a matter of fact, the latter has admitted in his
brief that it had sold the truck at public auction. And it appearing that the plaintiff itself
bought the truck at the auction sale, its right to the possession and ownership of the
said
property
is
beyond
question.
To further bolster its claim for further proceedings in the court below, the plaintiffappellant makes mention of a supplemental complaint filed to recover indemnify for the
value of some parts of the truck which are alleged to be missing. This Court, however,
has no proper basis upon which to delve into that point for nowhere in the record,
except, of course, in plaintiff-appellants brief and in its opposition to the motion to
dismiss filed with the lower court, does it appear that there has ever been a
supplemental
complaint
filed
against
the
defendants.
There being no valid grounds to reopen the dismissed action, the order of dismissal is
hereby affirmed. Costs against the plaintiff-appellant.

23. G.R. No. L-9451

March 29, 1957

OLAF
N.
BORLOUGH,
petitioner,
vs.
FORTUNE ENTERPRISES, INC. and THE HONORABLE COURT OF APPEALS (2nd
DIVISION), respondents.
Arturo
M.
del
Rosario
and
Laurel & Salonga for respondents.

Alfredo

G.

Fernando

for

petitioner.

LABRADOR, J.:
Appeal by certiorari against a judgment of the Court of Appeals, Second Division. The
facts of the case have been briefly stated as follows:
On March 8, 1952, the United Car Exchange sold to the Fortune Enterprises,
Inc., the following described car
Make:
Type :

Chevrolet
Sedan;

(1947);
Plate No. 34-1465
Motor No. EAA-20834 (Exhibit D).

The same car was sold by the Fortune Enterprises, Inc. to one Salvador
Aguinaldo, and for not having paid it in full, the latter executed on the same date
a promissory note in the amount of P2,400 payable in 20 installments including
interest thereon at 12 per cent per annum, the last of which installments fell due
on January 9, 1953 (Exhibit "A").
To secure the payment of this note, Aguinaldo executed a deed of chattel
mortgage over said car. The deed was duly registered in the office of the Register
of Deeds of Manila at 1:12 p.m. on March 11, 1952 (Exhibit "B"). As the buyermortgagor defaulted in the payment of the installments due, counsel for Fortune
Enterprises Inc. addressed a letter on May 16, 1952 (Exhibit "C"), requesting him
to make the necessary payment and to keep his account up to date, to that no
court action would be resorted to.
It further appears that the above-described car found its way again into the
United Car Exchange which sold the same in cash for P4,000 to one O. N.
Borlough on April 6, 1952. Accordingly, he registered it on the following day with
the Motor Vehicles Office. (Decision, Court of Appeal.).

It also appears from the record that defendant 0. N. Borlough took possession of the
vehicle from the time he purchased it, On July 10, 1952, Fortune Enterprises, Inc.
brought action against Salvador Aguinaldo to recover the balance of the purchase price.
Borlough filed a third-party complaint, claiming the vehicle. Thereupon, Fortune
Enterprises, Inc. amended its complaint, including Borlough as a defendant and alleging
that he was in connivance with Salvador Aguinaldo and was unlawfully hiding and
concealing the vehicle in order to evade seizure by judicial process. Borlough answered
alleging that he was in legal possession thereof, having purchased it in good faith and
for the full price of P4,000, and that he had a certificate of registration of the vehicle
issued by the Motor Vehicles Office, and he prayed for the dismissal of the complaint,
the return of the vehicle and for damages against the plaintiff.
The vehicle was seized by the sheriff of Manila on August 4, 1952 and was later sold at
public auction. The Court of First Instance rendered judgment in favor of Borlough, and
against plaintiff, ordering the latter to pay Borlough the sum of P4,000, with interest at 6
per cent per annum, from the date of the seizure of the car on August 4, 1952, and in
addition thereto, attorney's fees in the sum of P1,000.
Upon appeal to the Court of Appeals, this court rendered judgment ordering that Emil B.
Fajardo pay Borlough P4,000 plus attorney's fees and that plaintiff pay to Borlough any
amount received by it in excess of its credits and judicial expenses. The reason for the
modification of the judgment is that the mortgage was superior, being prior in point of
time, to whatever rights may have been acquired by Borlough by reason of his
possession and by the registration of his title in the Motor Vehicle Office.
The question involved in the appeal in this case is one of law and may be stated thus:
As between a prior mortgage executed over a motor vehicle, registered under the
Chattel Mortgage Law only, without annotation thereof in the Motor Vehicles Office, and
a subsequent registration of the vehicle in the Motor Vehicles Office accompanied by
actual possession of the motor vehicle, which should prevail. While the question can be
resolved by the general principles found in the Civil Code and expressly stated in Article
559, there is no need resorting thereto (the general principles) in view of the express
provisions of the Revised Motor Vehicles Law, which expressly and specifically regulate
the registration, sale or transfer and mortgage of motor vehicles. The following
provisions of said law may help decide the legal question now under consideration:
SEC. 5 (c) Reports of motor vehicle sales. On the first day of each month,
every dealer in motor vehicles shall furnish the Chief of the Motor Vehicles Office
a true report showing the name and address of each purchase of a motor vehicle
during the previous month and the manufacturer's serial number and motor

number; a brief description of the vehicle, and such other information as the
Chief of the Motor Vehicles Office may require.
SEC. 5 (e) Report of mortgages. Whenever any owner hypothecates or
mortgage any motor vehicle as surety for a debt or other obligation, the creditor
or person in whose favor the mortgage is made shall, within seven days, notify
the Chief of the Motor Vehicles Office in writing to the effect, stating the
registration number of the motor vehicle, date of mortgage, names and
addresses of both parties, and such other information as the Chief of the Motor
Vehicles Office may require. This notice shall be signed jointly by the parties to
the mortgage.
On termination, cancellation or foreclosure of the mortgage, a similar written
notice signed by both parties, shall be forwarded to the Chief of the Motor
Vehicles Office by the owner.
These notice shall be filed by the Chief of the Motor Vehicles Office in the motor
records, and in the absence of more specific information, shall be deemed
evidence of the true status of ownership of the motor vehicle. (Revised Motor
Vehicles Law.)
It is to be noted that under section 4 (b) of the Revised Motor Vehicles Law the Chief of
the Motor Vehicles Office is required to enter or record, among other things, transfers of
motor vehicles "with a view of making and keeping the same and each all of them as
accessible as possible to and for persons and officers properly interested in the same,"
and to "issue such reasonable regulations governing the search and examination of the
documents and records . . . as will be consistent with their availability to the public and
their safe and secure prevention."
Two recording laws are here being invoked, one by each contending party the
Chattel Mortgage Law (Act No. 1508), by the mortgagor and the Revised Motor Vehicles
Law (Act No. 3992), by a purchaser in possession. What effect did the passenger of the
Revised Motor Vehicles Law have on the previous enactment?
The Revised Motor Vehicles Law is a special legislation enacted to "amend and compile
the laws relative to motor vehicles," whereas the Chattel Mortgage Law is a general law
covering mortgages of all kinds of personal property. The former is the latest attempt to
assemble and compile the motor vehicle laws of the Philippines, all the earlier laws on
the subject having been found to be very deficient in form as well as in substance (Villar
and De Vega, Revised Motor Vehicles Law, p. 1); it had been designed primarily to
control the registration and operation of motor vehicles (section 2, Act No. 3992).

Counsel for petitioner contends that the passage of the Revised Motor Vehicles Law
had the effect of repealing the Chattel Mortgage Law, as regards registration of motor
vehicles and of the recording of transaction affecting the same. We do not believe that it
could have been the intention of the legislature to bring about such a repeal. In the first
place, the provisions of the Revised Motor Vehicles Law on registration are not
inconsistent with does of the Chattel Mortgage Law. In the second place, implied
repeals are not favored; implied repeals are permitted only in cases of clear and positive
inconsistency. The first paragraph of section 5 indicates that the provisions of the
Revised Motor Vehicles Law regarding registration and recording of mortgage are not
incompatible with a mortgage under the Chattel Mortgage Law. The section merely
requires report to the Motor Vehicles Office of a mortgage; it does not state that the
registration of the mortgage under the Chattel Mortgage Law is to be dispensed with.
We have, therefore, an additional requirements in the Revised Motor Vehicles Law,
aside from the registration of a chattel mortgage, which is to report a mortgage to the
Motor Vehicles Office, if the subject of the mortgage is a motor vehicle; the report
merely supplements or complements the registration.
The recording provisions of the Revised Motor Vehicles Law, therefore, are merely
complementary to those of the Chattel Mortgage Law. A mortgage in order to affect third
persons should not only be registered in the Chattel Mortgage Registry, but the same
should also be recorded in the motor Vehicles Office as required by section 5 (e) of the
Revised Motor Vehicles Law. And the failure of the respondent mortgage to report the
mortgage executed in its favor had the effect of making said mortgage ineffective
against Borlough, who had his purchase registered in the said Motor Vehicles Office.
On failure to comply with the statute, the transferee's title is rendered invalid as
against a subsequent purchaser from the transferor, who is enabled by such
failure of compliance to retain the indicia of ownership, such as a subsequent
purchaser in good faith, or a purchaser from a conditional buyer in possession;
and the lien of a chattel mortgage given by the buyer to secure a purchase
money loan never becomes effective in such case as against an innocent
purchaser. (60 Corpus Juris Secundum, p. 171.)
One holding a lien on a motor vehicle, in so far as he can reasonably do so, must
protect himself and others thereafter dealing in good faith by complying and
requiring compliance with the provisions of the laws concerning certificates of title
to motor vehicles, such as statutes providing for the notation of liens or claims
against the motor vehicle certificate of title or manufacturer's certificate, or for the
issuance to the mortgagee of a new certificate of ownership. Where the lien
holder has satisfied himself that the existence of the lien is recited in the
certificate of title, he has done all that the law contemplates that he should do,

and there is notice to the public of the existing lien, which continues valid until the
record shows that it has been satisfied and a new certificate issued on legal
authority, even through another certificate which does not disclose the lien is
procured as the result of false statements made in the application therefore, and
the vehicle is purchased by a bona fide purchaser.
The holder of a lien who is derelict in his duty to comply and require compliance
with the statutory provisions acts at his own peril, and must suffer the
consequence of his own negligence; and accordingly, he is not entitled to the lien
as against a subsequent innocent purchaser filed as provided by other chattel
mortgage statutes. The rule is otherwise, however, as against claimants not
occupying the position of innocent purchaser, such as a judgment creditor, or one
acquiring title with actual notice of an unregistered lien, and the statutes do not
protect a purchaser holding under registered title if a link in the title is forgery.
Moreover, such statute will not impair vested rights of a mortgage under a chattel
mortgage duly recorded. (60 C.J.S., pp. 181-182.)
The above authorities leave no room for doubt that purchaser O. N. Borlough's right to
the vehicle as against the previous and prior mortgage Fortune Enterprises, Inc., which
failed to record its lien in accordance with the Revised Motor Vehicles Law, should be
upheld.
For the foregoing consideration, the judgment of the Court of Appeals is hereby
reversed and that of the Court of First Instance affirmed, with costs against respondent.

24.
FLORENTINA
ALEMAN,
PRESENTACION DE CATERA, ET AL., G.R. No. L-13693

vs.
March 25, 1961

PADILLA, J.:
On motion dated 7 and filed on 10 December 1957 by the intervenor-appellant, objected
to by the appellees, the Court of Appeals forwarded to this Court the two cases by
resolution adopted on 7 January 1958, for only a question of law is raised.
The facts of the two cases heard jointly, as found by the Court of First Instance of Iloilo
are, as follows:
Presentacion de Catera is and was the owner and operator of several passenger
trucks in the province of Iloilo. One of her trucks was the "Catera No. 5." In the
morning of January 21, 1954, said passenger truck was driven by Marianito

Amborgo. While it was traveling on the highway at Tabucan, Cabatuan, Iloilo, it

fell into the ditch because it was over speeding the driver was trying to overtake
another truck. Florentina Aleman and her son Antonio Real who at that time were
on the lawn in front of their house were hit by the said truck thereby causing the
instantaneous death of said Antonio Real and the injury of Florentina Aleman.
Civil case No. 2969 is for the recovery of damages instituted by Florentina
Aleman and her husband Federico Real for the death of their son and for the
injury of Florentina Aleman.
One of the passengers of the aforesaid truck was Jose Ontanillas. This man was
killed as a result of the mishap. The plaintiffs in civil case No. 2970 are his widow
and children.
Another passenger of the ill-fated truck was Zosimo Montefrio. He too was killed
in the disaster. His widow and children filed a complaint in intervention for the
recovery of damages in civil case No. 2970.
The two separate complaints were filed on 27 January 1954. On 9 February 1954 the
defendants filed separate answers, later on amended, to each complaint. By a writ of
attachment issued by the Court the provincial sheriff of Iloilo attached one of the buses
owned by the defendant Presentacion de Catera, a Chevrolet bearing motor No.
0223054T54J, serial No. CAP-MNL-41092, known as "Catera No. 4". On 13 May 1955
the Southern Motors, Inc. filed with the provincial sheriff a third-party claim to the bus,
On 16 May in both cases the plaintiffs filed with the Court a motion to strike out the
third-party claim filed by the motor company. On 17 May the motor company filed a
reply and objection to the motion to strike out and on 23 May a supplemental reply and
objection. On 13 June it filed a motion to intervene. On 14 June the Court entered an
order quashing the third-party claim filed with the sheriff. On 16 June the plaintiffs
objected and replied to the motion to intervene. On 18 June the motor company filed a
reply to the objection. On 20 June the Court granted the motion to intervene. On 22
June the intervenor motor company filed an answer in intervention setting up a counter
claim and praying that it be declared the owner of the bus attached by the sheriff to
answer for the damages awarded to the plaintiffs; that the writ of attachment be
quashed; that the attaching provincial sheriff be ordered to release and deliver to it the
aforesaid bus; and that it be paid the sum of P500 for attorney's fees and costs. On 24
June it moved to quash the attachment on the bus. On 1 July the plaintiffs objected to
the motion to quash. On 5 July the plaintiffs replied to the answer in intervention. On 11
July the plaintiffs and the intervenor motor company filed a joint motion submitting the
cases for judgment as far as the controversy between them is concerned. On 3 October
the Court rendered a judgment the dispositive part of which reads, as follows:

WHEREFORE, judgment is hereby rendered as follows:

Civil Case No. 2969
Presentacion de Catera is hereby sentenced to pay, jointly and severally with
Marianito Amborgo, the plaintiffs in Civil Case No. 2969, for the death of Antonio
Real who was a child of 5 years old, the sum of P4,000.00 as compensatory
damages, plus P2,000.00 as moral damages, plus P1,000.00 as attorney's fees,
plus the costs of the suit. For the injuries suffered by Florentina Aleman, the said
Presentacion de Catera is also sentenced, jointly and severally with Marianito
Amborgo, to pay said Florentina Aleman compensatory damages in the amount
of P500.00.
Civil Case No. 2970
Presentacion de Catera is hereby sentenced to pay, jointly and severally with
Marianito Amborgo, the plaintiffs in Civil Case No. 2970, for the death of Jose
Ontanillas the sum of P6,000.00 as compensatory damages, plus P2,000.00 as
moral damages, plus P1,000.00 as attorney's fees, plus costs of suit.
Presentacion de Catera, jointly and severally with Marianito Amborgo, is likewise
sentenced to pay the plaintiffs in the complaint in intervention, for the death of
Zosimo Montefrio the sum of P6,000.00 as compensatory damages, plus
P2,000.00 as moral damages, plus P1,000.00 as attorney's fees.
xxx

xxx

xxx

The counter-claim of Southern Motors, Inc. is dismissed.

From the dismissal of the counterclaim the intervenor southern Motors, Inc. on 17
October 1955 filed in both cases a notice of appeal, an appeal bond in the sum of P120
and record on appeal. On 25 October the defendant Presentacion de Catera also filed a
notice of appeal and on 11 November an appeal bond in the sum of P60 and a record in
appeal. On 29 November the trial court entered an order allowing the record on appeal
filed by Presentacion de Catera in civil case No. 2969 but disallowing that filed in civil
case No. 2970, because only one appeal bond in the sum of P60 had been filed.
In the Court of Appeals, on 5 January 1956 the appellees moved for the dismissal of the
appeal (CA-G.R. No. 17516-R which is that in civil case No. 2969), for failure of the
appellants to file and serve a brief within the time provided for by the Rules, to which
motion the latter filed an objection. By a resolution adopted on 4 February 1957 the
Court of Appeals denied the motion to dismiss the same being premature. On 10 June

the appellees filed anew a motion to dismiss the appeal which on June 18 was objected
by the appellants. On 20 June the appellees replied to the objection. On 14 August 1957
the Court of Appeals resolved to declare the appeal taken by Presentacion de Catera in
CA-G.R. No. 17516-R abandoned and dismissed.
Hence, the appeal before the Court is that taken by the intervenor Southern Motors, Inc.
in both cases from that part of the judgment dismissing its counterclaim. The question
for determination is: which has a preferred right to the bus under attachment the
Southern Motors, Inc. in whose favor, as seller of the bus, a chattel mortgage thereon
had been executed and recorded in the corresponding registry of deeds, or the families
of the vehicular accident victims who, having been awarded damages for death and
injuries, had caused an attachment on the said bus owned by the operator whose
purchase and ownership thereof had been recorded in the Motor Vehicles Office.
The intervenor-appellant contends that, being the one that sold by installment the bus to
one Wenceslao Defensor who, to secure the payment of the remaining unpaid
installments mortgaged the same in its favor, a chattel mortgage registered in the
Registry of Deeds, it should be preferred to and over the claim of the appellees who are
just judgment creditors. On the other hand, the appellees argue that by allowing the
vendee-mortgagor Wenceslao Defensor to sell the bus to Presentacion de Catera and
the latter to record in the Motor Vehicles Office the sale in her favor, the intervenorappellant had waived its mortgage lien on the bus, and for that reason the money
judgment rendered for the appellees is preferred.
In Olaf N. Borlough vs. Fortune Enterprise, Inc. et. at al., 53 Off. Gas 4070, this court
held that "A Mortgage in order to affect persons should not only be registered in the
Chattel Mortgage Registry, but the same should also be recorded in the Motor Vehicle
Office as required by section 5(e) of the Revised Motor Vehicle Law." Here, the
Southern Motor, Inc. did not record in the Motor Vehicle Office the mortgage executed in
it's favor. Such being the case the mortgage is ineffective as far as the appellees are
concerned. Its right or interest, therefore, in the truck, because of the mortgage
constituted in its favor, cannot prevail over of that appellees who thought mere
judgement creditors may be deemed innocent purchase of the bus owner-operator
Precentacion de Catera, who had her purchase of the bus from Wenceslao Defensor
recorded in the Motor Vehicles Office.
The part of the judgment appealed from is affirmed, with cost against the intervenorappellant Southern Motors, Inc.

25. PDF
26. JOSE GARRIDO vs. PILAR G. TUASON
G.R. No. L-23768

August 23, 1968

CONCEPCION, C.J.:
Appeal from a decision of the Court of First Instance of Manila, certified to us by the
Court of Appeals, only questions of law being raised by plaintiff-appellant.
On October 17, 1959, Jose Garrido commenced Civil Case No. 71763 of the Municipal
Court of Manila, for the foreclosure of a chattel mortgage, executed in his favor by
defendant, Pilar G. Tuason, to guarantee the payment of a debt in the sum of P1,000,
as well as for the recovery of attorney's fees and the costs. After appropriate
proceedings, decision was rendered, on November 14, 1959, ordering the defendant to
pay to plaintiff "the sum of P1,000 with interest thereon at the rate of 1% per month from
June 30, 1959 until the whole amount is fully paid, plus the sum of P100 for attorney's
fees, and the costs."
In compliance with a writ of execution, issued on December 9, 1959, after this decision
had become final, a car of the defendant was, on January 2, 1960, sold, by the
Provincial Sheriff of Rizal, at public auction, to the plaintiff, as the highest bidder, for the
sum of P550. On January 28, 1960, plaintiff filed two (2) motions, namely: one, praying
that the sum of P165, allegedly spent by him to carry out said writ of execution, be
added to the unsatisfied portion of the aforementioned decision, presumably as part of
the costs, and another, for an alias writ of execution for the sum of P1,290.58, as the
aggregate outstanding balance allegedly due under said decision. Both motions were
denied in an order dated February 27, 1960. Plaintiff's motion for reconsideration of this
order was denied on March 19, 1960.1wph1.t
Soon later, or on April 1, 1960, plaintiff commenced Civil Case No. 76462, of said court,
against the same defendant whose husband was included, as her co-defendant, on
May 27, 1960 for the recovery of said alleged balance of P1,290.58. On motion of
said defendants, plaintiff's complaint in said case No. 76462 was dismissed by the
Municipal Court, on August 31, 1960. Plaintiff appealed to the Court of First Instance of
Manila, which, in due course rendered its decision, on April 17, 1961, dismissing the
case, without pronouncement as to costs, upon the ground that, pursuant to Article 2115
of the Civil Code of the Philippines, plaintiff has no cause of action against the
defendants. Hence, this appeal by the plaintiff.

Article 2115 of said Code reads:1wph1.t

... 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.
The Court of First Instance must have applied this precept in view of Article 2141 of the
same Code, pursuant to which the provisions thereof on pledge shall be applicable to
chattel mortgages "insofar as they are not in conflict with the Chattel Mortgage Law."
We have already held, however,1 that said Article 2115 is inconsistent with the
provisions of the Chattel Mortgage Law,2 and that, accordingly, the chattel mortgage
creditor may maintain an action3 for the deficiency.
Then, again, said Court would seem to have acted under the impression, that, since
Case No. 71763 was one for the foreclosure of a chattel mortgage, the decision therein
rendered was for such foreclosure; but such was not the nature of said decision, for it
merely ordered the defendant to pay the sum of P1,000, with interest thereon, in
addition to attorney's fees and the costs. It did not order the sale of the property
mortgaged to the plaintiff or of any other particular property, for the satisfaction of his
credit against the defendant. It did not purport to enforce plaintiff's lien over the
mortgaged property. In other words, it was an ordinary money judgment, to which said
Articles 2115 and 2141 were absolutely irrelevant.
The municipal court erred, therefore, in denying plaintiff's motion of January 28, 1960,
for the issuance of an alias writ of execution in Case No. 71763, less than five (5) years
having elapsed since the decision therein was rendered on November 14, 1959. As a
consequence, plaintiff could have and should have appealed from the order of denial of
said motion; but, he did not do so, and, instead, he brought the case at bar, thereby
allowing said order to become final. Thus, the principle of res adjudicata bars the
present action, which, accordingly, was dismissed properly.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against
plaintiff-appellant. It is so ordered.1wph1.t
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.
Footnotes

Bank of the Philippine Islands v. Olutanga Lumber Co., 47 Phil. 20, 22; Manila
Trading & Supply Co. v. Tamaraw Plantation Co., 47 Phil. 513, 520-521; Manila
Trading & Supply Co. v. Santos, 66 Phil. 237, 244; Ablaza v. Ignacio, L-11466,
May 23, 1958.
2

The last part of the second paragraph of Section 14 of Act No. 1508, provides:
"... 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."

After the lapse of five (5) years from the date when the original decision became
final.1wph1.t

27.
FACTS: Petitioner executed a chattel mortgage in favor of Producers Bank of the Philippines
byway of security for petitioners corporate loan. In due time, the loan was paid by the petitioner.
In1984, the bank extended to petitioner a loan covered by four promissory notes but due to
financial constraints, the loan was not settled at maturity. Respondent bank thereupon applied
for an extra judicial foreclosure of the chattel mortgage with the Sheriff prompting Petitioner
Corporation to file an action for injunction before the Regional Trial Court. Ultimately, the court
dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held petitioner
corporation bound by the stipulations of the chattel mortgage. Petitioner corporation appealed to
the Court of Appeals which affirmed, "in all respects," the decision of the court a quo. The
motion for reconsideration was denied.
ISSUE: Whether or not it is 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?
RULINGS: Contracts of security are either personal or real. In contracts of personal security,
such as a guaranty or a surety ship, the faithful performance of the obligation by the principal
debt or 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 obligation becomes due and the debtor defaults,
then the property encumbered can be alienated for the payment of the obligation, but that
should the obligation be duly paid, then the contract is automatically extinguished proceeding
from the accessory character of the agreement. As the law so puts it, once the obligation is
complied with, and then the contract of security becomes, ipso facto, null and void. While a
pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations
so long as these future debts are accurately described, 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. Refusal on the part of the
borrower to execute the agreement so as to cover the after-incurred 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. A chattel
mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by
the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit
of good faith. While it is not doubted that if such an affidavit is not appended to the agreement,
the chattel mortgage would still be valid between the parties (not against third persons acting in
good faith), the fact, however, that the statute has provided that the parties to the contract must
execute an oath that . . (The) mortgage is made for the purpose of securing the obligation
specified in theconditions thereof, and for no other purpose, and that the same is a just and
valid obligation, and one not entered into for the purpose of fraud.
13 makes it obvious that the debt referred to in the law is a current, not an obligation that is yet
merely contemplated. 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 Courtsaid
. . . A mortgage that contains a stipulation in regard to future advances in the credit willtake
effect only from the date the same are made and not from the date of themortgage.

FACTS:
Chua Pac, president and general manager of Acme Shoe, Rubber and Plastic
Corporation, executed a chattel mortgage in favor of Producers Bank of the Philippines,
as a security for a corporate loan in the amount of P3M. The chattel mortgage contained
a clause that provided for the mortgage to stand as security for all other obligations
contracted before, during and after the constitution of the mortgage.
The P3M was paid. Subsequently, the corporation obtained additional financial

accommodations totalling P2.7M. This was also paid on the due date. Again, the bank
extended another loan to the corporation in the amount of P1M, covered by four
promissory notes. However, the corporation was unable to pay this at maturity.
Thereupon, the bank applied for an extra-judicial foreclosure of mortgage.
For its part, the corporation filed an action for injunction with prayer for damages. The
lower court ultimately dismissed the case and ordered the extra-judicial foreclosure of
mortgage.
Hence,
this
appeal.
ISSUEs:

W/N extra-judicial foreclosure of the chattel mortgage is proper

If not proper, W/N the corporation is entitled to damages as a result of the extrajudicial foreclosure

HELD:
Contracts

of

Security

Contracts of security are either personal or real. In contracts of personal security, such
as a guaranty or 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 and substantially in teh 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 obligation becomes due and the debtor defaults, then the property
encumbered can be alienated for the payment of the obligation, but that should the
obligation be duly paid, then the contract is automatically extinguished proceeding from
the accessory character 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.
After-incurred

Obligations

While a pledge, real estate mortgage, or antichresis may exceptionaly secure afterincurred obligations so long as these future debts are accurately described, 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 covered the newly contracted debt is executed either by

concluding a fresh chattel mortgage or by amending the old contract conformably with
the Chattel Mortgage Law. Refusal on the part of borrower to execute the agreement so
as to cover the after-incurred obligation can constitute as an act of default on the part of
the borrower of the financing agreement wherein 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 case at bar, the chattel mortgage was terminated when payment for the P3M loan
was made so there was no chattel mortgage to even foreclose at the time the bank
instituted
the
extra-judicial
foreclosure.
Damages
In its complaint, the corporation asked for moral damages sustained "as a result of the
unlawful action taken by the respondent bank against it." The court said -"Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore it cannot experience physical suffering and mental anguish. Mental suffering
can be experienced only by one having a nervous system and it flows from real ills and
sorrows and griefs of life -- all of which cannot be suffered by respondent bank as an
artificial
person.
"Although Chua Pac was included in the case, he was only so named as a party in
representation of the corporation."
In June 1978, Acme Shoe, Rubber & Plastic Corporation executed a chattel mortgage in
favor of Producers Bank of the Philippines in consideration of a loan in the amount of P3
million. The loan was paid. Thereafter, Producers Bank extended another P2.7 million
loan to Acme. The same was paid. In 1984, Producers Bank extended a P1 million loan
to Acme. This time, Acme was unable to pay and eventually, Producers Bank foreclosed
the property subject of the chattel mortgage executed in June 1978.
Acme opposed the foreclosure as it alleged that the 1984 loan was no longer covered
by the chattel mortgage of 1978. Acme is also asking for moral damages (worth P3
million) for the groundless foreclosure done by Producers Bank.
ISSUE: Whether or not Acme Shoe is entitled to moral damages.
HELD: No. It is true that the chattel mortgage executed in 1978 for the initial P3 million
loan only covers the initial loan and not the 1984 P1 million loan. However, Acme Shoes
is not entitled to moral damages. Moral damages are granted in recompense for

physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,

wounded feelings, moral shock, social humiliation, and similar injury. A corporation,
being an artificial person and having existence only in legal contemplation, has no
feelings, no emotions, no senses; therefore, it cannot experience physical suffering and
mental anguish. Mental suffering can be experienced only by one having a nervous
system and it flows from real ills, sorrows, and griefs of life all of which cannot be
suffered by Acme Shoes as an artificial person.