o Even if the parties intended that additional loans obtained be

Cuyco v. Cuyco secured by the REM, as shown in the acknowledgement

487 SCRA 693 receipts, it is not sufficient in law to bind the realty for it was not
Petitioner: Sps. Adelina S. Cuyco and Feliciano U. Cuyco substantially in the form prescribed by law. (Must be in a public
Respondents: Sps. Renato Cuyco and Filipina Cuyco document)
2. NO
DOCTRINE - Rule 68, Sec. 2 - Judgment on foreclosure for payment or sale.
For additional loans to be secured by a mortgage, it must be expressly stipulated in o Mortgaged property may be charged not only for the mortgaged
the mortgage contract, or must include a dragnet clause, or make a new mortgage debt or obligation but also for the interest, other charges and costs
contract amending the first which includes the additional loans. approved by the court.
o Thus to discharge the REM, Adelina must pay the total amount
FACTS due, which is the principal loan of 1.5m, the stipulated interest of
Adelina obtained a loan in the amount of 1.5m from Renato which is payable within 18%, the stipulated interest due of 12%, cost of suit.. etc.
1 year at 18% interest per annum which is secured by a REM over a parcel of land o Failure to pay such would would lead to a public auction for
in Cubao. satisfaction of the judgment.
- Subsequently, Adeline obtained additional land from Renato in the aggregate NOTES
amount of 1.25m broken down as 150k, 150k, 500k, 200k and 250k at different Interest issue: W/N Adelina must pay Renato legal interest of 12% per annum on the
times. stipulated interest of 18% per annum, computed from the filing of the complaint until
Adelina made payments but failed to settle their outstanding loan obligation. fully paid. -YES
- Renato filed a complaint for foreclosure of mortgage with the RTC. They - Article 2212. Interest due shall earn legal interest from the time it is judicially
claimed that Adelines indebtedness amounted to almost 7m, inclusive of the demanded, although the obligation may be silent upon this point.
18% interest compounded monthly.
Adelina contended that their original obligation of 1.5m is what is secured by the
REM at 18% per annum and that there was no agreement that the same will be
compounded monthly.
RTC ruled in favor of Renato.
CA partially granted the petition.
- It held that by express intention of the parties, the REM secured the original
loan and subsequent loans of 150k and 500k obtained which is the 2nd and 3rd
additional loan evidenced by acknowledgement receipts.
- However, in regard to the 1st, 4th and 5th loans, the parties never intended that
the subsequent loans be secured by the REM.
- It also held that to discharge the REM, payment of only the principal and the
stipulated interest is sufficient because the mortgage contract does not contain
a stipulation that the legal interest on the stipulated interest due, attorneys fee,
and cost of suit must be paid first before the same may be discharged.

ISSUE/S
1. W/N the subsequent loans were covered by the REM - NO
2. W/N payment of the principal and stipulated interest is sufficient to discharge
the REM - NO

RULING & RATIO

1. NO
- General Rule, a mortgage liability is usually limited to the amount
mentioned in the Contract.
- While a real estate mortgage may exceptionally secure future loans or
advancement, these future debate must be sufficiently described in the
mortgaged contract. (Dragnet clause)
o It is clear in the REM that there is no stipulation that the
mortgaged realty shall also secure future loans and
advancements.
Central Bank vs CA
GR # L-45710| October 3, 1985
Petition: petition for review on certiorari
Petitioner: CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND
SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank
Respondent: THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO

Page !1 of !17
DOCTRINE
FACTS
- On April 28, 1965, Island Savings Bank, upon favorable recommendation of
its legal department, approved the loan application for P80,000.00 of
Sulpicio M. Tolentino, who, as a security for the loan, executed on the same
day a real estate mortgage over his 100-hectare land located in Cubo, Las
Nieves, Agusan, and which mortgage was annotated on the said title the
next day.
- The approved loan application called for a lump sum P80,000.00 loan,
repayable in semi-annual installments for a period of 3 years, with 12%
annual interest. It was required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other property into a
subdivision.
- On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan
was made by the Bank; and Sulpicio M. Tolentino and his wife Edita
Tolentino signed a promissory note for P17,000.00 at 12% annual interest.
- An advance interest for the P80,000.00 loan covering a 6-month period
amounting to P4,800.00 was deducted from the partial release of
P17,000.00. But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank that there was
no fund yet available for the release of the P63,000.00 balance.
o It was repeatedly promised by the bank that they will release the
remaining P63,000.00.
- On August 13, 1965, the Monetary Board of the Central Bank, after finding
Island Savings Bank was suffering liquidity problems.
o The Monetary Board prohibited the bank from making new loans
and investments.
- On June 14, 1968, the Monetary Board, after finding that Island Savings
Bank failed to put up the required capital to restore its solvency, issued
Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines.
- On August 1, 1968, Island Savings Bank, in view of non-payment of the
P17,000.00 covered by the promissory note, filed an application for the
extra-judicial foreclosure of the real estate mortgage covering the 100-
hectare land of Sulpicio M. Tolentino.
- Sulpicio M. Tolentino filed a petition with the CFI of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction,
alleging that since Island Savings Bank failed to deliver the P63,000.00
balance of the P80,000.00 loan, he is entitled to specific performance by
ordering Island Savings Bank to deliver the P63,000.00 with interest of 12%
per annum from April 28, 1965, and if said balance cannot be delivered, to
rescind the real estate mortgage
- The trial court, upon the filing of a P5,000.00 surety bond, issued a
temporary restraining order enjoining the Island Savings Bank from
continuing with the foreclosure of the mortgage.
- RTC: Petition of Tolentino unmeritorious.
o ordered him to pay Island Savings Bank the amount of P 17 000.00
plus legal interest and legal charges
o TRO lifted
- Tolentino appealed.
- CA: Modified the Court of First Instance decision by affirming the dismissal
of Sulpicio M. Tolentino's petition for specific performance, but it ruled that
Island Savings Bank can neither foreclose the real estate mortgage nor
collect the P17,000.00 loan
Hence, this petition.
ISSUE/S
1. W/N the foreclosure may proceed despite the fact that there was partial
release of P17,000.00 only
RULING & RATIO
1. YES, but only to the extent of the actual sum due
- The fact that when Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because
Island Savings Bank had not made any release on the loan, does not make
the real estate mortgage void for lack of consideration. It is not necessary
that any consideration should pass at the time of the execution of the
contract of real mortgage.
- lt may either be a prior or subsequent matter. But when the consideration is
subsequent to the mortgage, the mortgage can take effect only when the
debt secured by it is created as a binding contract to pay
- And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure. Where the
indebtedness actually owing to the holder of the mortgage is less than
the sum named in the mortgage, the mortgage cannot be enforced for
more than the actual sum due
- Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence
the real estate mortgage covering 100 hectares is unenforceable to the
extent of 78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is
more than sufficient to secure a P17,000.00 debt.
- Since Island Savings Bank failed to furnish the P63,000.00 balance of
the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering
the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
DISPOSITION
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY
11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF
HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00
REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM
MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL
AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
Page !2 of !17
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE
MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY
HIS TOTAL INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS

HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED
RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.

NO COSTS. SO ORDERED.

Paderes v. CA (Short title)

GR # 147074 | 463 SCRA 504 | July 15, 2009
Petition: Petition for Review on Certiorari
Petitioner: Spouses RODRIGO PADERES and SONIA PADERES
Respondent: CA, Hon. CARLOTA P. VALENZUELA, in her capacity as the
Liquidator of Banco

GR # 147075 | 463 SCRA 504 | July 15, 2009

Petition: Petition for Review on Certiorari
Petitioner: Spouses ISABELO BERGARDO and JUANA HERMINIA BERGARDO
Respondent: CA, Hon. CARLOTA P. VALENZUELA, in her capacity as the
Liquidator of Banco

Page !3 of !17
DOCTRINE
FACTS
- September 14, 1982, Manila International Construction Corporation (MICC)
executed a real estate mortgage over 21 parcels of land including the
improvements in favor of Banco Filipino Savings and Mortgage Bank (Banco
Filipino) to secure a loan of P1,885,000.00.
o It was registered and annotated at Registry of Deeds.
- MICC sold 1 house and lot to SPS PADERES and 1 house and lot to SPS.
BERGARDO.
o However, the sale was not registered.
- MICC failed to settle its obligation. Thus, BANCO FILIPINO filed a petition
for extra-judicial foreclosure of MICCs mortgage.
o BANCO FILIPINO was the highest bidder. Thus, a certificate of sale
was issued and registered with Registry of Deeds.
o No redemption of foreclosed mortgage had been made.
- CALOTA VALENZUELA, as liquidator of BANCO FILIPINO, obtained a Writ
of Possession of the foreclosed properties. Thus, a notice was addressed to
MICC and/or All persons claiming rights under them to voluntarily vacate
the premises.
- Instead of vacating, SPS. PADERES and SPS. BERGARDO filed a petition
to CA, assailing the validity of Writ of Possession.
o CA dismissed the petition
Hence, this petition.
PETITIONERS Contention:
- Having purchased their properties in good faith from MICC, their right is
superior to that of Banco Filipino.
- Still entitled to redeem the properties
- Their respective houses should not have been included in the auction sale
ISSUE/S
1. W/N the extrajudicial foreclosure and writ of possession is valid
RULING & RATIO
YES
- SPS PADERES and SPS BERGARDO purchased their properties from
MICC in good faith is of no moment. The purchases took place after
MICCs mortgage to Banco Filipino had been registered in accordance
with Article 212520 of the Civil Code and the provisions of P.D. 1529
(PROPERTY REGISTRY DECREE).
- a real right or lien in favor of Banco Filipino had already been established,
subsisting over the properties until the discharge of the principal obligation,
whoever the possessor(s) of the land might be.
- In PNB v. Mallorca, the court held that:
oSale or transfer cannot affect or release the mortgage. A purchaser
is necessarily bound to acknowledge and respect the
encumbrance
o a recorded real estate mortgage is a right in rem, a lien on the
property whoever its owner may be.
- PETITIONERS ARE NOT ENTITILED TO REDEEM
o The debtor has 1 year to redeem but the petitioner failed to do so.
- THE HOUSES ARE COVERED IN THE MORTGAGE
o Being improvements on the subject properties constructed by
mortgagor MICC, there is no question that they were also covered
by MICCs real estate mortgage following the terms of its contract
with Banco Filipino and Article 2127
- THE RIGHT OF THE APPLICANT TO ASK FOR THE ISSUANCE OF A
WRIT OF POSSESSION OF THE LAND NEVER PRESCRIBES
DISPOSITION
WHEREFORE, the petition is hereby DENIED.
Philippine Bank of Communications v. CA
GR # 118552 | February 5, 1996
Petition: Petition for Review on Certiorari
Petitioner: Philippine Bank of Communications
Respondent: Court of Appeals and the Spouses Alejandro and Amparo Casafranca
New Civil Code Art. 2127
DOCTRINE
A mortgage must sufficiently describe the debt sought to be secured, which
description must not be such as to mislead or deceive, and an obligation is not
secured by a mortgage unless it comes fairly within the terms of the mortgage
FACTS
Spouses Casafranca used to be owners of a lot
They sold the lot to Carlos Po who paid part of the agreed price. After
securing title in his name, mortgaged the lot to the Philippine Bank of
Communications (PBCom) to secure a loan of P 330,000.
In a civil action that ensued between Spouses and Po, the spouses obtained
a favorable judgment against Po.
Page !4 of !17
 Later, in an auction sale to satisfy Pos judgment obligation, Spouses
acquired the aforesaid lot and a Certificate of Sale was executed in their
favor.
Meanwhile, PBCom applied for extrajudicial foreclosure of the mortgage
executed by Po, and in the succeeding auction sale, it acquired the lot in a
winning bid of P1,006,540.66. The corresponding Certificate of Sale was
then executed in its favor.
It appears further that Amparo Casafranca who had stepped into the shoes
of the mortgagor Po by virtue of the auction sale in her favor offered to
redeem the property from PBCom by tendering to its manager a check in the
amount of P500,000 which in her estimate would be sufficient to settle the
account of Po. PBCom did not accept the check as it insisted that any such
redemption should be at the price it acquired the lot in the auction sale.
Spouses, in reaction, filed against PBCom a civil case for nullification of the
foreclosure and auction sale.
Court set aside the extrajudicial foreclosure and auction sale and declared
that the obligation secured by the mortgage executed by Po was only
P330,000 plus stipulated interest and charges.
PBCom advised the spouses to pay the sum of P884,281.38 purportedly
representing Pos principal account of P330,000, interest and charges
thereon, attorneys fees and realty taxes which it paid for the lot.
Spouses however did not agree with said Statement of Account and since
the account remained unpaid, PBCom again applied for extrajudicial
foreclosure of mortgage during which it was sold to Natalie Limchio.
Spouses commenced the present action to nullify the auction sale in favor of
Limchio. Spouses further alleged that PBCom refused to turn over the
correct amount of residue after paying off the mortgage and costs of the
sale.
Upon application of Spouses, a TRO enjoining sheriffs from transferring the
title of the lot in favor of defendant Limchio and the latter, from taking
possession of the lot.
Hence, what is left for the Court to ascertain is the true and correct account
of Po as of the auction sale (that pertaining to Limchio as winning bidder)
after which, the determination of the residue would follow.
PROMISSORY NOTE (provide for penalties)
o For value received, I/we jointly and severally, promise to pay the
Philippine Bank of Communications, at its office in the City of Cebu,
Philippines the sum of THREE HUNDRED THOUSAND PESOS
(P300,000.00), Philippine Currency, together with interest thereon
at the rate of TWELVE % per annum until paid, which interest rate
the Bank may at any time without notice, raise within the limits
allowed by law, and I/we also agree to pay, jointly and solidarily
12% per annum penalty charge, by way of liquidated damages
should this note be unpaid or is not renewed on due date.
xxx
Should it become necessary to collect this note through an
attorney-at-law. I/we hereby expressly agree to pay, jointly and
severally, ten per cent (10%) of the total amount due on this note as
attorneys fees which in no case shall be less than P100.00
exclusive of all costs and fees allowed by law stipulated in the
contract of real estate mortgage if any there be.
MORTGAGE CONTRACT (does not provide for penalties)
o The mortgage contract explicitly provides for interest of 12% per
annum or at such other higher rate or rates as may be fixed by the
MORTGAGEE from time to time, and shall be payable at the end of
every month or otherwise, as the MORTGAGEE may elect and, if
not so paid, shall be added to, and become part of, the principal
and shall earn interest at the same rate as the principal
To recapitulate, the principal loan obtained by Carlos Po (now succeeded by
Spouses) was P330,000. Interest thereon for the first year at 12% per
annum was retained or deducted from the proceeds of the loan. Compound
interests earned at the same rate reached P77,660. And then the rate of
interest was raised to 14% per annum, as authorized in the mortgage
contract. At such rate, compound interests for said period would be in the
sum of P343,805. Adding both interest earnings to the principal obligation,
the total account would then be P751,465. Additionally, the mortgage
contract provides for attorneys fee[s] equivalent to 10% of the amounts due.
Hence, the sum of P75,146.50 in the concept of attorneys fee[s] would raise
the account to P826,611.50. Finally, the amount of P83,028.18 representing
realty taxes paid by PBCom for the lot, inclusive of interest, which must be
reimbursed, will bring the grand total of the account to 909,639.68.
The publication and other expenses incurred in the foreclosure and auction
sale [to] the tune of P707 should be deducted from the amount of
P1,184,000 which Natalie Limchio paid for the lot, leaving net proceeds of
P1,183,293. Subtracting therefrom the total account due to PBCom, the
residue would be P273,653.32, which must be delivered to plaintiffs.
Trial Court ruled in favor of Spouses for the sum of P273, 653.32.
Both parties appealed. PBCom questioned the lower courts failure to include
in its computation the penalty stipulated in the promissory notes
CA affirmed trial courts decision in toto.
PBCom insists that the penalties in the promissory note are covered (Nota
Bene: thereby effectively increasing the grand total of the account of Po
effectively decreasing the residue that it must pay the Spouses)
ISSUE/S
Whether, in the foreclosure of a real estate mortgage, the penalties
stipulated in two promissory notes secured by the mortgage may be charged
against the mortgagors as part of the sums secured, although the mortgage
contract does not mention the said penalties - NO
RULING & RATIO
1. NO
What applied here is the general rule that an action to foreclose a mortgage
must be limited to the account mentioned in the mortgage.
Construing the silence (as to the penalty with regard to the Mortgage
Contract) against PBCom, it can be fairly concluded that PBCom did not
intend to include the penalties on the promissory notes in the secured
amount. This explains the finding by the trial court, as affirmed by the Court
of Appeals, that penalties and charges not due for want of stipulation in the
mortgage contract
A mortgage must sufficiently describe the debt sought to be secured, which
description must not be such as to mislead or deceive, and an obligation is
Page !5 of !17
 not secured by a mortgage unless it comes fairly within the terms of the
mortgage. In this case, the mortgage contract provides that it secures notes
and other evidences of indebtedness. Under the rule of ejusdem generis,
where a description of things of a particular class or kind is accompanied by
words of a generic character, the generic words will usually be limited to
things of a kindred nature with those particularly enumerated. . . . A penalty
charge does not belong to the species of obligations enumerated in the
mortgage, hence, the said contract cannot be understood to secure the
penalty.

DISPOSITION
WHEREFORE, finding no reversible error on the part of respondent Court of Appeals,
its challenged decision of 29 April 1994 in CAG. R. CV No. 38332 is hereby
AFFIRMED in toto.
Costs against the petitioner.

Prudential Bank v. Alviar (Short title)

GR # 150197 | July 28, 2005
Petition: Petition for review on certiorari under Rule 45 of the Rules of Court
Petitioner: Prudential Bank
Respondent: Don A. Alviar and Georgia B. Alviar

FACTS
- Spouses Don A. Alviar and Georgia B. Alviar, are the owners of a parcel of
land in San Juan covered by Transfer Certificate of Title (TCT) No. 438157
- They executed a deed of real estate mortgage in favor of Prudential Bank to
secure the payment of a loan worth P250,000.00 and executed a
promissory note (1st), PN BD#75/C-252, covering the said loan and
includes a dragnet clause1.
- Don Alviar subsequently executed another promissory note (2nd), PN
BD#76/C-345 for P2,640,000.00, secured by a hold-out on the mortgagors
foreign currency savings account with the bank.
- Spouses Alviar then executed for Donalco Trading, Inc., another
promissory note (3rd) PN BD#76/C-430 covering P545,000.000. The loan
is secured by Clean-Phase out which means that the temporary overdraft

- 1 "That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as
those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the
accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted
on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is
the absolute owner free from all liens and encumbrances"

Page !6 of !17
 incurred by Donalco Trading, Inc. with Prudential Bak is to be converted into
an ordinary loan in compliance with a Central Bank circular.
- Prudential Bank then wrote Donalco Trading, Inc., informing the latter of its
approval of a straight loan of P545,000.00, the proceeds of which shall be
used to liquidate the outstanding loan of P545,000.00 temporary overdraft.
- Spouses Alviar then paid Prudential Bank P2,000,000.00, to be applied to
the obligations of G.B. Alviar Realty and Development, Inc. and for the
release of the real estate mortgage. (separate loan)
- Prudential Bank moved for the extrajudicial foreclosure of the mortgage on
the property covered by TCT No. 438157 (1st PN). Per the bank's
computation, respondents had the total obligation of P1,608,256.68,
covering the three (3) promissory notes, to wit: PN BD#75/C-252 for
P250,000.00, PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for
P545,000.00, plus assessed past due interests and penalty charges.
- Spouses Alviar filed a complaint for damages with a prayer for the issuance
of a writ of preliminary injunction with RTC Pasig, claiming that they have
paid their principal loan secured by the mortgaged property, and thus the
mortgage should not be foreclosed.
- Prudential Bank averred that the payment of P2,000,000.00 was not a
payment made by the spouses Alviar, but by G.B. Alviar Realty and
Development Inc., which has a separate loan with the bank secured by a
separate mortgage.
- RTC: Dismissed the complaint and ordered the Sheriff to proceed with the
extra-judicial foreclosure but upon reconsideration, issued an order setting
aside its earlier decision and awarded attorneys fees to respondents.
- RTC found that only the P250,000.00 loan is secured by the mortgage on
the land covered by TCT No. 438157. On the other hand, the P382,680.83
loan is secured by the foreign currency deposit account of Don A. Alviar,
while the P545,000.00 obligation was an unsecured loan, being a mere
conversion of the temporary overdraft.
- The blanket mortgage clause relied upon by the bank applies only to future
loans obtained by the mortgagors, and not by parties other than the said
mortgagors, such as Donalco Trading, Inc.
- CA: Affirmed the Order of the trial court but deleted the award of attorneys
fees. It ruled that while a continuing loan or credit accommodation based on
only one security or mortgage is a common practice in financial and
commercial institutions, such agreement must be clear and unequivocal.
- In the instant case, the parties executed different promissory notes agreeing
to a particular security for each loan. Thus, the appellate court ruled that the
extrajudicial foreclosure sale of the property for the three loans is improper.
- The Court of Appeals, however, found that respondents have not yet paid the
P250,000.00 covered by PN BD#75/C-252 (1st) since the payment of
P2,000,000.00 adverted to by respondents was issued for the obligations of
G.B. Alviar Realty and Development, Inc.
ISSUE/S
1. W/N the blanket mortgage clause or the dragnet clause is valid
RULING & RATIO
2. YES (but not applicable to full extent in this case)
- A blanket mortgage clause, also known as a dragnet clause, is one which is
specifically phrased to subsume all debts of past or future origins. Such
clauses are carefully scrutinized and strictly construed.
- The parties intended the real estate mortgage to secure not only the
P250,000.00 loan from the petitioner, but also future credit facilities and
advancements that may be obtained by the respondents. The terms of the
above provision being clear and unambiguous, there is neither need nor
excuse to construe it otherwise.
- The subsequent loans obtained by the spouses Alviar were secured by other
securities.
- Under American jurisprudence, two schools of thought have emerged on this
question. One school advocates that a dragnet clause so worded as to be
broad enough to cover all other debts in addition to the one specifically
secured will be construed to cover a different debt, although such other debt
is secured by another mortgage.
- The contrary thinking maintains that a mortgage with such a clause will not
secure a note that expresses on its face that it is otherwise secured as to its
entirety, at least to anything other than a deficiency after exhausting the
security specified therein, such deficiency being an indebtedness within the
meaning of the mortgage, in the absence of a special contract excluding it
from the arrangement.
- The latter school represents the better position. The parties having
conformed to the blanket mortgage clause or dragnet clause, it is reasonable
to conclude that they also agreed to an implied understanding that
subsequent loans need not be secured by other securities, as the
subsequent loans will be secured by the first mortgage. In other words, the
sufficiency of the first security is a corollary component of the dragnet
clause.
- But of course, there is no prohibition, as in the mortgage contract in issue,
against contractually requiring other securities for the subsequent loans.
Thus, when the mortgagor takes another loan for which another security was
given it could not be inferred that such loan was made in reliance solely on
the original security with the dragnet clause, but rather, on the new security
given. This is the reliance on the security test.
- Hence, based on the reliance on the security test, an inquiry whether the
second loan was made in reliance on the original security containing a
dragnet clause must be made.
- It has been held that in the absence of clear, supportive evidence of a
contrary intention, a mortgage containing a dragnet clause will not be
extended to cover future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing security therefor.
- It was therefore improper for petitioner in this case to seek foreclosure of the
mortgaged property because of non-payment of all the three promissory
notes. While the existence and validity of the dragnet clause cannot be
denied, there is a need to respect the existence of the other security given.
- The foreclosure of the mortgaged property should only be for the
P250,000.00 loan covered by PN BD#75/C-252, and for any amount not
covered by the security for the subsequent promissory note.
- While the dragnet clause subsists, the security specifically executed for
subsequent loans must first be exhausted before the mortgaged property
can be resorted to.
- One other crucial point is that the mortgage contract, as well as the
promissory notes subject of this case, is a contract of adhesion.
- The real estate mortgage in issue appears in a standard form, drafted and
prepared solely by the bank, and which, according to jurisprudence must be
strictly construed against the party responsible for its preparation.
Page !7 of !17
 - If the parties intended that the blanket mortgage clause shall cover
subsequent advancement secured by separate securities, then the same
should have been indicated in the mortgage contract.
- Even the promissory notes in issue were made on standard forms prepared
by the, and as such are likewise contracts of adhesion. Being of such nature,
the same should be interpreted strictly against the bank.
- The bank however, is not without recourse. Both the Court of Appeals and
the trial court found that respondents have not yet paid the P250,000.00, and
gave no credence to their claim that they paid the said amount when they
paid petitioner P2,000,000.00. Thus, the mortgaged property could still be
properly subjected to foreclosure proceedings for the unpaid P250,000.00
loan, and for any deficiency after subsequent securities has been exhausted,
subject of course to defenses which are available to the spouses.
DISPOSITION
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 59543 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Castro, Jr. v. Court of Appeals
250 SCRA 661
Petitioner: Luis Castro, Jr., Marissa Castro, Ramon Castro, Mary Ann Castro,
Catherine Castro and Antonio Castro.
Respondents: Court of Appeals and Union Bank of the Philippines
DOCTRINE
Improvement subsequently introduced to the encumbered property are considered to
form part of the mortgage only if so owned by the mortgagor. Such is NOT in the case
at bar.
FACTS
Cabanatuan City College obtained a loan from Bancom. In order to secure such,
Cabanatuan mortgaged to Bancom 2 parcels of land within the school site.
- While the mortgage was subsisting, Cabanatuan leased to Castro a 10000
sqm. portion of the encumbered property where the latter eventually build a
residential house. Bancom was duly advised by Cabanatuan on the matter.
Cabanatuan defaulted and Bancom extrajudicially foreclosed on the
mortgaged property. It was then up for public auction where Bancom was the
only bidder.
Bancom filed with the RTC for an ex-parte Writ of Possession not only over the
land and school buildings but also the residential house constructed by Castro,
which was subsequently issued.
Castro while refusing to leave, averred that being the owners of the residential
house could not be ousted simply on the basis of a writ of possession.
RTC ruled in favor of Bancom pursuant to Article 2127.
2. CA affirmed the decision.
ISSUE/S
W/N improvements made by a lessee on an mortgaged property forms part of the
accessions and improvements recited in Article 2127 NO
PROVISIONS
Article 2127. - The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person.
RULING & RATIO
NO
- Article 2127 is predicated on an assumption that the ownership of such
accessions and accessories belongs to the mortgagor as the owner of the
principal.
Page !8 of !17
 - All improvements subsequently introduced or owned by the mortgagor on
the encumbered property are deemed to form part of the mortgage but not
if the accessions were introduced by a third-party or in this case, a lessee.
o A contract of mortgage be it real or personal, needs an
indispensable element thereof of ownership by the mortgagor of
the property mortgaged.
- It is to say, that a foreclosure would be ineffective unless the
mortgagor has title to the property to be foreclosed.
PNB vs Sps Maranon
GR # 189316 | June 1, 2013
Petition: petition for review on certiorari1 under Rule 45 of the Rules of Court
Petitioner: PHILIPPINE NATIONAL BANK
Respondent: SPOUSES BERNARD and CRESENCIA MARANON
DOCTRINE
FACTS
- Spouses Montealegre had a 152-square meter parcel of land located at
Bacolod erected with a building leased by various tenants that was used as
a security for a loan they had with PNB.
- Spouses Montealegre failed to pay, PNB initiated foreclosure proceedings on
the mortgaged properties, including the subject lot. In the auction sale, PNB
emerged as the highest bidder. It was issued the corresponding Certificate of
Sale dated December 17, 19917 which was subsequently registered on
February 4, 1992.
- Before the expiration of the redemption period, Spouses Maraon filed
before the RTC a complaint for Annulment of Title, Reconveyance and
Damages against Spouses Montealegre, PNB, the Register of Deeds of
Bacolod City and the Ex-Officio Provincial Sheriff of Negros Occidental.
- In its Answer, PNB averred that it is a mortgagee in good faith and for value
and that its mortgage lien on the property was registered thus valid and
binding against the whole world.
- While the trial proceedings were ongoing, Paterio Tolete (Tolete), one of the
tenants of the building erected on the subject lot deposited his rental
payments with the Clerk of Court of Bacolod City which, as of October 24,
2002, amounted to P144,000.00.
- RTC: in favor of the Sps Maranon
o based on the expert testimony of Colonel Rodolfo Castillo, Head of
the Forensic Technology Section of Bacolod City Philippine National
Police, that the signatures of Spouses Maraon in the Deed of Sale
presented by Spouses Montealegre before the Register of Deeds to
cause the cancellation of TCT No. T-129577 were forged. Hence,
the RTC concluded the sale to be null and void and as such it did
not transfer any right or title in law.
o PNB was adjudged to be a mortgagee in good faith whose lien on
the subject lot must be respected
o The defendant Emilie Montealegre is ordered to reconvey the title
over Lot No. 177-A-1, Bacolod Cadastre back to the plaintiffs
Maraon herein respondents
o The Real Estate Mortgage lien of the Philippine National Bank
registered on the title of Lot No. 177-A-1 Bacolod Cadastre shall
stay and be respected
- No reconsideration or appeal was sought by either parties.
- Spouses Maraon filed motions for release of the rental payments deposited
with the Clerk of Court and paid to PNB by Tolete.
- Spouses Maraon filed an Urgent Motion for the Withdrawal of Deposited
Rentals praying that the P144,000.00 rental fees deposited by Tolete with
the Clerk of Court be released in their favor for having been adjudged as the
real owner of the subject lot. RTC GRANTED
- Spouses Maraon again filed with the RTC an Urgent Ex-Parte Motion for
Withdrawal of Deposited Rentals praying that the P30,000.00 rental fees
paid to PNB by Tolete on December 12, 1999 be released in their favor. The
Page !9 of !17
 said lease payments were for the five (5)-month period from August 1999 to
December 1999 at the monthly lease rate of P6,000.00. RTC GRANTED
reasoning that since they are the proper owners, they are entitled to the
fruits.
- PNB moved for reconsideration, averring that as declared by the RTC in its
Decision dated June 2, 2006, its mortgage lien should be carried over to the
new title reconveying the lot to Spouses Maraon.
- PNB further argued that with the expiration of the redemption period on
February 4, 1993, or one (1) year from the registration of the certificate of
sale, PNB is now the owner of the subject lot hence, entitled to its fruits.
- RTC: directing PNB to release to Spouses Maraon the P30,000.00 rental
payments considering that they were adjudged to have retained ownership
over the property
o Denied MR
- PNB sought recourse with the CA via a petition for certiorari and mandamus
- CA: denied the petition and affirmed the RTCs judgment
o not being parties to the mortgage transaction between PNB and
Spouses Montealegre, Spouses Maraon cannot be deprived of the
fruits of the subject lot as the same will amount to deprivation of
property without due process of law.
o PNB is not a mortgagee in good faith because as a financial
institution imbued with public interest, it should have looked beyond
the certificate of title presented by Spouses Montealegre and
conducted an inspection on the circumstances surrounding the
transfer to Spouses Montealegre
Hence, this petition.
RTC Decision dated June 2, 2006 lapsed into finality when it was
not appealed or submitted for reconsideration. As such, all
conclusions therein are immutable and can no longer be modified
by any court even by the RTC that rendered the same. The CA
however erroneously altered the RTC Decision by reversing the
pronouncement that PNB is a mortgagee-in-good-faith.
PNB further asseverates that its mortgage lien was carried over to
the new title issued to Spouses Maraon and thus it retained the
right to foreclose the subject lot upon non-payment of the secured
debt. PNB asserts that it is entitled to the rent because it became
the subject lots new owner when the redemption period expired
without the property being redeemed.
ISSUE/S
2. W/N PNB is entitled to the rentals
RULING & RATIO
3. NO
- Rent is a civil fruit that belongs to the owner of the property producing it by
right of accession. The rightful recipient of the disputed rent in this case
should thus be the owner of the subject lot at the time the rent accrued. It is
beyond question that Spouses Maraon never lost ownership over the
subject lot. This is the precise consequence of the final and executory
judgment in Civil Case No. 7213 rendered by the RTC on June 3, 2006
whereby the title to the subject lot was reconveyed to them and the cloud
thereon consisting of Emilies fraudulently obtained title was removed.
Ideally, the present dispute can be simply resolved on the basis of such
pronouncement.
- The protection afforded to PNB as a mortgagee in good faith refers to the
right to have its mortgage lien carried over and annotated on the new
certificate of title issued to Spouses Maraon as so adjudged by the RTC.
Thereafter, to enforce such lien thru foreclosure proceedings in case of non-
payment of the secured debt, as PNB did so pursue. The principle, however,
is not the singular rule that governs real estate mortgages and foreclosures
attended by fraudulent transfers to the mortgagor.
- Rent, as an accessory follows the principal. In fact, when the principal
property is mortgaged, the mortgage shall include all natural or civil fruits
and improvements found thereon when the secured obligation becomes due
as provided in Article 2127 of the Civil Code, viz:
Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public use,
with the declarations, amplifications and limitations established by
law, whether the estate remains in the possession of the mortgagor,
or it passes into the hands of a third person.
- However, the rule is not without qualifications. In Castro, Jr. v. CA the Court
explained that Article 2127 is predicated on the presumption that the
ownership of accessions and accessories also belongs to the mortgagor as
the owner of the principal. After all, it is an indispensable requisite of a valid
real estate mortgage that the mortgagor be the absolute owner of the
encumbered property
- Otherwise stated, absent an adverse claimant or any evidence to the
contrary, all accessories and accessions accruing or attached to the
mortgaged property are included in the mortgage contract and may thus also
be foreclosed together with the principal property in case of non-payment of
the debt secured.
- It is beyond question that PNBs mortgagors, Spouses Montealegre, are not
the true owners of the subject lot much less of the building which produced
the disputed rent. The foreclosure proceedings on August 16, 1991 caused
by PNB could not have, thus, included the building found on the subject lot
and the rent it yields. PNBs lien as a mortgagee in good faith pertains to the
subject lot alone because the rule that improvements shall follow the
principal in a mortgage under Article 2127 of the Civil Code does not apply
under the premises. Accordingly, since the building was not foreclosed, it
remains a property of Spouses Maraon; it is not affected by non-
redemption and is excluded from any consolidation of title made by
PNB over the subject lot. Thus, PNBs claim for the rent paid by Tolete
has no basis.
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! of !17
 - There is technically no juridical tie created by a valid mortgage contract
that binds PNB to the subject lot because its mortgagor was not the true
owner. But by virtue of the mortgagee in good faith principle, the law allows
PNB to enforce its lien. We cannot, however, extend such principle so as to
create a juridical tie between PNB and the improvements attached to the
subject lot despite clear and undeniable evidence showing that no such
juridical tie exists.
- Lastly, it is worthy to note that the effects of the foreclosure of the subject lot
is in fact still contentious considering that as a purchaser in the public sale,
PNB was only substituted to and acquired the right, title, interest and claim of
the mortgagor to the property as of the time of the levy. There being already
a final judgment reconveying the subject lot to Spouses Maraon and
declaring as null and void Emilie's purported claim of ownership, the
legal consequences of the foreclosure sale, expiration of the
redemption period and even the consolidation of the subject lot's title
in PNB's name shall be subjected to such final judgment.
- Nonetheless, since the present recourse stemmed from a mere motion
claiming ownership of rent and not from a main action for annulment of
the foreclosure sale or of its succeeding incidents, the Court cannot
proceed to make a ruling on the bearing of the CA's Decision dated June 18,
2008 to PNB's standing as a purchaser in the public auction. Such matter
will have to be threshed out in the proper forum.
DISPOSITION
WHEREFORE, foregoing considered, the petition is hereby DENIED. The Decision
dated June 18, 2008 and Resolution dated August 10, 2009 of the Court of Appeals in
CA-G.R. SP No. 02513 are AFFIRMED.
SO ORDERED.
Asiatrust v. Tuble (Short title)
GR # 183987 | July 25, 2012
Petition: Petition for Review on Certiorari under Rule 45
Petitioner: Asia Trust Development Bank
Respondent: Carmelo H. Tuble
FACTS
- Carmelo H. Tuble, who served as the vice-president of Asiatrust, availed
himself of the car incentive plan and loan privileges of the bank and was also
entitled to the Senior Managers Deferred Incentive Plan (DIP).
- He acquired a Nissan Vanette through the companys car incentive plan. The
arrangement was made to appear as a lease agreement requiring only the
payment of monthly rentals and would be terminated in case of resignation
or retirement prior to full payment of the price.
- As regards the loan privileges, Tuble obtained three separate loans. (1) A
real estate loan evidenced by Promissory Note No. 0142 and secured by a
mortgage over his property. No interest on this loan was indicated. (2)
Consumption loan, evidenced by Promissory Note No. 0143 and interest at
18% per annum. (3) Tuble allegedly obtained a salary loan.
- Tuble subsequently resigned and was given the option to return the vehicle
or retain the unit and pay its remaining book value.
- In all, Tuble had the following obligations to the bank: (1) the purchase or
return of the car; (2) P100K as consumption loan; (3) P400K as real estate
loan; and (4) P16K as salary loan.
- In turn, the bank owed Tuble (1) his pro-rata share in the DIP, which was to
be issued after the bank had given the resigned employees clearance; and
(2) His final salary and corresponding 13th month pay.
- Tuble claimed that since he and the bank were debtors and creditors of each
other, the offsetting of loans could legally take place. He then asked the bank
to simply compute his DIP and apply his receivables to his loans.
- Instead of heeding his request, the bank sent a demand letter obliging him to
pay his debts. The bank also required him to return the car.
- Tuble then wrote the bank again to follow up his request to offset the loans.
The letter was not immediately acted upon but the bank finally allowed the
offsetting of his various claims and liabilities. As a result, his liabilities were
reduced plus the unreturned value of the vehicle.
- In order to recover the car, the bank filed a Complaint for replevin against
Tuble to which it obtained a favorable judgment. Then, to collect the liabilities
of respondent, it also filed a Petition for Extra-judicial Foreclosure of real
estate mortgage over his property which was based only on his real estate
loan, which at that time amounted to P421,800. His other liabilities to the
bank were excluded. The foreclosure proceedings terminated, with the bank
emerging as the purchaser of the secured property.
- Thereafter, Tuble timely redeemed the property for P1,318,401.91.8 Notably,
the redemption price increased to this figure, because the bank had
unilaterally imposed additional interest and other charges.
- Tuble was deemed to have fully paid his accountabilities. Thus, three years
after his payment, the bank issued him a Clearance necessary for the
release of his DIP share. Subsequently, he received a Managers Check in
the amount of P166,049.73 representing his share in the DIP funds.
- Tuble questioned how the foreclosure basis of P421,800 ballooned to
P1,318,401.91 in a matter of one year. The bank explained that this
redemption price included the Nissan Vanettes book value, the salary loan,
car insurance, 18% annual interest on the banks redemption price of
P421,800, penalty and interest charges on Promissory Note No. 0142 (real
estate loan), and litigation expenses.
- Tuble filed a Complaint for recovery of a sum of money and damages before
the RTC. He specifically sought to collect the excess charges on the
redemption price and prayed for moral and exemplary damages.
- RTC: Ruled in favor of Tuble. The trial court characterized the redemption
price as excessive and arbitrary, because the correct redemption price
should not have included the above-mentioned charges. Moral and
exemplary damages were also awarded to him.
Page !11 of !17
 - As for the 18% annual interest on the bid price, such was unlawful. Act 3135
in relation to Section 28 of Rule 39 of the Rules of Court, only allows the
mortgagee to charge an interest of 1% per month in case of redemption.
- CA: Affirmed the findings of the RTC.
- The bank went to the SC reiterating its claims regarding the inclusion in the
redemption price of the 18% annual interest on the bid price and the interest
charges on Promissory Note No. 0142. It emphasizes that an 18% interest
rate allegedly referred to in the mortgage deed is the proper basis of the
interest. Pointing to the Real Estate Mortgage Contract, the bank highlights
the blanket security clause2 or "dragnet clause" that purports to cover all
obligations owed by Tuble.
- Promissory Note No. 0142 refers to the real estate loan; it does not contain
any stipulation on interest. On the other hand, Promissory Note No. 0143
refers to the consumption loan; it charges an 18% annual interest rate. The
bank uses this latter rate to impose an interest over the bid price of
P421,800. Further, the bank sees the inclusion in the redemption price of an
addition 12% annual interest on Tubles real estate loan.
ISSUE/S
3. W/N the dragnet clause therein justify the imposition of an 18% annual interest
on the redemption price
RULING & RATIO
4. NO
- Through a dragnet clause, a real estate mortgage contract may exceptionally
secure future loans or advancements but an obligation is not secured by a
mortgage, unless, that mortgage comes fairly within the terms of the
mortgage contract.
- The mortgage agreement, being a contract of adhesion, is to be carefully
scrutinized and strictly construed against the bank.
- In this case, there is no specific mention of interest to be added in case of
either default or redemption. The Real Estate Mortgage Contract itself is
silent on the computation of the redemption price. Although it refers to the
Promissory Notes as constitutive of Tubles secured obligations, the said
contract does not state that the interest to be charged in case of redemption
should be what is specified in the Promissory Notes.
- Jurisprudence provides that such silence or omission of additional charges
shall be construed strictly against the bank. In that case, we affirmed the
findings of the courts a quo that penalties and charges are not due for want
of stipulation in the mortgage contract.
- The interest in the loan agreements offer different interest charges. Thus, an
ambiguity results as to which interest shall be applied, for to apply an 18%
interest per annum based on Promissory Note No. 0143 will negate the
existence of the 0% interest charged by Promissory Note No. 0142. Notably,
it is this latter Promissory Note (0142) that refers to the principal agreement
to which the security attaches.
2 "All obligations of the Borrower and/or Mortgagor, its renewal, extension, amendment or novation irrespective of whether such obligations as renewed, extended, amended or novated are in the nature of new, separate or
additional obligations;
All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee, executed before or after the execution of this document whether presently owing or hereinafter incurred and whether or not arising from or
connection with the aforesaid loan/Credit accommodation; x x x."
- To resolve this ambiguity, a basic principle in the law of contracts provides :
"Any ambiguity is to be taken contra proferentem, that is, construed against
the party who caused the ambiguity which could have avoided it by the
exercise of a little more care."
- The court also refuses to be blindsided by the dragnet clause in the Real
Estate Mortgage Contract to automatically include the consumption loan,
and its corresponding interest, in computing the redemption price.
- As we have held in Prudential Bank v. Alviar, in the absence of clear and
supportive evidence of a contrary intention, a mortgage containing a dragnet
clause will not be extended to cover future advances, unless the document
evidencing the subsequent advance refers to the mortgage as providing
security therefor.
- Using the "reliance on the security test," the second loan agreement, or
Promissory Note No. 0143, referring to the consumption loan makes no
reference to the earlier loan with a real estate mortgage. Neither does the
bank make any allegation that it relied on the security of the real estate
mortgage in issuing the consumption loan.
- It must be remembered that Tuble was petitioners previous vice-president.
Hence, as one of the senior officers, the consumption loan was given to him
not as an ordinary loan, but as a form of accommodation or privilege. The
banks grant of the salary loan to Tuble was apparently not motivated by the
creation of a security in favor of the bank, but by the fact the he was a top
executive of petitioner.
- The bank cannot claim that it relied on the previous security in granting the
consumption loan to Tuble. For this reason, the dragnet clause will not be
extended to cover the consumption loan. It follows, therefore, that its
corresponding interest 18% per annum is inapplicable.
DISPOSITION
IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED.
NOTES
On Issue of Foreclosure
- At the time respondent resigned, which was before the foreclosure
proceedings, he had several liabilities to the bank. When the bank later on
instituted the foreclosure proceedings, it foreclosed only the mortgage
secured by the real estate loan. It did not seek to include, in the foreclosure,
the consumption loan or the other alleged obligations of Tuble. The bank
then availed itself of the remedy of foreclosure and, in doing so, effectively
gained the property.
- As a result of these established facts, one evident conclusion surfaces: the
Real Estate Mortgage Contract on the secured property is already
extinguished.
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! of !17
 - In foreclosures, the mortgaged property is subjected to the proceedings for
the satisfaction of the obligation. Once the proceeds from the sale of the
property are applied to the payment of the obligation, the obligation is
already extinguished.
- Consequently, since the Real Estate Mortgage Contract is already
extinguished, the bank can no longer rely on it or invoke its provisions,
including the dragnet clause stipulated therein. It follows that the bank
cannot refer to the 18% annual interest charged in Promissory Note No.
0143, an obligation allegedly covered by the terms of the Contract.
- Neither can the bank use the consummated contract to collect on the rest of
the obligations, which were not included when it earlier instituted the
foreclosure proceedings. It cannot be allowed to use the same security to
collect on the other loans. To do so would be akin to foreclosing an already
foreclosed property.
- Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had
the right to redeem the security by paying the redemption price.
- The right of redemption of foreclosed properties is a statutory privilege
- Consequently, the bank cannot alter that right by imposing additional
charges and including other loans. Verily, the freedom to stipulate the terms
and conditions of an agreement is limited by law.
Litonjua v. L&R Corp
GR # 130722 | December 9, 1999
Petitioner: Sps. Reynaldo K. Litonjua and Erlinda P. Litonjua and Phil. White House
Auto Supply, Inc.,
Respondent: L & R Corporation, Vicente M. Coloyan In His Capacity as Acting
Registrar of The Register of Deeds Of Quezon City Thru Deputy Sheriff Roberto R.
Garcia
New Civil Code, Art. 2130
DOCTRINE
Stipulation prohibiting the mortgagor from selling his mortgaged property without the
consent of the mortgagee violates Article 2130 of the New Civil Code; The sale made
by the spouses Litonjua to PWHAS, notwithstanding the lack of prior written consent
of L & R Corporation, is valid.
FACTS
Spouses Litonjua obtained loans from L&R Corp in the aggregate sum of
P400,000. Loans were secured by a mortgage constituted by spouses upon
their two parcels of land and improvements thereon
Spouses sold to Philippine White House Auto Supply, Inc. (PWHAS) the
parcels of land they had previously mortgaged to L&R Corp.
Spouses having defaulted in the payment of their loans, L&R Corp initiated
extrajudicial foreclosure proceedings, the mortgaged properties were sold to
L&R Corp as the only bidder.
When L&R Corp presented its corresponding Certificate of Sale to QC
Register of Deeds for registration, it learned for the first tie of the prior sale of
properties made by the Spouses to PWHAS upon seeing the inscription at
the back of the Certificates of Title. Thus, it wrote a letter to the Register of
Deeds of QC requesting for the cancellation of the annotation regarding the
sale to PWHAS.
L&R Corp invoked a provision in its mortgage contract with the spouses
stating that the mortgagees prior consent was necessary in case of
subsequent encumbrance or alienation of the subject properties. It argued
that since the sale to PWHAS was made without prior written consent, the
same should not have been registered and/or annotated.
A complaint for Quieting of Title, Annulment of Title and Damages with
preliminary injunction was filed by the spouses Litonjua and PWHAS against
L&R Corp CFI QC The lower court rendered its Decision dismissing the
Complaint upon its finding that the sale between the spouses Litonjua and
PWHAS was null and void and unenforceable against L & R Corporation and
that the redemption made was also null and void.
On appeal, the decision of the trial court was set aside by the Court of
Appeals in its Decision dated June 22, 1994, on the ground that the sale
made to PWHAS as well as the redemption effected by the spouses Litonjua
were valid. However, the same was subsequently reconsidered
Hence this petition.
ISSUE/S
May a mortgage contract provide that the mortgagor cannot sell the mortgaged
property without first obtaining the consent of the mortgagee and that, otherwise, the
sale made without the mortgagees consent shall be invalid - NO
RULING & RATIO
1. No.
Insofar as the validity of the questioned stipulation prohibiting the mortgagor from
selling his mortgaged property without the consent of the mortgagee is concerned,
therefore, the ruling in the Tambunting case (Nota Bene: Stipulation prohibiting
subsequent mortgage or encumbrance is ALLOWED. What is prohibited is stipulation
prohibiting sale or conveyance by mortgagor) is still the controlling law. Indeed, we
are fully in accord with the pronouncement therein that such a stipulation violates
Article 2130 of the New Civil Code. Both the lower court and the Court of Appeals in
its Amended Decision rationalize that since paragraph 8 of the subject Deed of
Real Estate Mortgage contains no absolute prohibition against the sale of the property
mortgaged but only requires the mortgagor to obtain the prior written consent
of the mortgagee before any such sale, Article 2130 is not violated thereby. This
observation takes a narrow and technical view of the stipulation in question without
taking into consideration the end result of requiring such prior written consent.
True, the provision does not absolutely prohibit the mortgagor from selling his
mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves.
For all intents and purposes, the stipulation practically gives the mortgagee the sole
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prerogative to prevent any sale of the mortgaged property to a third party. The
mortgagee can simply withhold its consent and thereby, prevent the mortgagor from
selling the property. This creates an unconscionable advantage for the mortgagee
and amounts to a virtual prohibition on the owner to sell his mortgaged property. In
other words, stipulations like those covered by paragraph 8 of the subject Deed of
Real Estate Mortgage circumvent the law, specifically, Article 2130 of the New Civil
Code. Being contrary to law, paragraph 8 of the subject Deed of Real Estate
Mortgage is not binding upon the parties. Accordingly, the sale made by the spouses
Litonjua to PWHAS, notwithstanding the lack of prior written consent of L & R
Corporation, is valid.
DISPOSITION
WHEREFORE, the Decision appealed from is hereby AFFIRMED with modifications
NOTES
1. Issue as to right of first refusal
a. A stipulation on a right of first refusal is allowed. There is nothing
wrong in a stipulation granting the mortgagee the right of first
refusal over the mortgaged property in the event the mortgagor
decides to sell the same. While the mortgagor has every right to sell
the mortgaged property without securing the consent of the
mortgagee, he has the obligation under a right of first refusal
provision to notify the mortgagee of his intention to sell the property
and give him priority over other buyers. A sale made in violation of
the mortgagees contractual right of first refusal in rescissible.
Caltex v. IAC and Herbert Manzana
Facts: Manzana purchased on credit petroleum products from
Caltex. Manzanas indebtedness amounted to P361,218.66.
Manzana executed a Deed of First Mortgage in favour of Caltex
over a parcel of land in Province of Camarines Norte. Caltex
sent Manzana statements of account and later demanded
payment of his entire debts. Manzana failed to pay, Caltex
filed a complaint before the RTC for the entire amount due.
Caltex extrajudicially foreclosed the mortgaged property. The
mortgaged property was sold at auction to Caltex, who was
the only bidder, for P20,000. The foreclosure was allegedly
known by Manzana only 10 years later when such fact was
manifested by Caltex in its reply to the opposition of Manzana
to the motion for execution pending appeal.
RTC ordered Manzana to pay Caltex the amount of P353,218.66
after deducting the amount paid by Traders Insurance and
Surety Company on its surety bond. IAC affirmed the RTC
decision in toto. Manzana filed an MR.
IAC issued a resolution ordering that the recors are remanded
to trial court for purposes of determining the deficiency due to
plaintiff. It also said that the action in the trial court cannot
be said for recovery of deficiency because it was for the whole
amount and not deficiency.
MR filed by Caltex was denied. Hence, this petition.
Issue: Whether or not the mere filing of a collection suit for
the recovery of the debt secured by real estate mortgage
constitutes waiver of the other remedy of foreclosure.
Held: It is of no moment that the collection suit was filed
ahead, what is determinative is the fact that the foreclosure
proceedings ended even before the decision in the collection
suit was rendered. As a matter of fact, CALTEX informed the
trial court that it had already consolidated its ownership over
the property, in its reply to the opposition of Manzana to the
motion for execution pending appeal filed by it.
The collection suit filed before the trial court cannot be
considered as a deficiency judgment because a deficiency
judgment has been defined as one for the balance of the
indebtedness after applying the proceeds of the sale of the
mortgaged property to such indebtedness and is necessarily
filed after the foreclosure proceedings. It is significant to note
that the judgment rendered by the trial court was for the full
amount of the indebtedness and the case was filed prior to the
foreclosure proceedings.
A suit for the recovery of the deficiency after the foreclosure
of a mortgage is in the nature of a mortgage action because its
purpose is precisely to enforce the mortgage contract; it is
upon a written contract and upon an obligation of Manzana to
pay the deficiency which is created by law (see Development
Bank of the Philippines v. Tomeldan et al., G.R. No. 51269,
November 17, 1980, 101 SCRA 171). Therefore, since more
than ten (10) years have elapsed from the time the right of
action accrued, CALTEX can no longer recover the deficiency
from Manzana.
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Bank Of America v. American Realty corp (Short title)
GR # 133876 | 321 SCRA 659 | Date December 29, 1999
Petition: For certiorari Petitioner: BANK OF AMERICA, NT and
SA Respondent: AMERICAN REALTY CORPORATION and COURT
OF APPEALS
DOCTRINE
Remedies available to the mortgage creditor are deemed
alternative and not cumulative. Notably, an election of one
remedy operates as a waiver of the other. For this purpose, a
remedy is deemed chosen upon the filing of the suit for
collection or upon the filing of the complaint in an action for
foreclosure of mortgage, pursuant to the provision of Rule 68
of the 1997 Rules of Civil Procedure. As to extrajudicial
foreclosure, such remedy is deemed elected by the mortgage
creditor upon filing of the petition not with any court of
justice but with the Office of the Sheriff of the province where
the sale is to be made, in accordance with the provisions of
Act No. 3135, as amended by Act No. 4118.
FACTS
- Bank of America NT & SA (BANTSA) is an international
banking and financing institution duly licensed to do
business in the Philippines, organized and existing under
and by virtue of the laws of the State of California,
United States of America while private respondent
American Realty Corporation (ARC) is a domestic
corporation.
- Bank of America International Limited (BAIL), on the
other hand, is a limited liability company organized and
existing under the laws of England.
- BANTSA and BAIL on several occasions granted three
major multi-million United States (US) Dollar loans to
the following corporate borrowers: (1) Liberian
Transport Navigation, S.A.; (2) El Challenger S.A.; and
(3) Eshley Compania Naviera S.A.
o all of which are existing under and by virtue of
the laws of the Republic of Panama and are
foreign affiliates of private respondent.
- Due to the default in the payment of the loan
amortizations, BANTSA and the corporate borrowers
signed and entered into restructuring agreements. As
additional security for the restructured loans, private
respondent ARC as third party mortgagor executed two
real estate mortgages,4 dated 17 February 1983 and 20
July 1984, over its parcels of land including
improvements thereon, located at Barrio Sto. Cristo,
San Jose Del Monte, Bulacan
- Eventually, the corporate borrowers defaulted in the
payment of the restructured loans prompting petitioner
BANTSA to file civil actions5 before foreign courts for
the collection of the principal loan.
- On 16 December 1992, petitioner BANTSA filed before
the Office of the Provincial Sheriff of Bulacan,
Philippines, an application for extrajudicial foreclosure6
of real estate mortgage.
- On 12 February 1993, private respondent filed before
the Pasig Regional Trial Court, Branch 159, an action for
damages8 against the petitioner, for the latters act of
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 foreclosing extrajudicially the real estate mortgages
despite the pendency of civil suits before foreign courts
for the collection of the principal loan.
- Petitioners answer by saying that The plaintiff, being a
mere third party mortgagor and not a party to the
principal restructuring agreements, was never made a
party defendant in the civil cases filed in Hongkong and
England, There is actually no civil suit for sum of
money filed in the Philippines since the civil actions
were filed in Hongkong and England. As such, any
decisions (sic) which may be rendered in the
abovementioned courts are not (sic) enforceable in the
Philippines unless aseparate action to enforce the
foreign judgments is first filed in the Philippines,
pursuant to Rule 39, Section 50 of the Revised Rules of
Cour.
ISSUE/S
1. W/N a mortgage-creditor waive its remedy to foreclose the
real estate mortgage constituted over a third party
mortgagors property situated in the Philippines by filing an
action for the collection of the principal loan before foreign
courts YES
PROVISIONS
Palagay nalang nung provision
RULING & RATIO
1. YES
- Contrary to petitioners arguments, we therefore
reiterate the rule, for clarity and emphasis, that the
mere act of filing of an ordinary action for collection
operates as a waiver of the mortgage-creditors remedy
to foreclose the mortgage. By the mere filing of the
ordinary action for collection against the principal
debtors, the petitioner in the present case is deemed to
have elected a remedy, as a result of which a waiver of
the other necessarily must arise. Corollarily, no final
judgment in the collection suit is required for the rule
on waiver to apply.
- In our jurisdiction, the remedies available to the
mortgage creditor are deemed alternative and not
cumulative. Notably, an election of one remedy
operates as a waiver of the other. For this purpose, a
remedy is deemed chosen upon the filing of the suit for
collection or upon the filing of the complaint in an
action for foreclosure of mortgage, pursuant to the
provision of Rule 68 of the 1997 Rules of Civil Procedure.
As to extrajudicial foreclosure, such remedy is deemed
elected by the mortgage creditor upon filing of the
petition not with any court of justice but with the
Office of the Sheriff of the province where the sale is to
be made, in accordance with the provisions of Act No.
3135, as amended by Act No. 4118.
- Private respondent ARC constituted real estate
mortgages over its properties as security for the debt of
the principal debtors. By doing so, private respondent
subjected itself to the liabilities of a third party
mortgagor. Under the law, third persons who are not
parties to a loan may secure the latter by pledging or
mortgaging their own property. Notwithstanding, there
is no legal provision nor jurisprudence in our jurisdiction
which makes a third person who secures the fulfillment
of anothers obligation by mortgaging his own property,
to be solidarily bound with the principal obligor. The
signatory to the principal contractloanremains to be
primarily bound. It is only upon default of the latter
that the creditor may have recourse on the mortgagors
by foreclosing the mortgaged properties in lieu of an
action for the recovery of the amount of the loan.
- In this case, the petitioners are have deemed to have
waied their claim over the third party mortgage by filing
collection suits against the principal debtors.
DISPOSITION
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WHEREFORE, premises considered, the instant petition is
DENIED for lack of merit. The decision of the Court of Appeals
is hereby AFFIRMED with MODIFICATION of the amount awarded
as exemplary damages. Accordingly, petitioner is hereby
ordered to pay private respondent the sum of P99,000,000.00
as actual or compensatory damages; P50,000.00 as exemplary
damage and the costs of suit. SO ORDERED.

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