CHATTEL MORTGAGE

PCI Leasing v Trojan

PCILF contends that the transaction between the parties was a sale and leaseback financing
arrangement where the client sells movable property to a financing company, which then leases the
same back to the client. PCILF insists the transaction is not financial leasing, which contemplates
extension of credit to assist a buyer in acquiring movable property which the buyer can use and
eventually own. PCILF claims that the sale and leaseback financing arrangement is not contrary to law,
morals, good customs, public order, or public policy. PCILF stresses that the guaranty deposit should
be forfeited in its favor, as provided in the lease agreement. PCILF points out that this case does not
involve mere failure to pay rentals, it deals with a flagrant violation of the lease agreement.

Respondents counter that from the very beginning, transfer to PCILF of ownership over the subject
equipment was never the intention of the parties. Respondents claim that under the lease agreement,
the guaranty deposit would be forfeited if TMI returned the leased equipment to PCILF before the
expiration of the lease agreement; thus, since TMI never returned the leased equipment voluntarily, but
through a writ of replevin ordered by the RTC, the guaranty deposit should not be forfeited.

LEASING shall refer to financial leasing which is a mode of extending credit through a non-cancelable
contract under which the lessor purchases or acquires at the instance of the lessee heavy equipment,
motor vehicles, industrial machinery, appliances, business and office machines, and other movable
property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient
to amortize at least 70% of the purchase price or acquisition cost, including any incidental expenses
and a margin of profit, over the lease period. The contract shall extend over an obligatory period during
which the lessee has the right to hold and use the leased property and shall bear the cost of repairs,
maintenance, insurance, and preservation thereof, but with no obligation or option on the part of the
lessee to purchase the leased property at the end of the lease contract.

Thus, in a true financial leasing, whether under RA 5980 or RA 8556, a finance company purchases on
behalf of a cash-strapped lessee the equipment the latter wants to buy but, due to financial limitations,
is incapable of doing so. The finance company then leases the equipment to the lessee in exchange
for the latter’s periodic payment of a fixed amount of rental.

In this case, however, TMI already owned the subject equipment before it transacted with PCILF.
Therefore, the transaction between the parties in this case cannot be deemed to be in the nature of a
financial leasing as defined by law.

In the present case, since the transaction between PCILF and TMI involved equipment already owned
by TMI, it cannot be considered as one of financial leasing, as defined by law, but simply a loan secured
by the various equipment owned by TMI.
 RCBC v Royal Cargo
On respondent’s contention that petitioner, as mortgagee, had the duty to notify it of the public auction
sale, the Court finds the same immaterial to the case.

Section 13 of the Chattel Mortgage Law allows the would-be redemptioner thereunder to redeem the
mortgaged property only before its sale.

There is no law in our statute books which vests the right of redemption over personal property. Act No.
1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent
to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of
mortgaged personal property, but the statute is definitely silent on the point. And Section 39 of the 1997
Rules of Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters that the right of
redemption applies to real properties, not personal properties, sold on execution.

Unmistakably, the redemption cited in Section 13 partakes of an equity of redemption, which is the right
of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions
of the mortgage but before the sale of the property to clear it from the encumbrance of the mortgage.
It is not the same as right of redemption which is the right of the mortgagor to redeem the mortgaged
property after registration of the foreclosure sale, and even after confirmation of the sale.

While respondent had attached some of Terrymanila’s assets to secure the satisfaction of a
₱296,662.16 judgment rendered in another case, what it effectively attached was Terrymanila’s equity
of redemption. That respondent’s claim is much lower than the ₱1.5 million actual bid of petitioner at
the auction sale does not defeat respondent’s equity of redemption.

It bears noting that the chattel mortgage in favor of petitioner was registered more than two years before
the issuance of a writ of attachment over some of Terrymanila’s chattels in favor of respondent. This is
significant in determining who between petitioner and respondent should be given preference over the
subject properties. Since the registration of a chattel mortgage is an effective and binding notice to
other creditors of its existence and creates a real right or lien that follows the property wherever it may
be, the right of respondent, as an attaching creditor or as purchaser, had it purchased the mortgaged
chattel at the auction sale, is subordinate to the lien of the mortgagee who has in his favor a valid chattel
mortgage.
 CIFC v CA
The chattel mortgage contract should not be viewed in such a myopic context. The key lies in the
certificate of ownership issued in Ong's name (which, along with the deed of sale, he submitted to
petitioner as proof that he is the owner of the ship he gave as security for his loan). It was plainly stated
therein that the ship LCT "Orient Hope" ex "Asiatic," by means of a Deed of Absolute Sale dated 28
April 1987, was "sold and transferred by Jacinto Dy to Robert Ong." There can be no dispute then that
it was Dy who was the seller and Ong the buyer of the subject vessel. Coupled with the fact that there
is no evidence euphony transaction between Jacinto Dy or Ang Tay and petitioner, it follows, therefore,
that petitioner's role in the picture is properly and logically that of a creditor-mortgagee and not owner-
seller. It is paragraph 2 of the mortgage contract which accurately expresses the true nature of the
transaction between petitioner and Ong--that it is a simple loan with chattel mortgage. The amount
petitioner loaned to Ong does not represent the balance of any purchase price since, as we have
previously discussed, the aforementioned documents state that Ong is already the absolute owner of
the subject vessel. Obviously, therefore, paragraph 3 of the said contract was filled up by mistake.
Considering that petitioner used a form contract, it is not improbable that such an oversight may have
been committed--negligently but unintentionally and without malice.

The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of
title of the mortgagor to the property given as security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the
rightful owner of or does not have a valid title to the mortgaged property, the mortgagee or transferee
in good faith is nonetheless entitled to protection. Although this rule generally pertains to real property,
particularly registered land, it may also be applied by analogy to personal property, in this case
specifically, since shipowners are, likewise, required by law to register their vessels with the Philippine
Coast Guard.

As previously discussed, paragraph 3 of the chattel mortgage contract was erroneously but
unintentionally filled up. The failure of petitioner to exercise due care in filling up the necessary
provisions in the chattel mortgage contract does not, however, amount to bad faith. It was a mere
oversight and not a deliberate and malicious act.
 BA Finance v CA
B.A. Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. when
the latter assigned the promissory note, together with the chattel mortgage constituted on the motor
vehicle in question in favor of the former. Consequently, B.A. Finance Corporation is bound by the
terms and conditions of the chattel mortgage executed between the Cuadys and Supercars, Inc. Under
the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full power
and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign execute and
deliver the corresponding papers, receipts and documents to the Insurance Company as may be
necessary to prove the claim, and to collect from the latter the proceeds of insurance to the extent of
its interests, in the event that the mortgaged car suffers any loss or damage (Rollo, p. 89). In granting
B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady spouses created in
the former's favor an agency. Thus, under Article 1884 of the Civil Code of the Philippines, B.A. Finance
Corporation is bound by its acceptance to carry out the agency, and is liable for damages which,
through its non-performance, the Cuadys, the principal in the case at bar, may suffer.

Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle
in question, not to mention the amount equivalent to the unpaid balance on the promissory note, when
B.A. Finance Corporation steadfastly refused and refrained from proceeding against the insurer for the
payment of a clearly valid insurance claim, and continued to ignore the yearning of the Cuadys to
enforce the total loss provision in the insurance policy, despite the undeniable fact that Rea Auto
Center, the auto repair shop chosen by the insurer itself to repair the aforementioned motor vehicle,
misrepaired and rendered it completely useless and unserviceable.
 Bicol Savings v Ginhawa
We already held that if in an extrajudicial foreclosure of a chattel mortgage a deficiency exists, an
independent civil action may be instituted for the recovery of said deficiency. If the mortgagee has
foreclosed the mortgage judicially, he may ask for the execution of the judgment against any other
property of the mortgagor for the payment of the balance. To deny to the mortgagee the right to maintain
an action to recover the deficiency after foreclosure of the chattel mortgage would be to overlook the
fact that the chattel mortgage is only given as a security and not as payment for the debt in case of
failure of payment.

The case of Pascual, as cited by the respondent court, is not applicable in this instant case because it
was a case of sale on installment, where after foreclosure of the units the plaintiff guarantors who had
likewise executed a real estate mortgage of up to P50,000, cannot be held answerable anymore for the
deficiency. The conclusion therefore reached by the lower court was erroneous because in the case at
bar, the obligation contracted by the principal debtor (Depositario) with a solidary co-maker (private
respondent herein), was one of loan secured by a chattel mortgage, executed by the principal debtor,
and not a sale where the price is payable on installments and where a chattel mortgage on the thing
sold was constituted by the buyer and, further, the obligation to pay the installments having been
guaranteed by another.

Private respondent Guinhawa contends that he was not a party to the chattel mortgage executed by
Depositario but merely a co-maker on the promissory note executed by the latter and therefore cannot
be held liable for the deficiency.

Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them shall not be an obstacle
to those which may subsequently be directed against the others, so long as the debt has not been fully
collected. And therefore, where the private respondent binds himself solidarily with the principal debtor
to pay the latter's debt, he may be proceeded against by the principal debtor. Private respondent as
solidary co- maker is also a surety (Art. 2047) and that under the law, the bringing of an action against
the principal debtor to enforce the payment of the obligation is not inconsistent with, and does not
preclude, the bringing of another action to compel the surety to fulfill his obligation under the agreement.
 Makati Leasing v Weaver Textile
Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal property, yet
by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants
could only have meant to convey the house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an inconsistent stand by claiming
otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants
merely had a temporary right as lessee, and although this can not in itself alone determine the
status of the property, it does so when combined with other factors to sustain the interpretation
that the parties, particularly the mortgagors, intended to treat the house as personality. Finally,
unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong
Machinery & Williamson, wherein third persons assailed the validity of the chattel mortgage, it is
the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of
the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as personality.

If a house of strong materials, like what was involved in the above Tumalad case, may be considered
as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the
contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason
why a machinery, which is movable in its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage.

It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by the
parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the
parties to a contract may by agreement treat as personal property that which by nature would be real
property, as long as no interest of third parties would be prejudiced thereby.
 Northern Motors v Coquia
Inasmuch as what remains to the mortgagor is only the equity of redemption, it follows that the right of
the judgment or attaching creditor, who purchased the mortgaged chattel at an execution sale, is
subordinate to the lien of the mortgagee who has in his favor a valid chattel mortgage (Cabral vs.
Evangelista, L-26860, July 30, 1969, 28 SCRA 1000, 1006; Ong Liong Tiak vs. Luneta Motor Co., 66
Phil. 459 462.

Our ruling in this case is in consonance with the purpose of the Chattel Mortgage Law to promote
business and trade and to give impetus to the country's economic development (Torres vs. Limjap, 56
Phil. 141, 145). In the business world the chattel mortgage has greatly facilitated sales of goods and
merchandise. Dealers of cars, trucks, appliances and machinery, who resort to installment sales, have
relied on the chattel mortgage as an effective security. Sales of merchandise would be sluggish and
insubstantial if the Chattel Mortgage Law could not protect dealers against the defaults and
delinquencies of their customers and if the mortgagee's lien could be nullified by the maneuvers of an
unsecured judgment creditor of the chattel mortgagor. It is not right nor just that the lien of a secured
creditor should be rendered nugatory by a wrongful execution engineered by an unsecured creditor.

The chattel mortgagee may file a third-party claim, even before there is a breach of the mortgage
because, as already noted, the recording of the mortgage gives him the symbolical possession of the
mortgaged chattel which was construed as "equivalent to the actual delivery of possession to the
creditor" (Meyers vs. Thein, supra on page 306), and because what a judgment creditor of the chattel
mortgagor can attach is only the equity or right of redemption and, to effectuate the attachment levy it
is not requisite that the mortgaged chattel itself be seized by the sheriff. The Chattel Mortgage Law, in
relation to article 319 of the Revised Penal Code, contemplates that the mortgagor should always have
the physical possession of the mortgaged chattel until there is a breach, in which case the mortgagee
become entitled to take possession of the chattel so that the mortgage can be foreclosed.
 ANTICHRESIS

Ramirez v CA
There is likewise no merit in the third assigned error. While there was an admission that the petitioners
have been in actual possession of the disputed land since 1938, it was made to show and prove the
fact that the petitioners are only antichretic creditors. The respondents never admitted that they have
not possessed the land at all. On the contrary, they alleged that they and their predecessors-in-interest
namely Gregoria Pascual and Agapita Bonifacio have been in possession of the land since time
immemorial and that the petitioners were placed in possession of the land pursuant to a contract of
antichresis.

The court below found that the petitioners are merely antichretic creditors. This finding and its factual
bases were affirmed by the Court of Appeals. On the basis of the evidence supporting this conclusion,
this finding is binding on us as it is not our duty to weigh evidence on this point all over again. This court
has on several occasions held that the antichretic creditor cannot ordinarily acquire by prescription the
land surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865; Valencia v. Acala, 42
Phil. 177; Barreto v. Barreto, 3 Phil. 234). The petitioners are not possessors in the concept of owner
but mere holders placed in possession of the land by its owners. Thus, their possession cannot serve
as a title for acquiring dominion (See Art. 540, Civil Code).

The fourth issue raised by the petitioners is answered by a referral to the detailed factual findings and
conclusions of the trial court. Ten pages of the record on appeal (Record on Appeal, CA-G.R. No.
40425-R, pp. 56-66) state in convincing detail the portion of the trial court's decision which support its
conclusion that Hilario Ramirez and Valentina Bonifacio are not the owners of the disputed land and
have no registrable right over it and that the respondents herein have established their ownership by a
strong preponderance of evidence. The respondents were declared the true and real owners and
entitled to registration in their names. The final resolution of the Court of Appeals affirmed the trial
court's decision in toto. We see no reversible error in this finding.

The argument of laches is explained and countered by the close relationship of the parties and the
nature of a contract of antichresis. The private respondents are nephews and nieces, with their
spouses, of the petitioners. Moreover, there is evidence to show that long before the filing of the cases,
there had been attempts to recover the property.

In view of the foregoing, we are constrained to affirm the appellate court's decision. We note, however,
that in spite of the finding of an existing contract of antichresis between the parties, the two courts below
did not order the payment of the principal amount of mortgage. Under Article 2136 of the Civil Code,
the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he
owes the creditor.
 Rosales v Tanseco
Therefore the contract although entitled "Escritura de Hipoteca" was in reality a contract of antichresis.

In a contract of antichresis the creditor is obliged to pay the taxes on the property, unless the contract
says otherwise (Art. 1882 Civil Code). The contract between Eustaquio Congzon and Tan Sun said
nothing about taxes. Hence it was the obligation of the creditor or creditors to pay the taxes on the
property at issue herein.

Now, the second cause of action states that the debtor has paid for taxes on the property the amount
of P39,480.75.

Bearing in mind that the credit was only P26,000 it is plain to see that under the second cause of action
the plaintiffs affirmed in effect that they had already discharged their debt (by advancing the taxes which
the creditor should have paid) and are entitled to the return of their property free from all encumbrance.
At least there was good ground for accounting. Consequently, it was error to dismiss upon a mere
motion filed before the answer.

Furthermore the third cause of action, posed the question: Where the antichretic debtor peacefully in
possession of the premises given as guaranty is ejected thru force or strategy by the antichretic creditor
does he have a right of action?

Under the Civil Code every possessor is entitled to be respected in his possession: and should he be
disturbed therein he shall be protected, or possession shall be restored to him, by the means
established by the laws of procedure (Art. 446). And a possessor, however he may acquired thereof
without legal proceedings. Nevertheless we shall not further pursue this line of inquiry, being sufficiently
convinced that plaintiffs have a valid claim under their second cause of action, the allegations of which
were provisionally admitted by the motion to dismiss.
 Macapinlac v Gutierrez Repide
The solution of this problem is to be found in the application of the doctrine formulated by this court in
Barretto vs. Barretto (37 Phil., 234). In that case the heirs of a mortgagee of an estate were found in
possession of mortgaged property more than thirty years after the mortgage had been executed; and
it was shown that the mortgage had never been foreclosed. Upon this state of facts it was in effect held
that the rights of the parties, heirs respectively of the mortgagor and mortgagee, were essentially the
same as under the contract of antichresis.

By reference to the appropriate provisions of the Civil Code (arts. 1881-1884), in the chapter dealing
with antichresis, it will be at once seen that while non-payment of the debt does not vest the ownership
of the property in the creditor, nevertheless the debtor cannot recover the enjoyment of the property
without first paying in full what he owes to his creditor. At the same time, however, the creditor is under
obligation to apply the fruits derived from the estate in satisfaction, first, of the interest on the debt, if
any, and, secondly, to the payment of the principal. From this is necessarily deduced the obligation of
the creditor to account to the debtor for said fruits and the corresponding right of the debtor to have the
same applied in satisfaction of the mortgage debt, as recognized in Barretto vs. Barretto, supra.

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 American 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.
 REAL ESTATE MORTGAGE

Hechanova v Adil
It is clear from the records of this case that the plaintiff has no cause of action. Plaintiff has no standing
to question the validity of the deed of sale executed by the deceased defendant Jose Servando in favor
of his co-defendants Hechanova and Masa. No valid mortgage has been constituted plaintiff's favor,
the alleged deed of mortgage being a mere private document and not registered; moreover, it contains
a stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil Code. Even
assuming that the property was validly mortgaged to the plaintiff, his recourse was to foreclose the
mortgage, not to seek annulment of the sale.

BPI v Rapanot and HLURB

The Mortgage Agreement is null and
void as against Rapanot, and thus
cannot be enforced against him.

The Bank avers that contrary to the CA's conclusion in the questioned Decision, it exercised due
diligence before it entered into the Mortgage Agreement with Golden Dragon and accepted Unit 2308-
B2, among other properties, as collateral. The Bank stressed that prior to the approval of Golden
Dragon's loan, it deployed representatives to ascertain that the properties being offered as collateral
were in order. Moreover, it confirmed that the titles corresponding to the properties offered as collateral
were free from existing liens, mortgages and other encumbrances. 56 Proceeding from this, the Bank
claims that the CA overlooked these facts when it failed to recognize the Bank as a mortgagee in good
faith.

The Court finds the Bank's assertions indefensible.

First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may
be constituted by a developer without prior written approval of the National Housing Authority, now
HLURB.57 PD 957 further requires developers to notify buyers of the loan value of their corresponding
mortgaged properties before the proceeds of the secured loan are released.

In Far East Bank & Trust Co. v. Marquez, 58 the Court clarified the legal effect of a mortgage constituted
in violation of the foregoing provision, thus:

The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of
the property, was not notified of the mortgage before the release of the loan proceeds by
petitioner. Acts executed against the provisions of mandatory or prohibitory laws shall be void.
Hence, the mortgage over the lot is null and void insofar as private respondent is concerned.

Thus, the Mortgage Agreement cannot have the effect of curtailing Rapanot's right as buyer of Unit
2308-B2, precisely because of the Bank's failure to comply with PD 957. Moreover, contrary to the
Bank's assertions, it cannot be considered a mortgagee in good faith. The Bank failed to ascertain
whether Golden Dragon secured HLURB's prior written approval as required by PD 957 before it
accepted Golden Dragon's properties as collateral. It also failed to ascertain whether any of the
properties offered as collateral already had corresponding buyers at the time the Mortgage Agreement
was executed.
In Land Bank of the Philippines v. Belle Corporation, the Court exhorted banks to exercise the highest
degree of diligence in its dealing with properties offered as securities for the loan obligation:

When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees
for value is applied more strictly. Being in the business of extending loans secured by real estate
mortgage, banks are presumed to be familiar with the rules on land registration. Since the
banking business is impressed with public interest, they are expected to be more cautious, to
exercise a higher degree of diligence, care and prudence, than private individuals in their
dealings, even those involving registered lands. Banks may not simply rely on the face of the
certificate of title. Hence, they cannot assume that, x x x the title offered as security is on its face
free of any encumbrances or lien, they are relieved of the responsibility of taking further steps to
verify the title and inspect the properties to be mortgaged. As expected, the ascertainment of the
status or condition of a property offered to it as security for a loan must be a standard and
indispensable part of the bank's operations.x x x (Citations omitted)

We never fail to stress the remarkable significance of a banking institution to commercial transactions,
in particular, and to the country's economy in general. The banking system is an indispensable
institution in the modern world and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence. Consequently, the
highest degree of diligence is expected, and high standards of integrity and performance are even
required, of it.

In granting the loan, petitioner bank should not have been content merely with a clean title, considering
the presence of circumstances indicating the need for a thorough investigation of the existence of
buyers like respondent. Having been wanting in care and prudence, the latter cannot be deemed to be
an innocent mortgagee.

Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as found by the Office
of the President and by the CA. Petitioner should not have relied only on the representation of the
mortgagor that the latter had secured all requisite permits and licenses from the government agencies
concerned. The former should have required the submission of certified true copies of those documents
and verified their authenticity through its own independent effort.

Having been negligent in finding out what respondent's rights were over the lot, petitioner must be
deemed to possess constructive knowledge of those rights.
 Prudential v Panis
The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled
that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision
of law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-
10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on
which it has been built. Such a mortgage would be still a real estate mortgage for the building would
still be considered immovable property even if dealt with separately and apart from the land (Leung
Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that
possessory rights over said properties before title is vested on the grantee, may be validly transferred
or conveyed as in a deed of mortgage.

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on
the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot
where the building was erected, was executed on November 19, 1971 and registered under the
provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous
Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554
was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore
without question that the original mortgage was executed before the issuance of the final patent and
before the government was divested of its title to the land, an event which takes effect only on the
issuance of the sales patent and its subsequent registration in the Office of the Register of Deeds
(Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of
Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the
foregoing considerations, it is evident that the mortgage executed by private respondent on his own
building which was erected on the land belonging to the government is to all intents and purposes a
valid mortgage.
 Arguelles v Malarayat Rural Bank
At the outset, we note that the issue of whether a mortgagee is in good faith generally cannot be
entertained in a petition filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended.15 This
is because the ascertainment of good faith or the lack thereof, and the determination of negligence are
factual matters which lay outside the scope of a petition for review on certiorari.16 However, a
recognized exception to this rule is when the RTC and the CA have divergent findings of fact17 as in
the case at bar. We find that the respondent Malarayat Rural Bank is not a mortgagee in good faith.
Therefore, the spouses Arguelles as the vendees to the unregistered sale have a superior right to the
mortgaged land.

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising
therefrom are given effect by reason of public policy. This is the doctrine of "mortgagee in good faith"
based on the rule that all persons dealing with the property covered by a Torrens Certificate of Title, as
buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public
interest in upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the
land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon
what appears on the face of the certificate of title.

In Bank of Commerce v. Spouses San Pablo, Jr.,19 we declared that indeed, a mortgagee has a right
to rely in good faith on the certificate of title of the mortgagor of the property offered as security, and in
the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake
further investigation.
 Prudential v Alviar
A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which
is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully
scrutinized and strictly construed."38 Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known or anticipated at the time, and
they avoid the expense and inconvenience of executing a new security on each new transaction.39 A
"dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available
additional funds without their having to execute additional security documents, thereby saving time,
travel, loan closing costs, costs of extra legal services, recording fees, et cetera.40 Indeed, it has been
settled in a long line of decisions that mortgages given to secure future advancements are valid and
legal contracts,41 and the amounts named as consideration in said contracts do not limit the amount
for which the mortgage may stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered.

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."

One other crucial point. The mortgage contract, as well as the promissory notes subject of this case, is
a contract of adhesion, to which respondents’ only participation was the affixing of their signatures or
"adhesion" thereto.51 A contract of adhesion is one in which a party imposes a ready-made form of
contract which the other party may accept or reject, but which the latter cannot modify.52

The real estate mortgage in issue appears in a standard form, drafted and prepared solely by petitioner,
and which, according to jurisprudence must be strictly construed against the party responsible for its
preparation.53 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. Consequently, any ambiguity is to be taken contra proferentum, that is, construed
against the party who caused the ambiguity which could have avoided it by the exercise of a little more
care.54 To be more emphatic, any ambiguity in a contract whose terms are susceptible of different
interpretations must be read against the party who drafted it,55 which is the petitioner in this case.
 Sycamore v Metropolitan
Remedies of a secured creditor

A secured creditor may institute against the mortgage debtor either a personal action for the collection
of the debt, a real action to judicially foreclose the real estate mortgage, or an extrajudicial judicial
foreclosure of the mortgage. The remedies, however, are alternative, not cumulative, and the election
or use of one remedy operate as a waiver of the others.18

We discussed these legal points in Bachrach Motor Co., Inc. v. Icarangal19 and ruled that:

[I]n the absence of express statutory provisions, a mortgage creditor may institute against the mortgage
debtor either a personal action for debt or a real action to foreclose the mortgage. In other words, he
may pursue either of the two remedies, but not both. By such election, his cause of action can by no
means be impaired, for each of the two remedies is complete in itself. Thus, an election to bring a
personal action will leave open to him all the properties of the debtor for attachment and execution,
even including the mortgaged property itself. And, if he waives such personal action and pursues his
remedy against the mortgaged property, an unsatisfied judgment thereon would still give him the right
to sue for a deficiency judgment, in which case, all the properties of the defendant, other than the
mortgaged property, are again open to him for the satisfaction of the deficiency. In either case, his
remedy is complete, his cause of action undiminished, and any advantages attendant to the pursuit of
one or the other remedy are purely accidental and are all under his right of election.

In the present case, Metrobank elected the third remedy – the extrajudicial foreclosure of the real estate
mortgage.

Act No. 3135 does not require

determination of appraised value

All the above provisions are quoted verbatim to stress that Act No. 3135 has no requirement for the
determination of the mortgaged properties’ appraisal value. Nothing in the law likewise indicates that
the mortgagee-creditor’s appraisal value shall be the basis for the bid price. Neither is there any rule
nor any guideline prescribing the minimum amount of bid, nor that the bid should be at least equal to
the properties’ current appraised value. What the law only provides are the requirements, procedure,
venue and the mortgagor’s right to redeem the property. When the law does not provide for the
determination of the property’s valuation, neither should the courts so require, for our duty limits us to
the interpretation of the law, not to its augmentation.
 DBP v Guarina
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the mortgaged properties
at its instance were premature, and, therefore, void and ineffectual.37

Being a banking institution, DBP owed it to Guariña Corporation to exercise the highest degree of
diligence, as well as to observe the high standards of integrity and performance in all its transactions
because its business was imbued with public interest.38 The high standards were also necessary to
ensure public confidence in the banking system, for, according to Philippine National Bank v. Pike:39
"The stability of banks largely depends on the confidence of the people in the honesty and efficiency of
banks." Thus, DBP had to act with great care in applying the stipulations of its agreement with Guariña
Corporation, lest it erodes such public confidence. Yet, DBP failed in its duty to exercise the highest
degree of diligence by prematurely foreclosing the mortgages and unwarrantedly causing the
foreclosure sale of the mortgaged properties despite Guariña Corporation not being yet in default. DBP
wrongly relied on Stipulation No. 26 as its basis to accelerate the obligation of Guariña Corporation, for
the stipulation was relevant to an Omnibus Agricultural Loan, to Guariña Corporation's loan which was
intended for a project other than agricultural in nature.

PBC v Yeung
During redemption period, he petitioned for the issuance of a writ of possession which the trial court
granted. From the order of the court, the debtor-mortgagor filed a petition for certiorari with the CA. The
CA granted the writ of certiorari and directed Sulit to remit to the debtor the excess amount of his bid
price. When the case reached this Court, we considered Sulit’s failure to deliver the surplus proceeds
of the foreclosure sale an exception to the general rule that it is ministerial upon the court to issue a
writ of possession even during the period of redemption upon the filing of a bond. We found that such
failure was a sufficient justification for the non-issuance of the writ. We also ruled that equitable
considerations demanded the deferment of the issuance of the writ as it would be highly unfair for the
mortgagor, who as a redemptioner might choose to redeem the foreclosed property, to pay the
equivalent amount of the bid clearly in excess of the total mortgage debt. We said:

The general rule that mere inadequacy of price is not sufficient to set aside a foreclosure sale is based
on the theory that the lesser the price the easier it will be for the owner to effect the redemption. The
same thing cannot be said where the amount of the bid is in excess of the total mortgage debt.

The reason is that in case the mortgagor decides to exercise his right of redemption, Section 30 of Rule
39 provides that the redemption price should be equivalent to the amount of the purchase price, plus
one [percent] monthly interest up to the time of the 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.
 Borromeo v CA
This Court emphasizes that the determination of who is the creditor-mortgagee is only for purposes of
determining the propriety of issuing a writ of preliminary injunction, based on the evidence presented
before the hearing for the issuance of a preliminary injunction. It will not bar the RTC from making its
own determination as to who is the true creditor-mortgagee after trial and presentation of evidence on
the main case. To establish the essential requisites for a preliminary injunction, the evidence submitted
by the plaintiff need not be conclusive and complete. The plaintiffs are only required to show that they
have an ostensible right to the final relief prayed for in their complaint.