Common to pledge and mortgage

Duran vs IAC
G.R. No. L-64159

Subject: Sales
Doctrine: Rule when seller’s title is voidable

Facts:
Petitioner Circe S. Duran owned two (2) parcels of land in Caloocan City which she had purchased
from the Moja Estate. She left the Philippines for the US in June 1954 and returned in May 1966. On
May 13, 1963, a Deed of Sale of the two lots mentioned above was made in favor of Circe’s mother,
Fe S. Duran who, on December 3, 1965, mortgaged the same property to private respondent Erlinda
B. Marcelo-Tiangco. When petitioner Circe S. Duran came to know about the mortgage made by her
mother, she wrote the Register of Deeds of Caloocan City informing the latter that she had not
given her mother any authority to sell or mortgage any of her properties in the Philippines. Failing
to get an answer from the registrar, she returned to the Philippines. Meanwhile, when her mother, Fe
S. Duran, failed to redeem the mortgage properties, foreclosure proceedings were initiated by
private respondent Erlinda B. Marcelo Tiangco and, ultimately, the sale by the sheriff and the
issuance of Certificate of Sale in favor of the latter.
Petitioner Circe S. Duran claims that the Deed of Sale in favor of her mother Fe S. Duran is a forgery,
saying that at the time of its execution in 1963 she was in the United States. On the other hand, the
adverse party alleges that the signatures of Circe S. Duran in the said Deed are genuine and,
consequently, the mortgage made by Fe S. Duran in favor of private respondent is valid. The appellate
court held the same to be genuine because there is the presumption of regularity in the case of a
public document and “the fact that Circe has not been able to satisfactorily prove that she was in the
United States at the time the deed was executed in 1963.
But even if the signatures were a forgery, and the sale would be regarded as void, still it is Our
opinion that the Deed of Mortgage is VALID, with respect to the mortgagees, the defendants-
appellants. While it is true that under Art. 2085 of the Civil Code, it is essential that the mortgagor
be the absolute owner of the property mortgaged, and while as between the daughter and the
mother, it was the daughter who still owned the lots, STILL insofar as innocent third persons are
concerned the owner was already the mother (Fe S. Duran) inasmuch as she had already become the
registered owner. The mortgagee had the right to rely upon what appeared in the certificate of title,
and did not have to inquire further. If the rule were otherwise, the efficacy and conclusiveness of
Torrens Certificate of Titles would be futile and nugatory.
In elevating the judgment of the respondent appellate court to Us for review, petitioners discussed
questions of law which, in effect and substance, raised only one issue and that is whether private
respondent Erlinda B. Marcelo-Tiangco was a buyer in good faith and for value.

ISSUE: WON Erlinda B. Marcelo-Tiangco was a buyer in good faith and for value

HELD:
Good faith, while it is always to be presumed in the absence of proof to the contrary, requires a
well-founded belief that the person from whom title was received was himself the owner of the
land, with the right to convey it. Otherwise stated, good faith is the opposite of fraud and it refers to
the state of mind which is manifested by the acts of the individual concerned. In the case at bar,
private respondents, in good faith relied on the certificate of title in the name of Fe S. Duran and as
aptly stated by respondent appellate court “[e]ven on the supposition that the sale was void, the
general rule that the direct result of a previous illegal contract cannot be valid (on the theory that the
spring cannot rise higher than its source) cannot apply here for We are confronted with the
functionings of the Torrens System of Registration. The doctrine to follow is simple enough: a
fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title
has already been transferred from the name of the true owner to the name of the forger or the name
indicated by the forger.”
Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire
rights over the property, the court cannot disregard such rights and order the total cancellation of the
certificate for that would impair public confidence in the certificate of title. Stated differently, an
innocent purchaser for value relying on a torrens title issued is protected. A mortgagee has the right
to rely on what appears in the certificate of title and, in the absence of anything to excite suspicion,
he is under no obligation to look beyond the certificate and investigate the title of the mortgagor
appearing on the face of said certificate.
Likewise, We take note of the finding and observation of respondent appellate court in that
petitioners were guilty of estoppel by laches “in not bringing the case to court within a reasonable
period. Antero Gaspar, husband of Circe, was in the Philippines in 1964 to construct the apartment on
the disputed lots. This was testified to by Circe herself (tsn., p. 41, Nov. 27, 1973). In the process of
construction, specifically in the matter of obtaining a building permit, he could have discovered that
the deed of sale sought to be set aside had been executed on May 13, 1963 (the building permit
needed an application by the apparent owner of the land, namely, Circe’s mother, Fe S. Duran). And
then again both plaintiffs could have intervened in the foreclosure suit but they did not. They kept
silent until almost the last moment when they finally decided, shortly before the sheriff’s sale, to file a
third-party claim. Clearly, the plaintiffs can be faulted for their estoppel by laches.”
We find the petition without merit and hereby AFFIRMED in toto the decision of respondent appellate
court promulgated on August 12, 1981.

REAL MORTGAGE

MANUEL LAO v. CA, GR No. 115307, 1997-07-08

Facts:

Private Respondent Better Homes Realty and Housing Corporation... a complaint for unlawful
detainer, on the ground that (said private respondent) is the owner of the premises situated at

Unit I, No. 21 N. Domingo Street, Quezon City, evidenced by Transfer Certificate... petitioner) claimed
that he is the true owner of the house and lot... purchased the same from N. Domingo Realty and
Development Corporation but the... agreement was actually a loan secured by mortgage;... the
Metropolitan Trial Court of Quezon City rendered judgment ordering the (petitioner) to vacate the
premises... the Regional Trial Court held that the subject property was acquired by (private
respondent) from N. Domingo Realty and Development Corporation, by a deed of sale

Issues:

Whether or not private respondent had acquired ownership over the property in question

Ruling:

we find the agreement between the private respondent and N. Domingo Realty & Housing
Corporation, as represented by petitioner, manifestly one of equitable mortgage.

First, possession of the property in... the controversy remained with Petitioner Manuel Lao who was
the beneficial owner of the property, before, during and after the alleged sal... the option given to
Manuel Lao to purchase the property in controversy had been extended twic

Third, unquestionably, Manuel Lao and his brother were in such "dire need of money" that they
mortgaged their townhouse units registered under the name of

N. Domingo Realty Corporation, the family corporation put up by their parents, to Private Respondent
Better Homes Realty & Housing Corporation... not demanding a reformation of the contract to reflect
the true intent... of the parties

Principles:

the Court looks at the intent of the parties

In fact, this
Court, in various cases involving the same situation, had occasion to state:

In Jayme, et al. v. Salvador,... Court of First Instance of Iloilo which found the transaction between the
parties to be a loan instead of a sale of real property notwithstanding the terminology used in the
document,... after taking into account the surrounding circumstances of the transaction.

The Court through Justice Norberto Romualdez stated that while it was true that plaintiffs were aware
of the contents of the contracts, the preponderance of the evidence showed however that they
signed... knowing that said contracts did not express their real intention, and if they did so
notwithstanding this, it was due to the urgent necessity of obtaining funds.

Based on the conduct of the petitioner and private respondent and even the terminology of the
second option to purchase, we rule that the intent and agreement between them was undoubtedly
one of equitable mortgage and not of sale.

FILIPINAS MABLE CORPORATION vs. IAC et al

MARCH 25, 2011 ~ VBDIAZ

FILIPINAS MABLE CORPORATION vs. IAC et al

G.R. No. L-68010

May 30, 1986

FACTS: Filipinas Marble Corporation (FMC) applied for a loan in the amount of $5 million with
respondent Development Bank of the Philippines (DBP) in its desire to develop the full potentials of
its mining claims and deposits. DBP granted the loan subject, however, to sixty onerous conditions,
among which is the management agreement that the affairs of the petitioner were placed under the
complete control of DBP and Bancom including the disposition and disbursement of the said loan.

Petitioners alleges that the respondents and their directors/officers mismanaged and misspent the
loan and instead of helping petitioner get back on its feet, DBP completely abandoned the
petitioner’s project and proceeded to foreclose the properties mortgaged to it by petitioner without
previous demand or notice.

In essence, the petitioner in its complaint seeks the annulment of the deeds of mortgage and deed of
assignment which it executed in favor of DBP in order to secure the loan.

Respondent DBP opposed the issuance of a writ of preliminary injunction stating that under
Presidential Decree No. 385, DBP’s right to foreclose is mandatory as FMC’s arrearages had already
reached at least twenty percent of its total obligations; that under the same decree, no court can
issue any restraining order or injunction against it to stop the foreclosure
The trial court decided in favor of respondents and against FMC. The appellate court affirmed said
decision. Hence this petition for review.

ISSUE: as assigned by FMC:

1. There being ‘persuasive’ evidence that the $5 million proceeds of the loan were not received and
did not benefit the petitioner per finding of the lower court which should not be disturbed unless
there is grave abuse of discretion, it must follow that PD 385 does not and cannot apply;

2. If there was no valid loan contract for failure of consideration, the mortgage cannot exist or stand
by itself being a mere accessory contract. Additionally, the chattel mortgage has not been registered.
Therefore, the same is null and void under Article 2125 of the New Civil Code; and

HELD: Petition is GRANTED. The orders of the IAC are hereby ANNULLED and SET ASIDE. The trial
court is ordered to proceed with the trial on the merits of the main case. In the meantime, the TRO
issued by this Court on shall remain in force until the merits of the main case are resolved.

1. Sections 1 and 2 of P.D. No. 385 respectively provide:

Section 1. It shall be mandatory for government financial institutions after the lapse of sixty (60) days
from the issuance of this Decree, to foreclose the collaterals and/or securities for any loan, credit
accommodation, and/or guarantees granted by them whenever the arrearages on such account,
including accrued interest and other charges, amount to at least twenty (20%) of the total
outstanding obligations, including interest and other charges, as appearing in the book of accounts
and/or related records of the financial institution concerned. This shall be without prejudice to the
exercise by the government financial institution of such rights and/or remedies available to them
under their respective contracts with their debtors, including the right to foreclose on loans, credits,
accommodations, and/or guarantees on which the arrearages are less than twenty percent (20%).

Section 2. No restraining order, temporary or permanent injunction shall be issued by the court
against any government financial institution in any action taken by such institution in compliance with
the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary
or permanent injunction is sought by the borrower(s) or any third party or parties, except after due
hearing in which it is established by the borrower, and admitted by the government financial
institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after
the filing of foreclosure proceedings.

PD No. 385 was issued primarily to see to it that government financial institutions are not denied
substantial cash inflows, which are necessary to finance development projects all over the country, by
large borrowers who, when they become delinquent, resort to court actions in order to prevent or
delay the government’s collection of their debts and loans.

The government, however, is bound by basic principles of fairness and decency under the due process
clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government lending
institutions who take over the management of a borrower corporation, lead that corporation to
bankruptcy through mismanagement or misappropriation of its funds, and who, after ruining it, use
the mandatory provisions of the decree to avoid the consequences of their misdeeds.

The designated officers of the government financing institution cannot simply walk away and then
state that since the loans were obtained in the corporation’s name, then P.D. 385 must be
peremptorily applied and that there is no way the borrower corporation can prevent the automatic
foreclosure of the mortgage on its properties once the arrearages reach twenty percent (20%) of the
total obligation no matter who was responsible.

But cannot, at this point, conclude that respondent DBP together with the Bancom people actually
misappropriated and misspent the $5 million loan in whole or in part although the trial court found
that there is “persuasive” evidence that such acts were committed by the respondent. This matter
should rightfully be litigated below in the main action. Only after trial on the merits of the main case
can the true amount of the loan which was applied wisely or not, for the benefit of the petitioner be
determined. Consequently, the extent of the loan where there was no failure of consideration and
which may be properly satisfied by foreclosure proceedings under P.D. 385 will have to await the
presentation of evidence in a trial on the merits.

2. As regards the second assignment of error, we agree with the petitioner that a mortgage is a mere
accessory contract and, thus, its validity would depend on the validity of the loan secured by it. We,
however, reject the petitioner’s argument that since the chattel mortgage involved was not
registered, the same is null and void. Article 2125 of the Civil Code clearly provides that the non-
registration of the mortgage does not affect the immediate parties. It states:

Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order that a
mortgage may be validly constituted that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between
the parties.

PEOPLE'S BANK AND TRUST CO. vs. DAHICAN LUMBER COMPANY G.R. No. L-17500 May 16, 1967
PEOPLE'S BANK AND TRUST CO. vs. DAHICAN LUMBER COMPANY
G.R. No. L-17500 May 16, 1967
Facts:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation
licensed to do business in the Philippines sold and assigned all its rights in the Dahican Lumber
concession to Dahican Lumber Company - hereinafter referred to as DALCO - for the total sum of
$500,000.00, of which only the amount of $50,000.00 was paid. Thereafter, to develop the
concession, DALCO obtained various loans from the People's Bank & Trust Company amounting, as of
July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the BANK, a loan of $250,000.00
from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00
each, maturing on different dates, executed by both DALCO and the Dahican America Lumber
Corporation, a foreign corporation and a stockholder of DALCO,

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor
of the BANK a deed of mortgage covering five parcels of land situated in the province of Camarines
Norte together with all the buildings and other improvements existing thereon and all the personal
properties of the mortgagor located in its place of business in the municipalities of Mambulao and
Capalonga, Camarines Norte. On the same date, DALCO executed a second mortgage on the same
properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the
lumber concession amounting to the sum of $450,000.00. Both deeds contained a provision extending
the mortgage lien to properties to be subsequently acquired by the mortgagor.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition
thereto DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of
DAMCO to secure the same obligation.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid
the same to the Export-Import Bank of Washington D.C., and the latter assigned to the former its
credit and the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April
1, 1953 to pay the overdue promissory note.c

After July 13, 1950 - the date of execution of the mortgages mentioned above - DALCO purchased
various machineries, equipment, spare parts and supplies in addition to, or in replacement of some of
those already owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage
deeds quoted theretofore regarding "after acquired properties," the BANK requested DALCO to
submit complete lists of said properties but the latter failed to do so. In connection with these
purchases, there appeared in the books of DALCO as due to Connell Bros. Company (Philippines) - a
domestic corporation who was acting as the general purchasing agent of DALCO -the sum of
P452,860.55 and to DAMCO, the sum of P2,151,678.34.chan

On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the purpose,
passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by
CONNELL and DAMCO to it.

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said
agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12,
1953; ATLANTIC and the BANK, commenced foreclosure proceedings in the Court of First Instance of
Camarines Norte against DALCO and DAMCO.

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the venue
of the action to the Court of First Instance of Manila.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries,
equipment and supplies of DALCO, and the same were subsequently sold for a total consideration of
P175,000.00 which was deposited in court pending final determination of the action. By a similar
agreement one-half (P87,500.00) of this amount was considered as representing the proceeds
obtained from the sale of the "undebated properties" (those not claimed by DAMCO and CONNELL),
and the other half as representing those obtained from the sale of the "after acquired properties".
ISSUE:

WON the "after acquired properties" were subject to the deeds of mortgage mentioned heretofore.
Assuming that they are subject thereto,
WON the mortgages are valid and binding on the properties aforesaid inspite of the fact that they
were not registered in accordance with the provisions of the Chattel Mortgage Law.

HELD:

Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every
nature and description taken in exchange or replacement, as well as all buildings, machineries,
fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install,
attach; or use in, to upon, or in connection with the premises - that is, its lumber concession - "shall
immediately be and become subject to the lien" of both mortgages in the same manner and to the
same extent as if already included therein at the time of their execution. Such stipulation is neither
unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances,
the original value of the properties given as security.

Article 415 does not define real property but enumerates what are considered as such, among them
being machinery, receptacles, instruments or replacements intended by owner of the tenement for
an industry or works which may be carried on in a building or on a piece of land, and shall tend
directly to meet the needs of the said industry or works. On the strength of the above-quoted legal
provisions, the lower court held that inasmuch as "the chattels were placed in the real properties
mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127 of the
New Civil Code". In the present case, the characterization of the "after acquired properties" as real
property was made not only by one but by both interested parties. There is, therefore, more reason
to hold that such consensus impresses upon the properties the character determined by the parties
who must now be held in estoppel to question it.

 PRUDENTIAL BANK V. PANIS

153 SCRA 390

FACTS:

Spouses  Magcale  secured  a  loan  from  Prudential  Bank.    To  secure payment, they executed a real
estate mortgage over a residential building.  The mortgage included also the right to occupy the lot
and the information about the sales patent applied for by the spouses for the lot to which the building
stood.  After securing the first loan, the spouses secured another from  the  same  bank.    To 
secure  payment,  another  real  estate  mortgage was executed over the same properties.   
 
The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land which was later
on mortgaged to the bank.   
 
The spouses then failed to pay for the loan and the REM was extrajudicially foreclosed and sold in
public auction despite opposition from the spouses.  The respondent court held that the REM was null
and void.
 

HELD:
A real estate mortgage can be constituted on the building  erected on the land belonging to another.
 
The  inclusion  of  building  distinct  and  separate  from  the  land  in  the  Civil Code can only mean
that the building itself is an immovable property.
 
While it is true that a mortgage of land necessarily includes in the absence of  stipulation  of  the 
improvements  thereon,  buildings,  still  a  building  in itself may be mortgaged by itself apart from
the land on which it is built.  Such a mortgage would still be considered as a REM for the building
would
still be considered as immovable property even if dealt with separately and apart from the land.
 
The original mortgage on the building and right to occupancy of the land was  executed  before  the 
issuance  of  the  sales  patent  and  before  the government  was  divested  of  title  to  the  land.   
Under  the  foregoing,  it  is evident  that  the  mortgage  executed  by  private  respondent  on  his 
own
building was a valid mortgage.
 
As to the second mortgage, it was done after the sales patent was issued and thus prohibits pertinent
provisions of the Public Land Act.   

TAN vs. VALDEHUEZA Case Digest

TAN vs.  VALDEHUEZA

Facts: 

An action instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants Arador

Valdehueza and Rediculo Valdehueza for (a) declaration of ownership and recovery of possession of
the parcel of land described in the first cause of action of the complaint, and (b) consolidation of
ownership of two portions of another parcel of (unregistered) land described in the second cause of
action of the complaint, purportedly sold to the plaintiff in two separate deeds of pacto de
retro. Parcel of land described in the first cause of action was the subject matter of the public
auction sale in Oroquieta, Misamis Occidental, wherein the TAN was the highest bidder . Due to the
failure of defendant Arador Valdehueza to redeem the said land within the period of one year as
being provided by law, MR. VICENTE D. ROA who was then the Ex-Officio Provincial Sheriff executed
an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA TAN. Civil case 2002 was a complaint for
injunction filed by Tan on July 24, 1957 against the Valdehuezas, to enjoin them "from entering the
above-described parcel of land and gathering the nuts therein  " This complaint and the counterclaim
were subsequently dismissed. The Valdehuezas appealed to the lower court alleging that it erred in
making a finding on the second cause of action that the transactions between the parties were simple
loan, instead, it should be declared as equitable mortgage. 

Held: 

The trial court treated the registered deed of pacto de retro as an equitable mortgage but considered
the unregistered deed of pacto de retro "as a mere case of simple loan, secured by the property thus
sold under pacto de retro," on the ground that no suit lies to foreclose an unregistered mortgage. It
would appear that the trial judge had not updated himself on law 
and jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil Code and decisions of
this Court circa 1910 and 1912. Under article 1875 of the Civil Code of 1889, registration was a
necessary requisite for the validity of a mortgage even as between the parties, but under article 2125
of the new Civil Code (in effect since August 30,1950), this is no longer so. 4 If the instrument is not
recorded, the mortgage is nonetheless binding between the parties. (Article 2125, 2nd sentence). 
The Valdehuezas having remained in possession of the land and the realty taxes having been  paid by
them, the contracts which purported to be pacto de retro transactions are presumed to be equitable
mortgages, 5 whether registered or not, there being no third parties involved.
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STATE INVESTMENT HOUSE V. CA

254 SCRA 368

FACTS:

Spouses Canuto and Solid Homes entered into a contract to sell. Solid then mortgaged the property in
favor of petitioner and upon his failure to pay the loan, the property was foreclosed. Here now comes
the spouses who filed a complaint with the HLURB for failure of Solid to execute an absolute deed of
sale.

HELD:

An unregistered mortgage is of no moment since it is understood to be without prejudice to the

better right of third parties.

DBP V. CA- Good Faith and Redemption

A mistake upon a doubtful or difficult question of law may be the basis of good faith.

FACTS:

Spouses Piñedas are registered owners of a parcel of land in Capiz, which they mortgaged to DBP to
secure the loan (P20,000) they obtained from the latter. Piñedas eventually defaulted, prompting DBP
to extra-judicially foreclose and take possession of such property. The Ministry of Justice, then,
opined through its Opinion No. 92 (’78) that lands covered by P.D. No. 27, to which the subject
property was included, may not be the object of foreclosure proceedings. The Piñedas, then, sought
to redeem such property (with P10,000 as downpayment) but was denied as the land was allegedly
tenanted. They then sought the cancellation of the title and specific performance, stating that DBP
acted in bad faith when it took possession of the property andcaused the consolidation of its title in
spite of the fact that the 5-year redemption period expressly stated in the Sheriff’s Certificate of Sale
had not yet lapsed and that their offer to redeem was within the redemption period.

ISSUE:

Whether or not DBP acted in bad faith when it took possession of the property
RULING: NO.

DBP’s act of consolidating its title and taking possession of the property after the expiration of the
redemption period was in accordance with Sec. 6 of Act No. 3135, which states that if no redemption
of a foreclosed property is made within one year, the purchaser (DBP) is entitled as a matter of right
to consolidate and to possess the property. In addition to this, it was in consonance with Sec. 4 of the
mortgage contract between DBP and the Piñedas where they agreed the appointment of DBP as
receiver to take charge and to hold possession of the mortgaged property in case of foreclosure. In
fact, without DBP’s act of consolidating its title, the Piñedas would not be able to assert their right to
repurchase the property within 5 years, which would begin to run after the expiration of the one-year
period. Thus, its acts cannot be tainted with bad faith nor did it impair Piñedas’ right to repurchase.

It may also be argued that P.D. No. 27 was already in effect when DBP foreclosed the property.
However, the legal propriety of the foreclosure of the land was questioned only after Opinion No. 92
(’78) was issued, which happened almost 2 months after DBP consolidated its title to the property. By
law and jurisprudence, a mistake upon a doubtful or difficult question of law may properly be the
basis of good faith.

Art. 526 of NCC states that “a possessor in good faith is one who is not aware that there exists in his
title or mode of acquisition any flaw, which invalidates it.” Moreover, Art. 527 of NCC provides “good
faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the
burden of proof.” Thus, it is incumbent on the Piñedas to prove that DBP was aware of the flaw in its
title (nullity of the foreclosure), but this they failed to do.

Credit Transactions Case Digest: Bonnevie V. CA (1983)

 G.R. No. L-49101 October 24, 1983

Lessons Applicable: Simple Loan

Laws Applicable:

Facts:

 December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their loan of P75K
from Philippine Bank of Commerce (PBC) by mortgaging their property
 December 8, 1966: Executed Deed of Sale with Mortgage to Honesto Bonnevie where P75K is
payable to PBC and P25K is payable to Spouses Lanzano.
 April 28, 1967 to July 12, 1968:   Honesto Bonnevie paid a total of P18,944.22 to PBC
 May 4, 1968:  Honesto Bonnevie assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie
 June 10, 1968:  PBC applied for the foreclosure of the mortgage, and notice of sale was
published 
 January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine Bank of
Commerce for the annulment of the Deed of Mortgage dated December 6, 1966 as well as the
extrajudicial foreclosure made on September 4, 1968.
 CFI: Dismissed the complaint with costs against the Bonnevies
 CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly executed.

HELD: YES. CA affirmed

 A contract of loan being a consensual contract is perfected at the same time the contract of
mortgage was executed. The promissory note executed on December 12, 1966 is only an
evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time
of its execution.
 Respondent Bank had every right to rely on the certificate of title. It was not bound to go
behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for
value being applicable to an innocent mortgagee for value. 
 Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one
year redemption period expired on September 3, 1969. It was not until September 29, 1969 that
Honesto Bonnevie first wrote respondent and offered to redeem the property. 
 loan matured on December 26, 1967 so when respondent Bank applied for foreclosure, the
loan was already six months overdue. Payment of interest on July 12, 1968 does not make the
earlier act of PBC inequitous nor does it ipso facto result in the renewal of the loan. In order that
a renewal of a loan may be effected, not only the payment of the accrued interest is necessary
but also the payment of interest for the proposed period of renewal as well. Besides, whether or
not a loan may be renewed does not solely depend on the debtor but more so on the discretion
of the bank. 

CONSTANTE AMOR DE CASTRO v. CA, GR No. 115838, 2002-07-18

Facts:

private respondent Francisco Artigo... sued petitioners

De Castro... to collect the unpaid balance of his broker's commission from the De

Castros.

were co-owners of four (4) lots located at EDSA... appellee... was authorized by... appellants to act as
real estate broker in the sale of these properties for the amount of P23,000,000.00, five percent (5%)
of which will be given to the agent as commission.
It was appellee who first found Times Transit Corporation... as... prospective buyer which desired to
buy two (2) lots only,... Eventually, sometime... the sale of lots 14 and 15 was consummated. Appellee
received from appellants P48,893.76 as commission.

Appellee apparently felt short changed because according to him, his total commission should be
P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit
Corporation... to appellants for the two (2) lots

Hence, he sued below to collect the balance of P303,606.24 after having received

P48,893.76 in advance.

Although... appellants readily concede that it was appellee who first introduced Times Transit Corp. to
them, appellee was not designated by them as their exclusive real estate agent but that in fact there
were more or less eighteen (18) others whose collective efforts in the long run... dwarfed those of
appellee's, considering that the first negotiation for the sale where appellee took active participation
failed and it was these other agents who successfully brokered in the second negotiation

But despite this... appellee nevertheless was given the largest cut in the commission (P48,893.76),
although on the principle of quantum meruit

Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of
sale

Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5%
of the P3.6 million, or P180,000.00."

The Court of Appeals affirmed in toto the decision of the trial court.

The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in
Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a
contract of agency between Constante and Artigo

Hence, the instant petition.

Issues:

First Issue: whether the complaint merits dismissal for failure to implead other co-owners as
indispensable parties

Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment

Ruling:

The petition is bereft of merit.

There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to
sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a
first come, first serve basis.

Constante signed the note as owner and as representative of the other co-owners. Under this note, a
contract of agency was clearly constituted between Constante and Artigo. Whether Constante
appointed Artigo as agent, in Constante's individual or representative capacity, or... both, the De
Castros cannot seek the dismissal of the case for failure to implead the other co-owners as
indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the
contract of agency,... The solidary liability of the four co-owners, however, militates against the De
Castros' theory that the other co-owners should be impleaded as indispensable parties.

The rule in this article applies even when the appointments were made by the principals in separate
acts, provided that they are for the same transaction. The solidarity arises from the common interest
of the principals, and not from the act of constituting the... agency. By virtue of this solidarity, the
agent can recover from any principal the whole compensation and indemnity owing to him by the
others. The parties, however, may, by express agreement, negate this solidary responsibility. The
solidarity does not disappear by the... mere partition effected by the principals after the
accomplishment of the agency.

When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a
contract of agency, each obligor may be compelled to pay the entire obligation.[12] The agent may
recover the whole compensation from any one of... the co-principals, as in this case.

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc

"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor.
Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary
debtors or some or all of them... simultaneously'."

They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness
in the deed of sale. He did not even prepare the documents for the transaction as an active real estate
broker usually does.

The mere fact that "other agents" intervened in the consummation of the sale and were paid their
respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent
commission based on the selling price. These "other agents" turned out to be... employees of Times
Transit, the buyer Artigo introduced to the De Castros.

In any event, we find that the 5 percent real estate broker's commission is reasonable and within the
standard practice in the real estate industry for transactions of this nature.

The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial
payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel.

Principles:

CESAR SULIT VS. CA G.R NO. 119247, FEB. 17, 1997

Iluminada Cayco executed a Real Estate Mortgage (REM) over lot in favor of Cesar Sulit to secure a
loan of PhP 4 Million.  Upon petitioner's failure to pay, Sulit caused the foreclosure of the mortgage.
hence, in a public auction the lot was sold to the mortgagee, with a winning bid of PhP 7Million.  He
then petitioned the court for the issuance of a writ of possession in his favor, the same was granted.
Later, Iluminada filed a petition to set aside the auction sale and to deter the issuance of the writ of
possession contending that the surplus proceeds of the sale was not paid by Sulit.  The same was
denied.  On appeal the CA reversed the decision.

ISSUE:  WON purchaser in an extrajudicial foreclosure sale is entitled to the issuance of a writ of
possession over the mortgaged property despite his failure to pay the surplus proceeds of the sale of
the mortgagor?

WON mere inadequacy of price would invalidate the sale or the person entitled thereto?

HELD:
The law authorizes the purchaser in a foreclosure sale to apply for a writ of possession and no
discretion appears to be left to the court.  Any question regarding the regularity and validity of the
sale, as well as the consequent cancellation of the writ, is to be determined in a subsequent
proceeding and it cannot be raised as a justification for opposing the issuance of the writ of "unless a
third party is actually holding the property adversely to the judgment debtor."  As it was held in
Barican vs. IAC, the obligation of the court to issue a writ of possession ceases to be ministerial if it
was no longer the judgment debtor who was in possession of the property.

As to the second issue, the mere inadequacy of the price obtained at the sheriff's sale, unless shocking
to the conscience, is insufficient to set aside a sale.  this is because no disadvantage is caused to the
mortgagor.  On the contrary, a mortgagor stands to gain with a reduced price because he possesses
the right of redemption.  When there is the right to redeem, inadequacy of price becomes immaterial
since the judgement debtor may reacquire the property or sell his right to redeem, and thus recover
the loss he claims to have suffered by reason of the price obtained at the auction sale.

The case at bar is quite the reverse, in the sense that instead of an inadequacy in price, there is due in
favor of private respondent, as mortgagor, a surplus from the proceeds of the sale equivalent to
approximately 40% of the total mortgage debt, which excess is indisputably a substantial amount.
Nevertheless, equitable considerations demand that a writ of possession should also not issue in this
case pursuant to the provision of the Rules of Court particularly on the disposition of the proceeds of
the sale.

Where there is a balance or residue after payment of the mortgage, the same shall be paid to the
mortgagor.  The better rule is that if the mortgagee is retaining more of the proceeds of the sale than
he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a
cause of action to recover such surplus.

ANTICHRISES

JOSE P. DIZON v. ALFREDO G. GABORRO, GR No. L-36821, 1978-06-22

Facts:

petitioner Jose P, Dizon was the owner of the three (3) parcels of land, subject matter of this litigation,
situated in Mabalacat, Pampanga

He constituted a first mortgage lien in favor of the Development Bank of the Philippines in order to
secure a loan in the sum of P38,000.00... second mortgage lien in favor of the Philippine National
Bank to secure his indebtedness to said bank... in the amount of P93,831.91.

Dizon having defaulted in the payment of his debt, the Development Bank of the Philippines
foreclosed the mortgage extrajudicially... the lands were sold to the DBP for P31,459.21, which
amount covered the... loan, interest and expenses, and the corresponding "Certificate of Sale, "... was
executed in favor of the said bank.

Alfredo G. Gaborro and Jose P. Dizon met. Gaborro became interested in the lands of Dizon. Dizon
originally intended to lease to Gaborro the property which had been lying idle for some time. But as
the mortgage was already foreclosed by the

DBP and the bank in fact purchased the lands at the foreclosure sale... they abandoned the projected
lease.

They then entered into the

DEED OF SALE WITH ASSUMPTION OF MORTGAGE

NOW, THEREFORE, for and in consideration of the above premises and the- amount of

P131,831.91... in hand paid in cash by the VENDEE unto the VENDOR, receipt whereof is hereby...
acknowledged by the VENDOR to his entire and full satisfaction, and the assumption by the VENDEE
of the entire mortgage indebtedness, both with the Development Bank of the Philippines and the
Philippine National Bank above mentioned, the VENDOR does by these presents, sell,... transfer and
convey, as he had sold, transferred, and conveyed, by way of absolute sale, perpetually and forever,
unto the VENDEE

The second contract executed the same day,... is called option to Purchase Real Estate... the option of
repurchasing the following described properties
Said option shall be valid and effective within the period comprised from January, 1965 to December
3 J, J 970, inclusive, upon payment of the amount of

P131,83 1.91... plus an... interest of

8%... per annum.

only... full payment can effect the necessary change.

The sum of P131,813.91 which purports to be the consideration of the sale was not actually paid by
Alfredo G. Gaborro to the Petitioner. The said amount represents the aggregate debts of the
petitioner with the Development Bank of the Philippines and the Philippine National

Bank.

After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land
in question.

herein Assignor does hereby transfer and assign to the herein Assignee, his heirs, successors and
assigns the... aforesaid right to redeem the aforementioned properties above described.

That with this document the herein Assignor relinquishes any and all rights to the said properties
including the improvements existing thereon.

After the execution of the conditional sale to him, Gaborro made several payments to the DBP and
PNB. He introduced improvements, cultivated the lands, raised sugarcane and other crops and
appropriated the produce to himself. He also paid the land taxes thereon.

Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to Gaborro informing him that
he is formally offering to reimburse Gaborro ofwhat he paid to the banks but without, however,
tendering any cash, and demanding an accounting of the income... and of the property, contending
that the transaction they entered into was one of antichresis.

Gaborro did not accede to the demands of the petitioner

Dizon instituted a complaint in the Court of First Instance of Pampanga, against Gaborro,... alleging
that the documents Deed of Sale With Assumption of Mortgage and the Option to Purchase Real
Estate did not express the true intention and agreement between the parties.

Dizon... contended... that their real agreement was not an absolute sale of the said parcels of land but
merely an equitable mortgage or conveyance by way of security for the reimbursement or refund by
Dizon to Gaborro... trial the court held that the true agreement between Jose P. Dizon, the plaintiff
therein, and the defendant Alfredo G. Gaborro is that the defendant would assume and pay the
indebtedness of the plaintiff to the Development Bank of the Philippines and the Philippine

National Bank, and in consideration therefor, the defendant was given the possession and enjoyment
of the properties in question until the plaintiff shall have reimbursed to defendant fully the amount of
PI 3 1,831.91 plus 6% interest per annum.

Court of Appeals,... affirmed the decision with the modification that... the plaintiff-appellant has the
right to refund or reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per
annum... said right to be exercised within one (1) year from the date the judgment becomes final,
with the... understanding that, if he fails to do so within the said period, then he is deemed to have
lost his right over the lands forever.

Issues:

whether the "Deed of Sale with Assumption of Mortgage" and the "Option to Purchase Real Estate,"
two instruments executed by and between petitioner Jose P. Dizon and Alfredo G. Gaborro...
constitute in truth and in fact an absolute sale of the three parcels of land therein described or merely
an equitable mortgage or conveyance thereof by way of security for reimbursement, refund or
repayment by petitioner Jose P. Dizon of any and all sums which may have... been paid to the
Development Bank of the Philippines and the Philippine National Bank by Alfredo G. Gaborro
Ruling:

after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right to
redeem the lands, the possession, use and enjoyment of the same during the period of redemption.

these are the only rights that Dizon could... legally transfer, cede and convey unto respondent
Gaborro under the instrument caplioned Deed of Sale with Assumption of Mortgage

Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land,
firstly, because there was absolutely no money consideration therefor, as admittedly stipulated, the
sum of P131,831.91 mentioned in the document as the consideration

''receipt of which was acknowledged'1 was not actually paid... secondly, because the properties had
already been previously sold by the sheriff at the foreclosure sale, thereby divesting the petitioner of
his full right as owner thereof to dispose and sell the lands.

The only legal effect of this Option Deed is the grant to petitioner the right to recover the properties
upon reimbursing respondent Gaborro of the total sums of money that the latter may have paid to
DBP and PNB... on account of the mortgage debts, the said right to be exercised within the stipulated
5 years period.

We agree with the findings of the trial and appellate courts that the true intention of the parties is
that... respondent Gaborro would assume and pay the indebtedness of petitioner Dizon to DBP and
PNB, and in consideration therefor, respondent Gaborro was given the possession, the enjoyment and
use of the lands until petitioner can reimburse fully the respondent the amounts paid by the... latter
to DBP and PNB, to accomplish the following ends: (a) payment of the bank obligations; (b) make the
lands productive for the benefit of the possessor, respondent Gaborro; (c) assure the return of the
land to the original owner, petitioner Dizon, thus rendering equity and... fairness to all parties
concerned.

We find that the agreement between petitioner Dizon and respondent Gaborro is one of those
innominate contracts under Art. 1307 of the New Civil Code whereby petitioner and respondent...
agreed "to give and to do" certain rights and obligations respecting the lands and the mortgage debts
of petitioner which would be acceptable to the bank, but partaking of the nature of the antichresis
insofar as the principal parties, petitioner Dizon and respondent Gaborro,... are concerned.

It was a... mistake for the parties to execute the Deed of Sale With Assumption of Mortgage and the
Option to Purchase Real Estate and stand on the literal meaning of the terms and stipulations used
therein.

The instruments must, therefore be reformed in accordance with the intention and legal rights and
obligations of the parties the petitioner, the respondent and the Banks. We agree with the
reformation decreed by the trial and appellate courts, but in the sense that petitioner

Jose P. Dizon has the right to reacquire the three parcels of land within the one-year period indicated
below by refunding or reimbursing to respondent... has actually paid on account of the... principal
only, of the loans of Dizon with the DBP and PNB, excluding  the interests and land taxes that may
have been paid or may have accrued, on duly certified financial statements issued by the said banks.

WHEREFORE, the judgment appealed from is hereby affirmed with the modification that petitioner
Dizon is granted the right within one year from finality of this decision to a reconveyance of the
properties in litigation upon payment and reimbursement to... respondent

Principles:

Rule 39, Section 33, the judgment debtor remains in possession of the property foreclosed and sold,
during the period of redemption. If the judgment debtor is in possession of the property sold, he is
entitled to retain it and receive the... fruits, the purchaser not being entitled to such possession.

A judgment debtor, whose property is levied on execution, may transfer his right of redemption to
any one whom he may desire. The right to redeem land sold under execution within 12 months is a
property right and may be sold voluntarily by its owner and may also be attached... and sold under
execution.

Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff.

After the termination of the period of redemption and no redemption having been made, the
purchaser is entitled to a deed of conveyance... and to the possession of the properties.

Mistake is a ground for the reformation of an instrument when, there having been a meeting of the
minds of the parties to a contract, their true intention is not expressed in the instrument purporting
to embody the agreement, and one of the parties may ask for such... reformation to the end that such
true intention may be expressed.

When a mutual mistake of the parties causes the failure of the instrument to disclose their real
agreement, said instrument may be reformed.