Digest set #7 – November 2, 2015
MORTGAGE 1. DILAG v. HEIRS OF RESSURECCION G.R. No. 48941 May 6, 1946 Art. 2124 Jimo Dimson FACTS: Before 1936 Laureano Marquez was indebted to Fortunato Resurreccion for P5,000 as the balance of the purchase price of land bought and received from the latter. Resurreccion was indebted to the Luzon Surety Company in the same amount, which was secured by a mortgage on three parcels of land, one of which was that bought by Laureano Marquez from him. The formal deed of sale from Resurreccion to Marquez was to be executed after Marquez shall have fully paid the purchase price and after Ressurreccion shall have secured the cancellation of the mortgage by the Luzon Surety Company. In 1933 Laureano Marquez, through a document, bound to pay Fortunato Resurreccion's indebtedness of P5,000 to Luzon Surety Company by way of satisfaction of his own indebtedness and in the event of his failure to pay, Marquez will indemnify Fortunato for damages he may suffer in case the mortgaged properties are sold at a public auction.. Marquez failed to pay Luzon Surety and so latter foreclosed judicially the mortgage executed by Resurreccion. April 25, 1936, pending the foreclosure sale of the lands mortgaged by Resurreccion to the Luzon Surety Company, Laureano Marquez executed and delivered to Fortunato Resurreccion another document evidencing agreement to pay indebtedness of FR to Luzon Surety, executing another mortgage in favor of Fortunato over 5 properties and also stipulated in the 5th clause that in the event that the 5 properties in Bulacan described in the 4th clause are not sufficient, the
mortgage would include any property he might acquire in the future. Marquez still failed to pay Luzon Surety and so Fortunato filed the case to recover from Marquez the value of the properties lost at public auction and to foreclose the mortgage made by Marquez in favor of Fortunato. The trial court rendered judgment in favor of Fortunato, ordering the foreclosure of the 5 properties plus other properties he acquired after the execution of the mortgage. CA affirmed this decision allowing the auction of 5 parcels not indicated in the mortgage which where acquired SUBSEQUENTLY. (during appeal to CA, RESU died and was replaced by his heirs and Marquez replaced by Dilag, administrator of his estate) ISSUE:
Whether or not the stipulation(5th clause) constitutes a valid mortgage on the 5 other parcels of land which Marquez SUBSEQUENTLY acquired after deed executed HELD: NO. SC held that Future property cannot be the object of a contract of mortgage since ownership is an essential requisite of mortgage. In the fifth clause of said document L. Marquez stipulated that in as much as the five parcels of land described were not sufficient to cover all his obligations in favor of Resureccion, he also constituted a mortgage in favor of later on any other property he then MIGHT have and on those he MIGHT acquire in the FUTURE. Such stipulation did not constitute a valid mortgage on the five other parcels of land which Marquez subsequently acquired. Marquez could not leally mortgage any property he did not yet own. Also, in order that a mortgage may be validly constituted the instrument MUST be recorded in registry of deeds. Such 5 parcels were also not described in the mortgage document. *there were concurring and dissenting opinions IN SPANISH, me no comprehende…
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Digest set #7 – November 2, 2015 2.PHIL. BANK OF COMMERCE V. MACADAEG G.R. No. L-14174 October 31, 1960 Article 2124. Only the following property may be the object of a contract of mortgage: (1) Immovables; (2) Alienable real rights in accordance with the laws, imposed upon immovables. Nevertheless, movables may be the object of a chattel mortgage. (1874a) Prepared by: Joben Odulio | NOTE: The Court doesn’t explicitly refer to Art. 2124 but for recit purposes, note the contents of the contract (there were real and chattel mortgages) and the Court’s response to respondents’ arguments (that these remain distinct agreements despite the mortgages’ embodiment in one single document). FACTS: Respondents Pedro Bautista, Dativa Bautista, Innocencio Campos, and the Flash Taxi Company jointly and severally applied for and obtained a credit accommodation from the PBCOM in the sum of P100,000. As security, respondents executed in favor of the bank, in one single document, a real estate mortgage over 4 parcels of land, and a chattel mortgage on some movie equipment and 30 taxicabs. Respondents having failed to pay the total amount of P129,000 due on the credit accommodation, the PBCOM procured the extrajudicial foreclosure of the real estate mortgage and the bank acquired the properties mortgaged as the highest bidder for the amount of around P68,000. Claiming a balance of P63,000 still due from respondents, the petitioner bank, instead of foreclosing respondents' chattel mortgage, filed against them for the collection of said balance. The lower court then rendered judgment ordering respondents to pay PBCOM, jointly and severally, the sum of P63,000 with interest thereon until fully paid. The court issued an order to execute said judgment, pursuant to which the sheriff of Manila published a "Notice of Sale," setting for sale at public auction the
rights, interests or participation of respondents on the certificate of public convenience registered in the name of the Flash Taxi Co. In the said auction, PBCOM was the highest bidder at P60,000. The sale was confirmed and was evidenced by certificate of sale. Sometime thereafter, PBCOM sold all its rights, interests, or participation in the certificate of public convenience over to Alberto Cruz. Public Service Commission provisionally approved the sale of said certificate from respondents to PBCOM, and PBCOM to Alberto Cruz. Pursuant to the provisional authority granted him by the Commission to operate said certificate, Alberto Cruz acquired and purchased twenty taxicabs and has since then been operating said franchise. However, it appears that the sale was sought to be annulled by respondents through a petition to cancel the certificate of sale issued by the sheriff, claiming that they still had other properties from which the judgment could be satisfied, among other arguments. PBCOM opposed, contending that there was no showing of the sale’s irregularity. The trial court ruled in favor of the respondents, and held that the properties offered by respondents were more than sufficient to satisfy the judgment, and that the sale of the certificate of public convenience in question would cause them and their drivers in their taxicab business grave and irreparable damage. As such, the sheriff’s sale were ordered to be set aside. Hence, this petition. ISSUE: Whether or not the execution sale of the certificate of public interest on the taxicabs was valid? YES. HELD/RATIO: The alleged nullity is claimed to arise from the fact that the real estate and chattel mortgage executed by respondents to secure their credit accommodation with the petitioner bank was indivisible, and that consequently, the bank had no legal right to extrajudicially foreclose only the real estate mortgage and leave out the chattel mortgage, and then sue respondents for a supposed deficiency judgment; and for this CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 reason, respondents assert that the judgment in the bank's favor for such deficiency is a nullity. The argument is fallacious because the mere embodiment of the real estate mortgage and the chattel mortgage in one document does not fuse both securities into an indivisible whole. Both remain distinct agreements, differing not only in the subject- matter of the contract but in the governing legal provisions. Petitioner bank, therefore, had every right to foreclose the real estate mortgage and waive the chattel mortgage, and maintain instead a personal action for the recovery of the unpaid balance of its credit.
meet their obligations, thus forcing the bank to ask for execution of the judgment one year after it was rendered.
The second claim of respondents that the execution sale in question is void for lack of a valid levy is also untenable. "Levy" includes a constructive as well as an actual taking into possession of property under execution process and in the present case, respondents admit three days prior to the scheduled execution sale they received copy of the sheriff's notice of sale. Respondents' third charge is that the execution sale in question is void as made in fraud of their rights, and allegedly pursuant to an illicit scheme on the part of petitioner bank to acquire the certificate of public convenience in question for speculative purposes and not merely for the satisfaction of its credit. However, the trial court already found both parties to be in good faith. Respondents did not come to the court for relief, but merely reiterated their request to PBCOM either to be given more time to pay or be allowed to pay the debt with other properties. The offer to substitute the franchise sold at the auction sale with other properties like the movie equipment previously mortgaged to petitioner and the parcel of land belonging to another person, however, came too late. If it were true that the debtors had properties of adequate value, aside from the franchise in question, with which to satisfy said judgment, they could have easily sold them in the open market and paid their indebtedness to the bank. But they neglected to
FACTS:
Thus, the order by the lower courts which set aside the sale were, in turn, set aside. 3. PEOPLE’S BANK v DAHICAN LUMBER COMPANY GR No. L-17500 May 16, 1967 Atlantic Gulf & Pacific Company of Manila (ATLANTIC) sold and assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company (DALCO) for the sum of $500,000 of which only the amount of $50,000 was paid. Thereafter, to develop the concession, DALCO obtained various loans form People’s Bank amounting of $200,000. In addition to that, DALCO obtained another loan of $250,000 from Export- Import Bank of Washington D.C, as evidenced by 5 promissory notes of $50,000 each, executed by both DALCO and Dahican American Lumber Corporation (DAMCO), all payable to People’s Bank or its order. As security for the payment of contracted loans, DALCO executed a deed of mortgage in favor of People’s Bank, covering five parcels of land located in Camarines Norte together with all the buildings and other improvements thereon and all the personal properties of the mortgagor located in its place of business in the municipality of Mambulao and Capalonga, Camarines Norte. Further, DALCO executed a second mortgage on the same properties now in favor of ATLANTIC to secure the payment of the unpaid balance of sale price of the lumber concession amounting $450,000. Both deeds contained a provision extending the mortgage lien to properties to be subsequently acquired, referred as “after acquired properties”. Also, both mortgages were registered in Registry of Deeds of Camarines Norte. In addition thereto, DALCO and CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 DAMCO pledged to People’s Bank 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure their incurred obligations. On the maturity of loan, DALCO and DAMCO failed to pay the 5th promissory note; with this, People’s Bank paid the same to the Export-Import Bank of Washington D.C. Later on, ExportImport Bank assigned to People’s Bank its credit and the first mortgage securing it. Subsequently, People’s Bank gave DALCO and DAMCO an extension to pay the overdue promissory note. After the date of execution of the mortgages, DALCO purchased various machineries, equipment, spare parts and supplies in replacement of some of those already owned and used by the company. With these purchases, People’s Bank requested DALCO to submit complete lists of said acquired properties in compliance with the “after acquired properties” provision in the mortgage deed; however, DALCO refused to comply. In connection with these purchases, there appeared in the books of DALCO as due to Connell Bros. Company the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34. The Board of Directors passed a resolution agreeing to rescind the alleged sales of equipment by Connell and DAMCO to it. As a result, the agreements of rescission of sale were executed between DALCO and DAMCO, on one hand, and between DALCO and CONNELL on the other. In line with the aforesaid agreements of rescission, People’s Bank demanded for its cancellation but Connel and DAMCO refused to do so. As a result, ATLANTIC and People’s Bank commenced foreclosure proceedings in the CFI of Camarines Norte. Also, an ex-parte application for appointment of Receiver and/ or for issuance of writ of preliminary injunction to restrain DALCO from removing its properties were filed and were granted by the Court. The CFI ordered DALCO and DAMCO to pay People’s Bank and ATLANTIC with corresponding interests.
ISSUES: WON the “after acquired properties” covered by and subject to the deeds of mortgage subject of foreclosure. If in affirmative, are the mortgages valid and binding on the properties inspite of the fact that they were not registered in accordance with the provisions of Chattel Mortgage Law? WON DAMCO and CONNEL have rights over the “after acquired properties” superior to the mortgage lien constituted in favor of the People’s Bank. WON the proceeds of the “after acquired properties” be awarded exclusively to People’s Bank. HELD: 1. YES. Under the fourth paragraph of both deeds of mortgage, it is clear that all property of every nature and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipment, “shall immediately be and become subject to the lien.” The Supreme Court ruled that such stipulation is common and logical in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold or to be used. 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. Furthermore, the executed mortgages are valid and binding despite of its non-registration under the Chattel Mortgage Law. The Supreme Court held that such registration do not apply in the case at hand on the ground that, where the machinery and fixtures installed by a lumber company in its concession had become immobilized and were included in the registered real mortgage as "after acquired properties", it was not necessary to register them a second time as chattel CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 mortgages in order to affect third persons. The fact that the lumber company is not the owner of the land is not important since the parties to the mortgage had characterized the said "after acquired properties" as real property. The mortgagor is estopped to contend that the said properties had not become immobilized. 2. The Supreme Court ruled that the most that can be claimed on the basis of the evidence is that DAMCO and CONNELL probably financed some of the purchases. But if DALCO still owes them any amount, it is clear that, as financiers, they cannot claim any right over the "after acquired properties" superior to the lien constituted thereon by virtue of the deeds of mortgage under foreclosure. Indeed, the execution of the rescission of sales appears to be but a desperate attempt to better or improve DAMCO and CONNELL's position by enabling them to assume the role of "unpaid suppliers" and thus claim a vendor's lien over the "after acquired properties". The attempt, of course, is utterly ineffectual, not only because they are not the "unpaid sellers" they claim to be but also because there is abundant evidence in the record showing that both DAMCO and CONNELL had known and admitted from the beginning that the "after acquired properties" of DALCO were meant to be included in the first and second mortgages under foreclosure. 3. YES. In line with the ruling of the Supreme Court that the mortgages are valid, the proceeds of the “after acquired properties” should be awarded EXCLUSIVELY to People’s Bank in payment of the money obligations secured by the mortgages under foreclosure. 4. PRUDENTIAL BANK v. PANIS G.R. No. L-50008 Art. 2124. Only the following property may be the object of a contract of mortgage: (1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed upon immovable. Nevertheless, movables may be the object of a chattel mortgage. (1874a) FACTS: Plaintiff-spouses Fernando and Teodula Magcale secured a loan of P70k from defendant Prudential Bank, secured by a Real Estate Mortgage over certain properties: a 2-storey semiconcrete residential building with warehouse spaces, including the right of occupancy on the lot where the property is erected. It was also further agreed that in the event that a Sales Patent previously applied for by the Spouses Magcale is released or issued by the Bureau of Lands, the Spouses Magcale would authorize the Register of Deeds to hold the Registration of such patent until the mortgage is cancelled, or to annotate the encumbrance on the title. From this stipulation, it is obvious that Prudential Bank was at the outset aware of the fact that the Spouses Magcale have already filed a Miscellaneous Sales Application over the lot. Subsequent to this, Spouses Magcale secured an additional loan from Prudential Bank in the amount of P20k. To secure this payment, they executed another deed of Real Estate Mortgage over the same lot. Both deeds were registered with the Registry of Deeds. Spouses Magcale failed to pay their obligation, thus the deeds of Real Estate Mortgage were extrajudicially foreclosed. There was a public auction sale with Prudential Bank as the highest bidder. Later on, the Court of First Instance declared that the deeds of Real Estate Mortgage are null and void. ISSUE: W/N a valid real estate mortgage can be constituted on the building erected on land belonging to another? HELD: YES. 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 CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 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. In the case, the records show that the building and the right of occupancy on the lot were mortgaged and such mortgage was registered with the Register of Deeds. 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. However, since the second mortgage of P20k was done after the sales patent was issued, it is prohibited according to the Public Land Act. 5. SAMANILLA v. CAJUCOM 107 Phil. 432 March 28, 1960 Katrina Gaw Art. 2125. In addition to the requisites stated in Art. 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. The persons in whose favor the law establishes a mortgage have no other right than to demand the execution & the recording of the document in which the mortgage is formalized. (1875a) FACTS: Samanilla filed a petition in a land registration case, wanting to have the deed of mortgage between her and the Cajucoms registered. Samanilla alleged that the Cajucoms had executed in her favor a real estate mortgage over their rights on a parcel of land to secure a loan of P10,000. Later, the Cajucoms borrowed the title of the lot from Samanilla, supposedly so they
could segregate from the land the portion claimed by other persons. However, when Samanilla asked for the title back so she could register her mortgage, the Cajucoms refused to return it. To support her petition, Samanilla attached the deed of mortgage signed by the parties. The Cajucoms, however, claimed that the mortgage was void for lack of consideration. They also claimed that they could not be compelled to surrender their title for registration of the mortgage until they are given an opportunity to show its invalidity in an ordinary civil action, because registration is an essential element of a real estate mortgage and the surrender of their title would complete this requirement of registration. The trial court ruled in favor of Samanilla, ordering the Cajucoms to surrender the title either to the Register of Deeds or to the Court. ISSUES: 1. W/N the allegation that a mortgage contract is void is sufficient to defeat the right of the mortgagee to have the mortgage registered on the title. 2. W/N registration is an essential element for the validity of a mortgage contract. HELD: 1. No. There is a legal presumption of sufficient consideration supporting a contract, even if such cause is not stated therein, which cannot be overcome by a simple assertion of lack of consideration. Once a mortgage has been signed in due form, the mortgagee is entitled to its registration as a matter of right. By executing the mortgage the mortgagor is understood to have given his consent to its registration, and he cannot be permitted to revoke it unilaterally. To overcome the presumption of consideration, the Cajucoms must have shown the alleged lack of consideration of the mortgage by preponderance of evidence in a proper action. 2. No. CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 A mortgage, whether registered or not, is binding between the parties, registration being necessary only to make the same valid against third persons. Registration only operates as a notice of the mortgage to others, but neither adds to its validity nor convert an invalid mortgage into a valid one between the parties. The Cajucoms still have the right to show that the mortgage is invalid for lack of consideration in an ordinary action and there ask for the avoidance of the deed and the cancellation of its registration. But until such action is filed and decided, it would be too dangerous to the rights of the mortgagee to deny registration of her mortgage, because her rights can so easily be defeated by a transfer or conveyance of the mortgaged property to an innocent third person. If the purpose of registration is merely to give notice, the questions regarding the effect or invalidity of instruments are expected to be decided after, not before, registration. It must follow as a necessary consequence that registration must first be allowed and validity or effect litigated afterwards. 6. 7. MCCOLLOUGH & CO. INC v. VELOSO G.R. No. L-21455 April 5, 1924 Facts:
On March 23, 1920, McCullough sold to Mariano Veloso a property known as the ‘McCullough Building’, which was comprised of a piece of land, with the building found thereon. This was sold to Veloso for the price of P700,000, with Veloso having had paid P50,000 initially, and the remaining balance in installments until 1925. These amounts were to draw interest at 7% per annum, and a further 10% of the amount of the debt as attorney’s fees, should it be necessary for the petitioner to resort to judicial action to compel payment. Veloso proceeded to assume the obligation of insuring the property for not less than P500,000 as well as paying the
legal taxes that may be imposed upon the property. Should Veloso fail to pay said taxes, the petitioner should pay the taxes at the expense of Veloso, subject to the right to recover from Veloso the amounts with interest of 7% per annum. In order to secure the payment of Veloso’s debt, Veloso mortgaged the purchased, with the encumbrance having had been noted on the certificate of title.There was also an acceleration clause on the debt of Veloso, should he fail to pay any installments. On August 21, 1920, Velolso sold the property with the improvements thereon for P100,1000 to one Joaquin Serna. The buyer agreed to respect the mortgage and to assume Veloso’s obligation to pay the balance due of the price of the estate on the respective dates of payments. Veloso paid P50,000 of the remaining balance of P650,000 while Serna made several payments amounting to P250,000. However, neither Veloso nor Serna made any payment upon the last installments. As such, the whole obligation became due, and the right to installments was lost. Later on, Clarke & Larkin accountants made a liquidation of debt of Veloso, including the interest due. On March 26, 1923, Veloso was found to still be owing P510,047.34 to McCullough, hence, steps to take juridical action. McCullough brings this action to recover the P510,047.34 along with 10% of the amount as attorney’s fees. The Trial Court sentenced Veloso to pay the sum claimed with interest, from when the liquidation was made until the full payment thereof. The Trial Court also allowed only P2,000 for attorney’s fees, and that failure to pay all the amounts due within three months would lead to the forfeiture of the land and its consequent sale in a public auction. Both parties appealed to the decision. McCullough as to the amount of the attorney’s fees, and Veloso as to his liability to pay the P510,047.34 balance. ISSUE: - W/N there was a valid novation, with Serna taking the place of Veloso as debtor. CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 HELD: 1. Yes. According to Article 1879 of the Civil Code, the creditor may demand of the third person in possession of the property mortgaged payment of such part of the debt, as is secured by the property in his possession. The Mortgage Law in force at the time provided, among other things, provides that the debtor should not pay the debt upon its maturity after a judicial or notarial demand payment has been made upon him. (Art. 135, Mortgage Law 1889). The spirit of the provision is that to let the obligation of the debtor to pay the debt stands although the property mortgaged to secure the payment of said debt may have been transferred to a third person. While the Mortgage Law of 1893 eliminated these provisions, it contained nothing indicating any change in the spirit of the law in this respect. Article 129 of this law, which provides for the substitution of the debtor by the third person in possession of the property, for the purposes of the giving of notice, does not show this change and has reference to a case where the action is directed only against the property burdened with the mortgage. Although McCullough also received payments from Serna on account of Veloso’s debt, it is still, at most, a payment by a third person. This does not affect the relation between Veloso and McCullough, except as the portion of the obligation paid by Serna will be discharged. 8. SANTIAGO V. DIONISIO L-4008 January 15, 1953 by Kristel Descallar FACTS: In 1935, Roman San Diego sold a land to Apolonia Santiago, and the sale was recorded in the Register of Deeds of
Bulacan, in accordance with Revised Administrative Code. However, prior to the sale, Roman had already mortgaged the land to Eulalia Resurreccion. Since the mortgage was also registered pursuant to the Administrative Code, the mortgage to Eulalia had precedence over the sale. Roman defaulted in his debt, so Eulalia foreclosed the mortgage and the land was sold at public auction to Angela Dionisio as the highest bidder. Upon discovery of the sale of the same land to Dionisio, Santiago brought an action to annul the sale to Dionisio, and Santiago also intervened for the confirmation of the sale and filed her opposition thereto. The lower court confirmed the sale to Dionisio without prejudice to the rights of Santiago. Judge Roldan, in Santiago’s action for annulment, ruled that the sale of the land in favor of Dionisio was null and void, since Santiago was not included as a party to the foreclosure proceedings, but the ownership of Santiago over the land is subject to the mortgage in favor of Eulalia. In 1936, Santiago filed an application for registration of the land under her name, and among the oppositors was Dionisio, who claimed title to the land as purchaser in a foreclosure. Judge Potenciano Pecson ruled that the foreclosure sale did not affect the rights of the applicant Santiago, who had not been made a party to the proceedings, and decreed the registration of the land in her favor. So, Dionisio filed the present appeal. ISSUES: 1. Whether or not the sale of land to Dionisio was valid, despite Santiago not being impleaded to the foreclosure proceedings. 2. Whether or not the land should be registered in the name of Santiago. 1. YES, insofar as to the parties to the suit, but not to Santiago. Dionisio argued that Santiago intervened in the foreclosure suit, thus she is bound by its results. But, the Court found that Santiago’s intervention consisted merely in opposing the confirmation of the sale. This is not the same as being a party CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 to the suit to the extent of being bound by the judgment. That judgment had already been rendered and was already in the process of execution when Santiago intervened. Though the sale was confirmed, the court said that the confirmation was to be without prejudice to the rights of Santiago. Judge Roldan did not declare the foreclosure sale entirely void, but only "with regards to the rights of Apolonia Santiago". This means that the foreclosure was ineffective as against Santiago, although it may be valid as between the parties to the suit (Eulalia and Dionisio). Also, the sale is subject to Santiago's unforeclosed equity of redemption. While it is true that Santiago’s interest in the land was subordinate to that of the mortgagee, Eulalia, the rule of procedure in force at the time the foreclosure was section 255 of Act 190, which required that in an action for foreclosure "all persons having or claiming an interest in the premises subordinate in right to that of the holder of the mortgage . . . be made defendants in the action." This rule applied not only to a subordinate lienholder, but also to a purchaser of real property already mortgaged to another. Failure to implead a subordinate lienholder or subsequent purchaser renders the foreclosure ineffective as against them. Therefore, there remains in their favor the "unforeclosed equity of redemption." But the foreclosure is valid as between the parties to the suit. 2. NO.
Santiago’s application for registration of the land under her name should be denied. The unforeclosed equity of Santiago still exists and must be recognized in either of the following ways: 1) to register the land in the name of Santiago but subject to the mortgage in favor of Eulalia; 2) to register the land in the name of the oppositor Dionisio subject to redemption by Apolonia Santiago. The Court’s preference is the second method, which was already ruled in the case of De la Paz, et al. vs. McCondray & Co.,
Inc., supra, where the Court granted the registration applied for but subject to the prior purchasers' equitable right of redemption. It is the previous purchaser, Santiago, who has applied for the registration of the land. However, both by statute and by jurisprudence, registration may be decreed in favor of an oppositor (Dionisio in this case) whose ownership has been established. More so, in the present case, the record shows that the opposition of Dionisio prays for the registration of the land in her favor by asking that she be substituted in place of Apolonia Santiago in the application for registration. Registration of the land in the name of Dionisio, the herein oppositor, is proper, subject to Apolonia Santiago's equitable right of redemption. Registration of the land in the name of Santiago, who does not become its owner until she has exercised her right to redeem, would be subject to the objection that it is premature, if not altogether anomalous. But, Santiago’s equity of redemption is registerable, but only as an encumbrance on a registered title of ownership. The judgment appealed from is revoked and another one entered, decreeing the registration of the land in the name of Angela Dionisio, but subject to Apolonia Santiago's equitable right of redemption, which right should be exercised by her within three months from the date this decision becomes final. 9. PHIL. SUGAR ESTATES V. CAMPS G.R. No. 11607 January 17, 1917 Kristine Uy Facts: Armando Camps mortgaged a parcel of land, together with the buildings thereon erected, situated on Plaza Santa Ana, Quiapo to Phil. Sugar Estates as security for the payment of P30,000 . CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 At the time of mortgage, a building used as a lithographic plant stood therein but subsequently torn down to build another building for cinematographic purposes (called Cine Manila). In the foreclosure proceedings, the order stated that if Camps should not pay all the sums specified in the judgment, the sheriff shall proceed to sell the entire property including the building thereon. Issue: Should Cine Manila be included in the foreclosure proceedings? Ruling: Yes, Cine Manila should be included in the foreclosure proceedings 1. Article 2127 applies: A mortgage includes the natural accessions, improvements, growing fruits, and rents not collected when the obligation is due, and the amount of the indemnities granted or due the owner by the underwriters of the property mortgaged or by virtue of the exercise of eminent domain by reason of public utility, with the declarations, amplifications and limitations established by law, in case the estate continues in the possession of the person who mortgaged it, as well as when it passes into the hands of a third person. 2. The Cine Manila building, although not mentioned in the said, is an improvement which is understood as having been mortgaged jointly with the lot because it belongs to the same owner and debtor and because it was erected on the site of the former building. 10. AFABLE v. BELANDO G.R. No. L-32154 October 20, 1930
FACTS: - Ladislao Fable filed a case against Carmen Belando for the payment of a promissory note amounting to Php 1,249. Fable also obtained a preliminary attachment against Belando’s property and certain rents on lands located in Cavite. - The court rendered judgment in favour of Afable and required Belando to pay the amount go Php 1,109 with interest at 12% per annum and 12 per centrum of this amount as penalty and in addition Php 160 for certain expenses. - In pursuance of the writ of execution, the rents on the lands were delivered to Afable. - La Urbana was designated as intervenor to recover the rents that were delivered to Afable. On August 5, 1927, La Urbana filed a case against Carmelo Belando for foreclosure of mortgage secured judgment for the amount of Php 49,162 and upon failure to make payment within 3 months, the mortgaged property was decreed for sale in satisfaction of this amount. - Belando appealed but the Court affirmed the judgement in favor of La Urbana. - It also appears that the rents delivered to Afable were those collected on the property mortgaged to La Urbana. - In deciding the intervention of La Urbana, the court order the sheriff to return the Php 1241 to BPI, the depositary in the case of La Urbana v. Belando. This sum is the total amount of rents delivered to Afable in pursuance of his judgement against Belando. ISSUE: Whether according to article 1877 of the CC and 111 of the Mortgage Law, the rents of the property mortgaged to La Urbana could have been attached by Afable in the course of action against Belando for the collection of a sum of money? HELD: Summary: Afable brought suit against Belando on August 27,1928, and when on September 4,1928, a preliminary attachment of the rents of the Belando’s property was granted, CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 La Urbana had already brought an action against the same Belando for the foreclosure of the mortgage (August 5,1927), and had secured judgment therein (January 14,1928) which was affirmed by this court. Therefore, when the Afable attached these rents, Belando;s obligation to La Urbana had already fallen due. No. - According to article 1877 of the Civil Code and 110 and 11 of the Mortgage Law, a mortgage includes all rents of the mortgaged property not collected when the obligation falls due, and all rents payable until the credit is satisfied. In accordance with this provision, when the rents were attached by the plaintiff, they were already liable for the mortgage in favor of La Urbana, and could not have legally been attached by the plaintiff. - Immaterial that the judgment in favor of La Urbana contained no mention of the rents, but only of the property itself, for after all, under the law, every mortgage includes the rents. So also is the fact that the court below excluded the P575, which is a part of the amount of P1,241.84, from the deposit inasmuch as that sum also comprises rents included in the mortgage in favor of La Urbana. 11. TADY-Y v. PNB September 28, 1964 Prepared by: Jillian Paris FACTS:
On February 2, 1951, Segundo Swansing acting for himself and as attorney-in-fact of Salvador Cabasaan and Rebecca Swansing (Swansings hereafter), obtained an agricultural loan from PNB in the sum of P840 and as a security, mortgaged Lot No. 1257, Pontevedra Cadastre, Negros Occidental. The mortgage deed was registered on the same date. On April 30, 1955 Segundo constituted a second mortgage on the same lot to Marcelo Aguirre for P1,600 with interest at 12% per annum and attorney’s fees in the amount of
P550 in case of default. On December 5, 1957 Aguirre assigned his rights and interests in the mortgage to Antonio Tady-Y in a deed which was registered on August 17, 1959. The mortgagors defaulted in their obligation thus PNB extra-judicially foreclosed the first mortgage. The provincial sheriff sold the mortgaged property at a public auction. PNB was the winning purchaser. Because of this, Tady-Y filed with the lower court a complaint for mandamus against PNB and the Provincial Sheriff of Negros Occidental praying that the defendants be ordered to deliver P2,868 plus P800 in attorney’s fees plus costs. Tady-Y’s complaint alleged that the purchase price of the property (P5,093.45) was in excess of the registered credit of PNB. Tady-Y insists that PNB is entitled only to P1,759.60 as of January 31, 195 and deducting said amount this from the purchase price, a balance of P3,279.85 would result, which is more than enough to cover and satisfy the credit under the second mortgage. The Swansings averred that the account secured by the first mortgage did not include only the sum of P840 referred to in the mortgage contract, but also “those that the mortgagee may extend to the mortgagor, including interest and expenses or any other obligation owing to the mortgagee whether direct or indirect, principal or secondary as appears in the accounts, books and records of the mortgagee”; that as of January 31, 1959 the total unpaid obligation to the bank was P9,579.08 representing the time loan account, sugar crop loan deficits, palay loan plus interest and attorney’s fees, with the obvious result that the proceeds did not leave any surplus that may be applied to the second mortgage. Also they ndnff that there is no right of action as there is no law which requires the bank to delivery the surplus of the proceeds from an extra judicial foreclosure. RTC: Dismissed the complaint ISSUE: W/N The proceeds of the foreclosure sale should be applied only to the initial obligation of P840? CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 HELD: NO. The mortgage deed between the Swansings and the PNB shows that the property was mortgaged was to secure the payment of P840 and “those that the mortgagee may extend to the mortgagor, including interest and expenses or any other obligation owing to the mortgagee whether direct or indirect, principal or secondary as appears in the accounts, books and records of the mortgagee”. Even the entry on the back of their TCT states that the mortgage secured the payment of P840 plus interests “plus other obligations arising thereunder”. This annotation should have cause any intending junior encumbrancer to be wary and to examine the provisions of the mortgage deed for complete details. This stipulation is not improper as the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security, if from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. The PNB submitted evidence that the outstanding account appearing in its books and records was P9,579.08, which was never questioned by the Swansings. Tady-Y argues that the latter loans should have also been noted on the TCT but the court held that there is no necessity for such notation because it already appeared on the title that other obligations would also be secured by the mortgage. It is incumbent upon any subsequent mortgagee or encumbrancer of the property to have examined the books or records of the PNB, as first mortgagee, the credit standing of the debtors. The subsequent obligations were registered and thus there can be no doubt that the second mortgagee is charged with notice of other obligations of the mortgagors to the PNB. Being the second mortgagee, Tady-Y is only entitled to whatever surplus there is, if any, from the proceeds of the auction sale, after covering the obligations to the PNB. 12. VELASCO v. CA
No. L-47544, January 28, 1980 Art. 2127: The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. FACTS: NB: This case was elevated to the Supreme Court in order that the factual circumstances may be properly appreciated. Originally, the issue was to determine w/n the CA erred in ruling that the motion for new trial of GSIS should be deemed pro-forma. The SC however decided to go beyond this issue because substantial justice might not be achieved if they decided the case on a technical ground alone. Alta Farms secured from GSIS a Php 3,255, 000 loan, and an additional Php 5, 062, 000 loan to finance a piggery project. Both these loans were secured by two mortgages. The property mortgaged to GSIS was 30 hectares, located at Caloocan City. Alta Farms defaulted in payment of its amortizations. Alta Farms then executes a Deed of Sale w/ Assumption of Mortgage with Asian Engineering Corporation, WITHOUT the consent or approval of GSIS. This was in direct violation of the provisions of the mortgage contracts. Asian Engineering Corporation executed an Exclusive Sales Agency, Management and Administration Contract in favor of Laigo Realty Corporation. The contract was for converting the piggery farm into a subdivision. Laigo develops the lot into a subdivision. CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015
After developing the area, Laigo enters into a contract with Amable Lumanlan (one of the petitioners), to construct HOUSES for the home buyers (the interested buyers who want homes in the new subdivision Laigo developed). Laigo undertook to pay for the houses on a “turn-key” basis. Lumanlan constructs 20 houses, but the checks Laigo issued for Lumanlan were all dishonored. Lumanlan is one of the petitioners who now seek payment for the houses constructed. Pepito Velasco (another petitioner) is also one of the building contractors contracted by Laigo to construct houses for the home buyers. Laigo issued Velasco 5 checks for Php 35,000 but these bounced also. Neither Laigo nor the individual home buyers paid for the houses constructed, so Velasco wrote to GSIS to intercede for the unpaid accounts. NB: Basically the petitioners in this case are contractors or parties with whom Laigo approached for the building of houses and improvements on the subdivision project. However, these petitioners were not paid in full by neither Laigo nor the individual home buyers. The petitioners are now seeking recovery of the balance from GSIS, since Laigo won’t pay up. Rundown of the petitioners/ building contractors and their claims in case sir asks: a) Felipe Lumbang: 4 houses, balance of Php 82, 000 b) Ramon Galang, 1 house, balance of Php 12, 600 c) Pepito Velasco, (no number of houses stated), balance of Php 101, 750 d) Amable Lumanlan, 20 houses, balance of Php 124, 855 The Deed of Sale w/ Assumption of Mortgage between Alta Farms and Asian Engineering was not approved by the GSIS. Thus when Alta Farms failed to liquidate its accounts, finally GSIS foreclosed the properties
including all improvements in 1970. (Note: these improvements included the houses built.) While the properties were under foreclosure and even pending the consolidation of titles in favor of GSIS, some lots were sold on installment basis, for which Laigo received Php 985, 000. Originally, claims were addressed to Laigo Realty Corporation. However, when petitioners couldn’t collect from Laigo and the home buyers, and only after GSIS had foreclosed the subdivision including the improvements (meaning the houses already constructed), petitioners sent a letter of demand for GSIS to pay for Laigo’s indebtedness. Finally, in 1975, the petitioners filed a case against GSIS for the collection of sums of money representing labor and materials used in the construction of houses caused by home buyers through the intercession of Laigo Realty Corp. in the principal sum of PHP 607, 328.27 GSIS defenses: a) GSIS categorically and specifically denied the claims because it had no privity of contract with the petitioners b) GSIS argues that petitioners have no cause of action, since the services of petitioners were contracted by Laigo and not GSIS c) It is Laigo Realty Corporation which entered into contracts with petitioners so Laigo is a necessary and indispensable party who should be included as a party
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Digest set #7 – November 2, 2015 d) In 1970, Laigo executed a Deed of Quit-Claim1 in favor of GSIS, freeing GSIS from any and all claims arising out of the suppliers, contractors and house builders e) At the time GSIS foreclosed on the Laigo properties, the claims of the petitioners weren’t registered f) GSIS, even if it had foreclosed on the properties and is now the owner thereof, did not collect from the house owners anyway g) Invokes Article 525 of CC where good faith or bad faith of builder is decisive factor in determining liability Petitioners arguments: a) JUSTICE AND EQUITY b) Unjust enrichment on the part of GSIS, Laigo, and home owners c) GSIS, in foreclosing on the property (the land mortgaged) upon which the improvements (meaning the houses which are the subject of the claims) are situated, became the owners thereof Trial court rules that GSIS must pay, but FOUR TIMES the balance, because of inflation and increasing costs of materials since the time the issue was litigated on. ISSUE: W/N GSIS should pay for the construction, material, and labor costs for the building of 63 houses (considered as improvements) on the property (the land that was developed into a subdivision) they foreclosed on
RATIO:
HELD: YES, after 30 pages of facts hahah all the SC just says is YES PAY UP, BASED ON EQUITY. 1
Excerpt from the Deed of Quitclaim: “If the GSIS, for any reason, shall be held liable on any such claims or liabilities or otherwise its mortgage lien be diminished, Laigo Realty Corporation further binds itself to indemnify the GSIS such sums corresponding to such claims or diminution.”
GSIS was the buyer of the mortgaged subdivision where the constructions were made by the petitioners. It has to pay for the said improvements since GSIS is in law now the owner of said houses. GSIS assumed ownership of the houses built by petitioners and was benefited by the same, and the fact that it has not collected any payment from the “house owners” (misleading term, since technically, GSIS is now the owner of the houses) for the construction of the houses is irrelevant in determining liability of GSIS. Once GSIS foreclosed the properties including all improvements (the houses), it became the owner of the said houses. GSIS cannot contend that Laigo should have been joined as defendant in this case. It is not mandatory, even if petitioners are free to do so. Laigo is only a necessary party, NOT an indispensible one. A mortgagor, once the mortgaged property is already sold, becomes a mere necessary party in an action by labor contractor against the new owner. The terms of the Deed of Quitclaim show that GSIS actually contemplated the possibility of its being liable for Laigo’s account, otherwise, there would be no need for the reservation done in the deed. So the act of GSIS invoking the Deed of Quitclaim to escape liability actually served as evidence against GSIS. In effect the deed showed that GSIS acknowledged it could be held liable. Article 525 is immaterial in this case for there is no need to rule on w/n petitioners acted in good or bad faith, since under the Deed of Quitclaim, CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015
GSIS freely accepted the benefits of what the builders have accomplished This is a case with “peculiar circumstances” and even in equity alone, GSIS should pay the petitioners for the 63 houses. All GSIS has to do is pass on to the individual home buyers what it would have paid to petitioners. Article 17292 (due to the “peculiar circumstances” of the case) must apply on the basis of fairness and justice. So, petitioners are deemed as suing for reimbursement of what they have already paid their own laborers and materialmen, or else Laigo, GSIS, and home buyers would enrich themselves at the expense of the petitioners. It is not fair, however, to make GSIS liable for interest in the amount that the trial court imposed (which is 4x more, to account for inflation). It would be fair enough to make GSIS liable for the balance, at the legal interest rate of 12% per annum from the time petitioners filed their complaint in April 14, 1975.
13. LOPEZ v. ALVAREZ G.R. No. L-3438 October 12, 1907 Marianne A Plaintiff: Manuel Lopez Defendants: Alvarez, Grindrod and Cassels
1) Payments made by the owner to the contractor before they are due;
FACTS: Vicente Lopez executed a mortgage deed in favor of the defendant Evaristo Alvarez for the sum of 13,300 pesos and a fraction on his estate named Bunglas, situated in Concepcion, Iloilo, together with 20 castrated carabaos, 10 female carabaos, an 8-horsepower steam engine, and a furnace with fittings. Vicente died without the loan being paid. In order to secure the payment of the lease of the hacienda Estrella owned by the plaintiff, Manuel Lopez, the defendant Evaristo Alvarez, by means of a public instrument, assigned, conveyed, and transferred to the plaintiff part of his said lien on the testate of Vicente to the amount of P5,973 pesos, Mexican currency. He he further assigned to Manuel him all his rights and actions to and in the estate of the deceased, with power to ask for the judicial execution of the mortgage on the hacienda Bunglas, Alvarez also informed Manuel that J. H. Grindrod also had a claim on the lien but it is subsequent to that of the plaintiff. In consequence of the complaint filed, Grindrod pretended to dispose by public auction of the rights of the defendant Evaristo Alvarez over the hacienda Bunglas in favor of the other defendant, Juan Thomson Casells, although the rights which the latter had over said hacienda were subsequent and subject to those of the plaintiff, Manuel Lopez.
2) Renunciation by the contractor of any amount due him from the owner.
(In summary, Vicente mortgaged Haceinda Bunglas to Alvarez, Alvarez assigned his lien then to Manuel and Grindrod. It is
-Maria Cervero 2
Art. 1729 of CC: Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials:
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Digest set #7 – November 2, 2015 claimed that Grindod’s right is only subsequent to Manuel’s. The land was sold in a public auction and bought by Cassels.) ISSUE: W/N who has a better right to the mortgaged land. HELD: MANUEL LOPEZ has better right. By virtue of the contract executed in a public the plaintiff acquired indisputable dominion over the credit for P5,973, and the mortgage over hacienda Bunglas assigned to him by Alvarez. The assignment or transfer of said portion of the credit is in accordance with the provisions of article 1878 of the (Old) Civil Code, which reads: “A mortgage credit may be alienated or assigned to a third person, wholly or partially, with the formalities required by law.” Article 152 of the Mortgage Law requires that the alienation or assignment in favor of a third party of the whole or any part of a credit secured by mortgage shall be done by means of a public instrument, that the debtor be informed thereof, and that the same be recorded in the register, the assignee being subrogated to all the rights of the assignor; but in order that the transfer may be effective as against a third party it is indispensable that it be recorded in the registry of property, although the lack of such registration will not invalidate the assignment or transfer of the credit in favor of the assignee. The assignment of the credit referred to was effected by means of a public instrument; therefore, , it is evidence, even against a third person, of the facts which gave rise to its execution and of the date of the latter; and the transfer of the credit must be held to be valid and efficient in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date when the transfer was made. Notwithstanding the fact that the credit held by John Henry Grindrod, which amounted to 15,722 pesos, and 16 cents, Mexican currency, against the common debtor, Evaristo Alvarez, is of prior date to the assignment of the credit for 5,97, the right
which Grindrod acquired by virtue of the said deed is merely a personal right with none of the characteristics of a mortgage, and for this reason the creditor, Grindrod, can not claim the rights of the third person referred to in article 27 of the Mortgage Law in connection with the contract of transfer or assignment of the credit made by the common debtor, Alvarez, in favor of the plaintiff, Manuel Lopez. In spite of the fact that John Henry Grindrod took no part in the contract or assignation of the said mortgage credit in favor of Lopez, and although the same was not recorded in the registry of property, Grindrod, the personal creditor, cannot be considered as a third person nor invoke in support of his right the provisions of article 27 of the Mortgage Law. This latter provision is for the purpose of securing the dominion over real property and rights in rem, such as that of the mortgage constituted thereon, and as the creditor is merely a personal one he has no right in rem over the credit assigned to the plaintiff, Lopez, by Alvarez, the common debtor. On the other hand, Lopez is not a mere personal creditor, but the exclusive owner of a credit secured by a mortgage which was lawfully transferred to him by the original owner thereof. When the sheriff undertook the sale of the said mortgage credit in its totality, a part of the same, to the value of 5,973 pesos, was no longer owned by the debtor, Evaristo Alvarez, but belonged to the assignee Manuel Lopez, and as the latter was not in any way obligated in favor of the said Grindrod, the sale is null and void. 14. BPI v. CONCEPCION E HIJOS, INC. G.R. No. 27701 July 21, 1928 By: Maureen Choa FACTS:
Defendants Concepcion executed a promissory note in favor of BPI for the sum of P342,372.64 payable on demand, and as security for payment, deposited 700 shares of the PNB as CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 collateral and gave it a mortgage on 5,689 sq. m. of land, with improvements, situated on R. Hidalgo Street in Manila. Defendants Concepcion defaulted in the payment of the note thus the plaintiff instituted the present foreclosure proceedings. Shortly afterwards, Henry W. Elser entered into negotiations with the Concepcions and offered to take over the mortgaged property and assume the mortgage debt. To this the Concepcions agreed on the condition that they be relieved of all liability for the debt. Elser sent 2 letters to the bank. The first letter he stated his subrogation with regard to the mortgage and PNB shares and that he will undertake to pay the bank not less than P5,000 monthly on the principal together with interest every 6 months and reduce the mortgage. No answer was given by the bank to this. Also from evidence, it can be seen that it was unwilling to release the Concepcions from their liability for the mortgage debt and insisted on their confessing a judgment in the foreclosure proceedings. This the Concepcions refused to do unless the bank would agree to bid in the mortgaged property for the full amount of the judgment. After further conversation with the representatives of the plaintiff bank, Elser wrote a 2nd letter. The 2nd letter he requested that the bank confirm in writing its verbal agreement that should the property become the property of the bank, in the amount of P342,000 plus interest to date, that it will sell the same to him for the same amount. It must be inferred from this letter that Elser had been led to understand that the bank would bid in the land at the foreclosure sale for the full amount of judgment and sell it to him for the same price. It will be readily seen that this proposition is entirely different from that contained in the first letter. The bank made no direct reply regarding this. Elser entered into an agreement in the form of a bilateral deed of sale with the Concepcions stating the subrogation of rights regarding the shares and mortgage. The bank never gave notice of conformity with this agreement. The bank later moved for the inclusion of Elser as defendant in the foreclosure proceeding. The Concepcions contended that the case should be dismissed as to them. Elser
contended that he could not be held liable for the debt because the agreement to subrogate himself in place of the Concepcions was never approved by the bank. BPI contended that both the Concepcions and Elser should be held solidarily liable for the debt. The contract cannot be considered as a stipulation pour autrui because the parties there was no intent by Elser and the Concepcions to benefit the 3rd person (bank). If the bank accepts the stipulation by the parties then it works a novation of the original agreement and releases the original debtor from further liability. The bank, however, never gave its written consent to such stipulation. There was no sufficient acceptance, remember in contracts acceptance should be absolute and unconditional or else there will be no meeting of the minds. The effects of a transfer of mortgaged property to a third person is stated in the civil code “The creditor may demand of the 3rd person in possession of the property mortgaged payment of such part of the debt, as is secured by the property in his possession, in the manner and form established by law.” The mortgage law in force exacted the condition that after judicial or notarial demand, the original debtor should have failed to make payment of the debt at maturity. And if these requirements have been complied with, still the 3rd possessor might abandon the property mortgaged, and in that case it is considered to be in the possession of the debtor. In short, she spirit of the code is to let the obligation of the debtor to pay the debt stand although the property mortgaged to secure the payment of said debt may have been transferred to a 3rd person. While the case was going on, Elser died. BPI moved for the substitution of Elser with Rosenstock, the administrator of his estate. This was granted by the court. The trial court absolved the Elser estate from any liability for the deficiency between the foreclosure price and the amount of debt, since the deficiency was not presented to the committee which processes claims against the estate. BPI filed a bill of exceptions with the Supreme Court. It contended that since it could not ascertain the deficiency of the proceeds of the mortgage sale and the actual CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 debt before the foreclosure sale, it could not present the claim for deficiency with the committee which processes claims against the Elser estate.
within the time prescribed by the law. But it did not, hence, it could not recover anymore from the estate.
Issue: 1. Whether or not it is necessary that the foreclosure proceeding is already terminated for a mortgagee to claim a deficiency judgment against the estate.
15. LITONJUA v. L & R CORPORATION G.R. No. 130722 December 9, 1999 Art. 2130 Mia Dueñas
Held: No. The mortgagee has the election of on out of three courses: 1) He may abandon his security and share in the general distribution of the assets of the estate; 2) he may foreclose, secure a deficiency judgment and prove his deficiency judgment before the committee, or 3) he may rely upon his security alone, in which case he can receive no share in the distribution of the assets of the estate. In this case the bank did not abandon the security and took no steps of any sort before the committee within the limit of the Code of Civil Procedure. The committee ceased to function long ago, and the bank has now nothing to rely on except the mortgage. It then brought itself to the 3rd option and has no other alternative. For a mortgagee to claim a deficiency judgment on the estate, he must file a claim for the deficiency within the period provided, even if the foreclosure proceedings have not yet been terminated. Until the foreclosure sale is made, the demand for the payment of deficiency is a contingent claim. The committee does not then pass upon the validity of the claim but reports it to the court. If the court from the report of the committee or from the proofs exhibited to it is satisfied that the contingent claim is valid, the executor or administrator may be required to retain in his possession sufficient assets to pay the claim when it becomes absolute, or enough to pay the creditor his proportionate share if the assets of the estate are insufficient to pay the debts. The bank could and should have presented its claim to the committee
FACTS: The Litonjua spouses obtained 2 loans from L & R Corporation, totalling P400,000. The loans were secured by 2 parcels of land and the improvements thereon in Cubao, Quezon City, of which the spouses were the registered owners. The mortgage was registered with the Quezon City Register of Deeds. Paragraph 8 of the contract was a stipulation wherein the mortgagee's prior written consent was needed in case the lands would be subsequently encumbrance or alienation of the subject properties. Paragraph 9 contained a right of first refusal. On July 14, 1979, the Litonjuas sold the mortgaged land to Philippine White House Auto Supply, Inc. (PWHAS) for P430,000.00. The sale was annotated on the TCTs. When the Litonjuas defaulted, L & R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. The lands were sold at a public auction and bought by L & R as the only bidder for P221,624.58. When the company went to have the Certificate of Sale registered, it was only then that it found out that the land had been sold to PWHAS. L & R Corporation wrote a letter of the Register of Deeds of Quezon City requesting for the cancellation of the annotation regarding the sale to PWHAS. Paragraphs 8 and 9, it claimed, had been violated by the spouses. 7 months after the sale, PWHAS, for the account of the spouses Litonjua, tendered payment of the full redemption price to L & R Corporation in the form of China Bank Manager's Check in the amount of P238,468.04. This, however, was refused by the CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 corporation. Thus, PWHAS instead tendered the payment to the Deputy Sheriff and the check was deposited with the Branch Clerk of Court who issued a receipt therefor. The Deputy Sheriff then issued a Certificate of Redemption in favor of the spouses. The Litonjuas had the said certificate registered and L & R was directed to surrender the owner's duplicate certificates of title within five days. Since the corporation refused, the Litonjuas asked for an adverse claim to be annotated on their certificate of redemption. This was refused by the Register of Deeds, so the spouses filed a petition against the corporation for the return of the titles with the Quezon City CFI. While this was pending, L & R Corporation executed an Affidavit of Consolidation of Ownership, through which the Lintonjuas’ titles were cancelled and new titles were created in favor of L & R Corporation, free of any lien or encumbrance. L & R Corporation advised the tenants of the apartments situated in the land that the rental payments should be made to them, and that new lease contracts will be executed with interested tenants before the end of August, 1981. Upon learning of this, the Litonjuas filed an adverse claim and a notice of lis pendens with the Register of Deeds, whereupon they learned that the sale to PWHAS was not annotated on the titles issued to L & R. A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction was filed by the Litonjuas and PWHAS against the corporation before the CFI Quezon City. The said court dismissed the complaint, finding both the sale and the redemption void. The CA at first set aside this decision and ruled the sale and redemption as valid, but later declared the same void in an Amended Decision. In ruling so, the said court relied Cruz v. Court of Appeals, and Medida v. Court of Appeals. In the SC, the Lintonjuas maintained the validity of the sale and redemption made. However, they also contended that in the event of rescission, with no sale having been made, they should be allowed to redeem the subject properties since the period of redemption having been suspended during the period of litigation.
ISSUES: 1. Whether or not paragraphs 8 and 9 of the Real Estate Mortgage are valid and enforceable; 2. Whether or not the sale of the mortgaged properties by the spouses Litonjua to PWHAS is valid 3. Whether or not there was a valid redemption 4. Whether or not the spouses can redeem the properties and retain ownership. HELD: 1. NO as to paragraph 8, YES as to paragraph 9 As to paragraph 8 (need of prior consent from mortgagee before sale): Paragraph 8 is void. A real mortgage is merely an encumbrance; it does not extinguish the title of the debtor. Thus, a mortgagor had every right to sell his mortgaged property. Article 2130 provides that "(A) stipulation forbidding the owner from alienating the immovable mortgaged shall be void." The CA’s reliance on the aforementioned cases are misplaced. In Cruz v. CA, while a similar provision was recognized and applied, no discussion was made as to its validity since the same was not raised as an issue. Meanwhile, the facts in Medida v. CA are different from those in the present case for what was in issue in the said case was a second mortgage over a foreclosed property during the period of redemption. What is applicable here is the ruling in Tambunting v. Rehabilitation Finance, which held the said stipulation to be void. While stipulations prohibiting the owner from constituting a later mortgage or encumbrance over registered property are valid, stipulations "forbidding the owner from alienating the immovable mortgaged" are expressly declared void by Art. 2130. Thus, a sale--an alienation of the immovable — could not lawfully be forbidden. The lower courts, in upholding the validity of paragraph 8, said that there was no prohibition against sale, only a condition that the mortgagee must first give consent; thus, Art. 2130 was CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 not violated. This is a narrow interpretation as the same achieves the effect of prohibition anyway. It gives the mortgagee the sole prerogative to prevent any sale of the mortgaged property to a third party by withholding consent. As to paragraph 9 (right of first refusal) The right of first refusal in Paragraph 9 is valid. The consideration for the loan-mortgage includes the consideration for the right of first refusal. L & R Corporation consented to lend money to the Litonjuas provided that in case they decide to sell the property, then L & R Corporation shall be given the right to match the offered purchase price and to buy the property at that price. Thus, while the spouses Litonjua had every right to sell, they had the obligation to notify L & R Corporation of their intention to sell the property and give it priority over other buyers. It would only be if the corporation failed to exercise their right could the Litonjuas validly sell the lands to others, under the same terms and conditions offered to L & R Corporation. Sales made in violation of a right of first refusal are rescissible by reason of injury to third persons, like creditors. Since the mortgage contract which contained such stipulation was registered, there was constructive notice to the world and as such, PWHAS cannot claim to be ignorant of the right of first refusal granted to L & R Corporation. Moreover, L & R Corporation had always expressed its willingness to buy the mortgaged properties on equal terms as PWHAS. It was just unable to exercise such right because it was not notified by the spouses. 2. YES Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not binding upon the parties. Accordingly, the sale made by the spouses Litonjua to PWHAS, notwithstanding the lack of prior written consent of L & R Corporation, is valid. However, as stated above, though the sale is valid, it is rescissible due to the violation of the right of first refusal.
3. YES. The sale by the spouses Litonjua of the mortgaged properties to PWHAS is valid. Sec. 3135, which governs extrajudicial sales, gives not only the mortgagor-debtor the right to redeem, but also his successors-in-interest. Through the purchase, PWHAS stepped into the shoes of the spouses Litonjua on account of such sale and was in effect, their successor-ininterest. PWHAS assumed the registered obligations burdening the property, and also obtained the right to remove such burdens through redemption. Under the said law, the redemption period runs for one year from the date of registration of the sale. Since the redemption was done 7 months after the date of registration, it is well within the period provided by law. 4. NO The Court cannot allow the Litonjuas to change their mind to sell, as it would give the spouses undue advantage on account of the appreciation of the value of the subject properties in the intervening years when they precisely were the ones who violated and ignored the right of first refusal of L & R Corporation over the same. Moreover, the rescission of the sale made to PWHAS was to enforce L & R Corporation’s right of first refusal. In sum, the sale between the Litonjuas and PWHAS was valid, and the redemption by PWHAS was valid as well. However, since the right of first refusal was violated, the sale is riscissible. Thus, the Court: 1. Ordered the rescission of the sale of the mortgaged properties between the Litonjuas and PWHAS and ordering the former to return the purchase price 2. Disallowed the redemption made by PWAS and ordering the sherrif to return the check 3. Allowed L & R Corporation to retain its consolidated titles to the foreclosed properties but ordering it to pay to the CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 Litonjuas P189,201.96, representing the difference from the purchase price of P430,000.00 in the rescinded sale; 4. Deleted the awards for moral and exemplary damages and attorney's fees to L & R Corporation. Justice Vitug: Concurring and Dissenting Opinion He agreed with the majority decision that paragraph 8 was void for contravening Art. 2130. However, he believed it was premature of the court to declare the sale rescissible for violating the right of first refusal. Such right is not a perfected contract and thus cannot be subject to specific performance. Violation of this right can only lead to an action for damages. Moreover, the action instituted in court (for quieting of title, etc) is not the proper forum to address recission as it is merely subsidiary. 16. LUCENA v. CA G.R. No. L-77468. August 25, 1999 By: Mico Clavano FACTS: Eduardo Lucena (Lucena) obtained a loan of Php 3,000 from Rural Bank Naujan (Rural Bank). As a security, he executed a mortgage on a parcel of land The loan matured and he only paid Php 2,006.9 out and left Php 1000. (The additional Php 6.9 is interest – important!) Demands by Rural Bank for the balance went unheeded. The mortgage was then extrajudicially foreclosed and the Rural Bank came out as the highest bidder THIS IS THE CASE: However, before the foreclosure, notices were only posted at the municipality where the property was located. o 2 things were lacking: Posting notices in the Barrio where the property is located
Publishing in a newspaper of general circulation
The Rural Bank consolidated their ownership on the title. They then subsequently sold the parcel of land to Spouses Marianito Baja and Patricia Araja (Spouses) Lucena sought to annul the foreclosure as he claimed the same was not a valid one due to the non-compliance with the required procedure The CA ruled: o No need for notice at barrio because the law contemplates posting only at the municipality and not the barrio – (Wrong) o No need for publishing in newspaper because the amount of the balance is less than Php 3,000 – (Wrong)
ISSUE: (1) W/N a valid foreclosure sale of the subject property was conducted (NO) (2) W/N reconveyance and damages is the proper remedy available to petitioners. (YES) RATIO: FIRST ISSUE: The Court ruled that failure to comply with statutory requirements as to publication of notice of auction sale constitutes a jurisdictional defect which invalidates the sale. Even slight deviations therefrom are not allowed. Notice in Barrio Section 5 of Republic Act No. 720 as amended by Republic Act No. [12] 5939 provides: The foreclosure of mortgages covering loans granted by rural banks shall be exempt from the publication in newspapers were the total amount of the loan, including interests due and unpaid, does not exceed three thousand pesos. It shall be sufficient publication in such cases if the notices of foreclosure are posted CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 in at least three of the most conspicuous public places in the municipality and barrio were the land mortgaged is situated during the period of sixty days immediately preceding the public auction. Proof of publication as required herein shall be accomplished by affidavit of the sheriff or officer conducting the foreclosure sale and shall be attached with the records of the case: x x x. (italics supplied) – This means the CA judges are blind for not seeing the word Barrio in it In the case at bar, the affidavit of posting executed by the sheriff states that notices of the public auction sale were posted in three (3) conspicuous public places in the municipality such as (1) the bulletin board of the Municipal Building (2) the Public Market and (3) the Bus Station. There is no indication that notices were posted in the barrio where the subject property lies. Clearly, there was a failure to publish the notices of auction sale as required by law. Publication in Newpaper of General Circulation Further still, there was a failure on the part of private respondents to publish notices of foreclosure sale in a newspaper of general circulation. Section 5 of R.A. 720 as amended by R.A. 5939 provides that such foreclosures are exempt from the publication requirement when the total amount of the loan including interests due and unpaid does not exceed three-thousand pesos (P3,000.00). The law clearly refers to the total amount of the loan along with interests and not merely the balance thereof, as stressed by the use of the word total. At the time of foreclosure, the total amount of petitioners loan including interests due and unpaid was P3,006.90. Publication of notices of auction sale in a newspaper was thus necessary. SECOND ISSUE: The Court ruled that if the property has not yet passed to an innocent purchaser for value, an action for reconveyance is still available. Good faith or its absence must thus be established on the part of spouses Marianito Baja and Patricia Araja at the time that they purchased the subject property from the Rural Bank of Naujan. The trial court concluded that the spouses were purchasers in
bad faith due to the following reasons: 1. Their verification of the title prior to the sale by Rural Bank to them gives rise to the presumption that they knew of the right of redemption, which is supposed to be indicated on the title. 2. Someone was leasing the parcel of land and actually living on it. The land sold is in the possession of a person other than the vendor, the purchaser is required to go beyond the certificate of title and make inquiries concerning the rights of the actual possessor. One who purchases real property which is in the actual possession of another should, at least make some inquiry concerning the right of those in possession. The actual possession by other than the vendor should, at least put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessors. 17. CRISTOBAL v. CA GR. No. 124372 March 16, 2000 FACTS: Petitioners are engaged in the buying and selling of palay. To augment their capital, they applied and were granted a loan by the respondent bank in the amount of P30,000.00 payable in 270 days. The loan was secured by a mortgage over a parcel of land situated in Bulacan. Because petitioners failed to pay their obligation on the date the loan fell due, the bank caused the mortgaged property, to be foreclosed extrajudicially. At the foreclosure sale, the bank was the sole bidder and due to the petitioner’s failure to redeem the property, a new certificate of title was issued in the bank’s name. Through their attorney-in-fact Pacita Cristobal, petitioners were granted another loan by the bank in the amount of P70,000.00, secured by another real estate mortgage over four CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 (4) parcels of land. When the obligation fell due without plaintiffs paying their indebtedness, the bank extrajudicially foreclosed the mortgage. As the highest bidder in the auction sale of subject parcels, titles were consolidated in its favor when petitioners failed to redeem the land. Consequently, new transfer certificates of title were issued in the bank's name. Petitioners filed an action for annulment of extrajudicial foreclosure of mortgage and sale of property and for reconveyance with damages, stating that among other things, the bank did not comply with the requirements of Act. No. 3135 with respect to posting of the notice of sale and the publication of the sale in a newspaper of general circulation. Trial court ruled in favor of the petitioners and issues a writ of preliminary injunction enjoining the bank from taking the possession of the property covered by the foreclosure sale. CA reversed the decision. ISSUE: WON the bank complied with the requirements of Act No. 3135 with respect to posting and publication of the notices of sale to make the foreclosure sale conducted valid
required, much less considered indispensable, for the validity of a foreclosure sale Furthermore, a mortgagor who alleges absence of a requisite has the burden of establishing that fact. Petitioners failed in this regard. Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the petitioners. Petitioners also claim that the Court of Appeals erred when it held that publication in the Mabuhay newspaper is a substantial compliance with the requirement of the law. However, the records show that the sheriff's notice of sale was published in the Mabuhay newspaper generally circulated in the Province of Bulacan. The SC has held that the publication of the notice of sale in a newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirements of the law 18.
HELD:
Yes. Petitioners argue that respondent bank not only failed to submit the certificate of posting but also failed to present before the court the Deputy Sheriff who allegedly did the postings. The bank merely presented its own employee, Pedro Agustin, who testified that he was merely verbally notified by the Sheriff that a notice of sale was posted. Respondent bank responded that the Sheriff then incharge of the matter was no longer available, and the records of the foreclosure proceedings were no longer available also, because of the length of time that had already elapsed. And jurisprudence has settled that a certificate of posting is not
19. PNB v. NEPOMUCENO G.R. No. 139479 December 27, 2002 Ralph Yu FACTS:
PNB granted Nepomuceno Productions, Inc. a 4M Credit line, which was increased to 6M then to 7.5M. This is for the production of the movie “Pacific Connection”. To secure the credit line, a 7.6k sqm land in Makati, a 3k sqm in Forbes Park and several motion picture equipment were mortgaged. Nepomuceno defaulted in their obligation. PNB sought to foreclose the properties. It was rescheduled several times CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 without re-publication of the notice of sale as stipulated in the agreement to postpone the sale. Finally, the auction sale proceeded and PNB won as the highest bidder. Nepomuceno filed an action for annulment, contending that the sale is null and void because, among others, the lack of publication. ISSUE: WoN the foreclosure is void due to the lack of publication. HELD:
YES. The foreclosure is void due to the lack of publication. The stipulation that publication is not required is void. Act No. 3135 stated that notice shall be given by posting notices of the sale in at least 3 public places of the location where the property is situated and published once a week for 3 weeks in a newspaper of general circulation. Failure to publish the notice constitute a jurisdictional defect, therefore invalidates the sale. The parties has no right to waive the publication. 20. 21. PIANO v. CAYANONG G.R. No. L-18603 Sean Borja FACTS: Cayanong (respondent) commenced an action to foreclose a mortgage executed by Piano (petitioner) in favor of Cayanong upon a parcel of land in Ormoc City. Later on, however, they agreed to submit a compromise agreement, which formed the basis of the trial court’s decision giving Piano 30 days to pay off his debt of P2,000. The trial court also decided that failure to pay said debt within 30 days places at the disposal of the court the parcel of land, as security, for the satisfaction of the debt.
Piano failed to pay his debts so the property was sold at public auction to Cayanong as the highest bidder. The certificate of sale, however, contained the provision that the parcel of land is subject to redemption within one year from the date thereof in the manner provided by the law. After the public sale, Cayanong filed a motion for the confirmation of the sale executed by the sheriff, which was unopposed by Piano. The sale was thus confirmed, and a writ of possession granted upon motion of Cayanong. Before the one-year period ended, Piano deposited the amount of P2,783, alleging that he was doing so pursuant to the redemption provision under the certificate of sale. Cayanong, however, informed the court that a junior encumbrancer, Francisco Pilapil, had redeemed the property by payment of P2,783, one day after Piano deposited the redemption money with the court. Francisco Pilapil opposed the redemption sought by Piano, alleging that the parcel of land was sold at a judicial foreclosure sale and was, therefore, not subject to redemption after the judicial sale was confirmed, title thereto having been fully vested and consolidated in favor of Cayanong. Piano, however, alleges that the insertion made by the sheriff in the certificate of sale provide for a one year period of redemption is a permissible agreement between the parties who abide by said period, considering that the trial court approved and confirmed the sale. ISSUE: W/N Piano can exercise the right to redemption under the certificate of sale. HELD/RATIO: NO. In a judicial foreclosure of mortgage, there is no right of redemption after the sale is confirmed. On an equity of redemption in favor of the mortgagor or junior encumbrancer CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 exists which consists of the right to redeem the mortgaged property within the 90-day period, or even thereafter, but before the confirmation of the sale. The only exceptions to this rule would be foreclosures of mortgages in favor of banking and credit institutions, in favor of the Philippine National Bank, and in extrajudicial foreclosures, where, by express provision, the law allows redemption. In all other foreclosure mortgages, there is no legal redemption. In this case, the sheriff had no authority to grant or insert a period of redemption in the certificate of sale and, wanting in said authority, and insertion therein has no validity and effect. Once the judicial sale is confirmed by the court, the rights are vested in the purchaser. 22. UNIONBANK v CA GR No. 133366 (311 SCRA 795) ART. 2131 Siegfried Kiel FACTS:
On 17 December 1991, Spouses Leopoldo and Jessica Dario (Mortgagors) executed a Real Estate Mortgage in favor of UNIONBANK to secure a PHP3 Million loan (including interest and other charges). The mortgage covered a Quezon City property with TCT in Leopoldo Dario’s name. The title was annotated with the mortgage a day after the contract. UNIONBANK then extra judicially foreclosed (12 August 1993) the property mortgaged and posted itself as the highest bidder in the public auction. On 4 October 1994, one week before the one-year redemption period expired, Fermina S. Dario and Reynaldo S. Dario (Respondents) filed a complaint3 with RTC of Quezon
City against the mortgagors, UNIONBANK, Register of Deeds, and City Sheriff. A notice of Lis Pendens was annotated on the title. After a few weeks, UNIONBANK consolidated its title over the foreclosed property without notifying the private respondents. The old TCT was cancelled for a new title in favor of UNIONBANK. On 9 December 1994, the Respondents filed an amended complaint alleging that they and not the mortgagors are the true owners of the property mortgaged. They also insisted on the validity of both the mortgage and its subsequent extrajudicial foreclosure. The respondents claimed the following in their amended Complaint: 1. Original title was entrusted to Atty. Reynaldo Singson preparatory to its administrative reconstitution after a fire gutted the Quezon City Hall building. 2.
Respondent’s son, mortgagor Leoplodo Dario, obtained the property from Atty. Singson.
3.
The Mortgagor had the title reconstructed under his name without their knowledge.
4.
The Mortgagor executed and antedated the Deed of Sale in his favor and mortgaged the property of UNIONBANK.
On 9 February 1995, UNIONBANK filed its answer asserting its status as an Innocent Mortgagee for Value whose right or lien upon the property mortgaged must be respected even if the mortgagor obtained his title through fraud. NOTE: The case was re-raffled more than once due to different reasons. Please refer to the original for a detailed discussion of the procedural issues. ISSUE:
The Complaint filed: Annulment of Sale and Real Estate Mortgage with Reconveyance and Prayer for Restraining Order and Prohibitory Injunction)
3
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Digest set #7 – November 2, 2015 1. Whether or not the Consolidation of Title in Unionbank’s name was proper? Yes HELD: 1. It is settled that the Buyer in a Foreclosure Sale becomes the absolute owner of the property purchased if it is not redeemed during the period one year after the registration of the sale. Consolidation took place as a matter of right since there was no redemption of the foreclosed property and the TRO expired upon dismissal of the complaint. UNIONBANK need not have informed private respondent that it was consolidating its title over the property, upon the expiration of the redemption period, without the judgment debtor having made use of his right of redemption; the ownership of the property sold becomes consolidated in the purchaser. Notice to the mortgagors and with more reason, to private respondents who are neither the parties to the mortgage contract nor to the extrajudicial sale are not necessary. As to the issue of who between private respondents and UNIONBANK is negligent and hence must bear the loss, the same is not the proper subject of the present petition and can only be resolved by the trial court after the trial on the merit of the main case. IMPORTANT: Relevance to the Assigned Provision in the Outline
The decision did not directly mention the related Mortgage Law and Land Registration Law governing the “form, extent, and consequences of mortgage, both as to its constitution, modification, and extinguishment, and as to other matters not included in this Chapter”. For reference with original: Footnote 15 and Footnote 16. Secs. 1, 4-6 Act No. 3135: An Act to Regulate the Sale of Property under Special Powers Inserted or Annexed to Real Estate Mortgages In a Public Bidding during Extrajudicial Foreclosure Sale, the creditor-mortgagee, trustee, or other person authorized to act for the creditor may participate and purchase the mortgaged property as any other bidder. Thereafter, the mortgagor has one year within which to redeem the property from and registration of sale with the Register of Deeds.
Sec. 63 of Registration 1529)
the Property Decree (PD
In case of non-redemption, the purchaser at foreclosure sale shall file with Register of Deeds either a final deed of sale executed by the person authorized by virtue of the power of attorney embodied in the deed or mortgage, or his sworn statement attesting to the fact of non-redemption; whereupon the register of deeds shall issue a new certificate of title in favor of the purchaser after the owner’s duplicate of the certificate has been previously delivered and cancelled. Thus, upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds.
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Digest set #7 – November 2, 2015 Act No. 3135 and PD 1529 are the related Mortgage Law and Land Registration Law that Art. 2131 is referring to. 23. COMETA v. CA G.R. No. 141855 February 6, 2001 Art. 2131 FACTS: CFI Makati rendered judgment against ZACARIAS COMETA, granting P57,396.85 as damages to JOSE FRANCO. Judgment became final, and the sheriff levied on execution COMETA’s 3 commercial lots in Guadalupe, Makati. On October 17, 1978, 2 lots were sold at public auction to FRANCO at P57,396.85, the amount of the judgment. The certificate of sale was registered and annotated on the certificates of title on January 25, 1980. Then 3 years after the sale, or on November 17, 1981, HERCO REALTY & AGRICULTURAL DEV’T CORP (HERCO) filed a case with the same CFI branch to annul the levy on execution and sale at public auction, saying that (1) COMETA had transferred the lots to it before the execution sale, (2) that there was a disregard of procedural practice because the sheriff should have first exhausted COMETA’s personal properties, (3) the lots were sold en masse and not by parcel, and (4) there was gross inadequacy of price because the lots were valued at P500,000. The RTC ordered the Register of Deeds to cancel COMETA’s certificates of title over the lots and issue new ones in favor of FRANCO. In the middle of the events, COMETA died and was substituted by his heirs who filed a petition for certiorari with the SC questioning the RTC decision. SC dismissed the case. FRANCO then asked for a writ of possession, which the RTC granted at first but then it reversed its decision, saying that the issuance of a writ of possession was premature because the case
filed by HERCO and COMETA for the annulment of levy and sale of the properties had not yet been decided. IAC granted the writ of possession. But the SC reversed, withholding the grant of writ of possession until RTC decided on the validity of the levy and sale. IAC had said in its decision that COMETA failed to redeem the properties, but the SC said that redemption was inconsistent with assailing the validity of the levy and sale, as redemption would be an implied admission of regularity of the sale. RTC Makati then dismissed the case assailing the validity of the levy and sale because COMETA and HERCO failed to appear in court. CA affirmed the dismissal. And so the SC Resolution, which in effect upheld the validity of the assailed levy and sale, became final and executory. FRANCO again filed for a writ of possession and cancellation of the notice of lis pendens. But COMETA’s heirs opposed the motion saying that they wanted to redeem the properties. COMETA’s heirs consigned with the Clerk of Court P38,761.05 as purchase price, P78,762.69 as interest, and P1,175,25 as realty tax, but the RTC said that the period of redemption had already expired. RTC said that although the period of redemption is suspended if the validity of the sale is questioned, if the period of redemption lapses before the sale’s validity is questioned, there would no longer be any redemption period to suspend. And in this case, the sale was registered and annotated on the title on January 25, 1980. Period of redemption according to Sec 30 Rule 39 of the Rules of Court, is 12 months from the registration of the sale. And since the case assailing the validity of the sale was filed only on Nov 27, 1981, 10 months had passed from the expiration of the period of redemption. RTC thus ordered the issuance of a writ of possession in favor of FRANCO. CA affirmed the RTC’s decision. ISSUE: CREDIT TRANSACTIONS- ATTY. LERMA
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Digest set #7 – November 2, 2015 Whether COMETA’s heirs can still redeem the property. HELD: Yes. SC says that in interpreting the rules on redemption, it must be viewed in such a way that the policy of law to aid rather than to defeat the right of redemption is upheld. The SC discussed 5 points to support its decision: 1. RTC dismissed the case assailing the validity of the levy and sale only on technicality (that HERCO and COMETA failed to appear in court), so there was no pronouncement as to the inadequacy of the price. SC says that rules of procedure should not be so strictly applied, when to do so would frustrate rather than promote substantial justice. 2. SC thus rules on the inadequacy of price: although as a general rule, inadequacy of price does not set aside a judicial sale, it would if the price is purely shocking to the conscience, which it was in this case. (P57k for lots conservatively valued at P500k). 3. The lots were levied and sold at public auction in a questionable manner. a. Sec 15 Rule 39 Rules of Court says that, “when there is more property of the judgment debtor than is sufficient to satisfy the judgment and accruing costs, within the view of the officer, he must levy only on such part of the property as is amply sufficient to satisfy the judgment and costs.” b. Sec 21 Rule 39 provides “After sufficient property has been sold to satisfy the execution, no more shall be sold. When the sale is of real property, consisting of several known lots, they must be sold separately.” In this case, the lots were sold en masse and not separately. The unusually low price and FRANCO’s vehement unwillingness to allow redemption, heightens the dubiousness of the transfer.
4. On applicability of prescription and laches- SC says, rules on prescription and laches cannot work to defeat justice or to perpetrate fraud. 5. COMETA’s demonstrated, albeit tardily, an earnest and sincere desire to redeem the properties, when they consigned the purchase price, interest, and realty tax with the office of the Clerk of Court. Since, rules on redemption are liberally construed in favor of the original owner of the property, SC granted the redemption and ordered FRANCO to accept the tender of payment and deliver the certificate of redemption to the COMETAs.
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