The Philippine American General Insurance Company Inc. v.

Ramos
G.R. No. L-20978, February 26, 1966

Facts: ARD Co. executed a promissory note for PHP 11,765.00 in favor of Phil-Am. On
the same day, plaintiff also executed a surety bond in the same amount to secure
payment of the aforementioned promissory note. Subsequently, defendants signed a
counter-guaranty agreement with real estate mortgage, in favor of plaintiff, against its
liability under the surety bond. The Ramos Spouses and ARDC then executed an
indemnity agreement in favor of plaintiff, binding themselves jointly and severally to
indemnify the latter for whatever it may suffer under its aforesaid surety bond.

Plaintiff later filed a complaint in the CFI against the Ramos spouses alleging that
ARDC failed to pay its obligation under the promissory note, as a result of which plaintiff
paid its liability under its surety bond. It therefore asked that defendants be ordered
jointly and severally to pay plaintiff PHP 11,765.00 with the stipulated 12% per annum
interest, plus attorney’s fees and costs, and in case of nonpayment within 90 days from
service of judgement, the mortgaged property be said to realize the aforesaid sum and
costs.

Defendants filed a motion to dismiss, asserting that the complainant stated no cause of
action. It was contented that under the Agreement of Counter-Guaranty with Real
Estate Mortgage, the defendants were guarantors only so plaintiff must first exhaust the
properties of the principal debtor before proceeding against them. Hence, plaintiff filed
an amended complaint. CFI dismissed the case and ruled that defendants cannot be
made liable without first proceeding to the ARDC. Plaintiff appealed directly to the SC.

Issue: WON plaintiff has a cause of action so as to proceed against defendants without
first proceeding against ARDC

Held: YES. It is clear from the foregoing that the complaint sufficiently states a cause of
action against defendants, for the creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously, as provided under Article 1216.
Moreover, the defendants as counter-guarantors, are not entitled to demand exhaustion
of the properties of the principal debtor. Their agreement is a counter-guaranty with real
estate mortgage. It is an accepted fact that guarantors have no right to demand
exhaustion of the properties of the principal debtor, under Article 2058, where a pledge
or mortgage has been given as a special security. Order is therefore reversed and set
aside, and the case is remanded to the court a quo.

The order appealed from is reversed and set aside.

 JN Dev. Corp., v. Phil Export & Foreign Loan Guarantee Corp.
G.R. No. 151060, August 31, 2005

Facts: Petitioner and Traders Royal Bank entered into an agreement that the latter
would extend to JN an Export Packing Credit Line for PHP 2 Million. The loan was
covered by several securities, including a real estate mortgage and a letter of guarantee
from respondent covering 70% of the credit line, with PhilGuarantee issuing a guarantee
in favor of TRB. For failure of petitioner to pay upon maturity, PhilGuarantee was made
to pay. When JN failed to reimburse the latter, respondent filed a complaint for
collection of money and damages against herein petitioners.

The RTC dismissed respondent’s complaint as well as the counterclaim of petitioners. It

ruled that petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB
since the latter was able to foreclose the real estate mortgage executed by JN, thus
extinguishing petitioner’s obligation. According to the RTC, the failure of TRB to sue JN
for the recovery of the loan precludes PhilGuarantee from seeking recoupment from
what it has paid to TRB. Thus, PhilGuarantee’s payment to TRB amounts to a waiver of
right under Article 2058 of the Civil Code. The CA reversed the RTC decision and
ordered petitioners to pay PhilGuarante PHP 934,624.34 plus service charge and
interest.

Issue: WON petitioner is still liable to indemnify the guarantor despite the latter
seemingly waiving its right to excussion

Held: YES. The Court held that PhilGuarantee’s waiver of the right of excussion cannot
prevent it from demanding reimbursement from petitioners. The law clearly requires the
debtor to indemnify the guarantor what the latter has paid. Under a contract of
guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so. The guarantor who pays for a
debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the
debtor and resorted to all the legal remedies against the debtor. This is what is
otherwise known as the benefit of excussion. This is a protective device pertaining to
and conferred on the guarantor. These may be invoked by the guarantor against the
creditor as defenses to bar the unwarranted enforcement of the guarantee. However,
PhilGuarantee did not avail of these defenses when it paid its obligation according to
the tenor of the guarantee once demand was made on it.

Wherefore, the consolidatied petitions are denied. The SC affirmed the CA’s decision.
 Sps. Toh v. Solid Bank Corporation
G.R. No. 154183, August 7, 2003

Facts: Respondent agreed to extend an Omnibus Line Credit Facility worth PHP 10
Million in favor of First Business Paper Corp. (FBPC). The terms and conditions of the
agreement as well as the checklist of documents necessary to open the credit line were
stipulated in a “letter advise” of the bank addressed to the FBPC, and to its president
Kenneth Ng Li. Sps. Toh, Luis and Vicky, were then chairman of the board and vice
president respectively, while respondent spouses Kenneth Ng Li and Ma. Victoria Ng Li
were president and general manager, respectively of the same.

More than 30 days from the date of the letter advise, petitioner-spouses and
respondent-spouses signed the subject continuing guaranty, as required, which
embodied in a public document prepared solely by respondent bank. The terms of the
instrument defined the contract arising therefrom as a surety agreement and provided
for the solidary liability of the signatories thereto for and in consideration of “loans or
advances” and “credit in any other manner to, or at the request, or for the account” of
FBPC.

To strengthen this security, the continuing guaranty waived rights of the sureties against
delay or absence of notice or demand on the part of respondent bank, and gave future
consent to the Bank’s action to “extend or change the time of payment and/or the
manner, place or terms of payment,” including renewal of the credit or any part thereof
in such manner and upon such terms as the Bank may deem proper without notice to or
further assent from the sureties.

FBPC started to avail of the credit facility and procure letters of credit. FBPC opened 13
letters of credit and obtained loans totaling PHP 15,227,510.00. As the letters of credit
were secured, FBPC through its officers Kenneth Ng Li, Ma. Victoria Ng Li and
Redentor Padilla as signatories executed a series of trust receipts over the goods
allegedly purchased from the proceeds of the loans.

Later, respondent bank received information that respondent-spouses had fraudulently

departed from their conjugal home. As a result, the bank served a demand letter upon
FBPC and Luis Toh invoking the acceleration clause in the trust receipts of the FBPC
and claimed payment for unpaid overdue accounts on the letters of credit plus interests
and penalties within 24 hours from receipt thereof. The bank also invoked the
Continuing Guaranty executed by petitioner-spouses who were the only parties known
to be within national jurisdiction to answer as sureties for the credit facility.
Respondent bank filed a complaint for sum of money with ex parte application for a writ
of preliminary attachment against FBPC, Sps. Ng Li and Sps. Toh. Alias summons were
served upon FBPC and Sps. Toh but not upon Sps. Ng Li who apparently absconded.

The trial court found FPBC liable, but absolving petitioner-spouses or any liability to
respondent bank. The CA modified the decision and held that by signing the Continuing
Guaranty, petitioner-spouses became solidarily liable with FBPC.

Issue: WON Sps. Toh are relieved of their obligation as sureties

Held: YES. The illicit extension releases the sureties. The foregoing extensions of the
letters of credit made by respondent bank without observing the rigid restrictions for
exercising the privilege are not covered by the waiver stipulated in the Continuing
Guaranty. Art. 2079 of the Civil Code states that an extension granted to the debtor by
the creditor without the consent of the guarantor extinguishes the guaranty. Moreover,
they are accommodation sureties.

The consequence of these omissions is to discharge the surety under Art. 2080 of the
Civil Code, or at the very least, mitigate the liability of the surety up to the value of the
property or lien released. If the suretyship contract was made upon the condition that
the principal shall furnish the creditor additional security, and the security being
furnished is afterwards released, the surety is wholly discharged, without regard to the
value of the security released, for such a transaction amounts to an alteration of the
main contract.

The Continuing Guaranty is a valid and binding contract as it is a public instrument that
enjoys the presumption of authenticity and due execution. Petitioner-spouses voluntarily
affixed their signatures on the surety agreement and were thus at some given point in
time willing to be liable under those forms.

Wherefore, the instant petition for review is granted. The decision of the CA is reversed
and set aside.
 Autocorp Group v. Intra Strata Assurance Corporation
G.R. No. 166662, June 27, 2008

Facts: Autcorp group, represented by its Pres. Rodriguez, secured an ordinary re-
export bond from Intra Strata Assurance Corporation (ISAC) in favor of public Bureau of
Customs (BOC), to guarantee the re-export of 2 units of car at 2 different dates and/or
to pay the taxes and duties thereon. Petitioners executed and signed 2 indemnity
agreements with identical stipulations in favor of ISAC, agreeing to act as surety of the
subject bonds. In sum, ISAC issued the subject bonds to guarantee compliance by
petitioners with their undertaking with BOC to re-export the imported vehicles within the
given period and pay the taxes and/or duties due thereon. In turn, petitioners agreed, as
surety, to indemnify ISAC for the liability of the latter may incur on the said bonds.

Autocorp failed to re-export the items guaranteed by the bonds and/or liquidate the
entries or cancel the bonds, and pay the taxes and duties pertaining to the said items,
despite repeated demands made by the BOC, as well as by ISAC. By reason thereof,
the BOC considered the 2 bonds forfeited. Failing to secure from petitioners the
payment of the face value of the 2 bonds, ISAC filed with the RTC an action against
petitioners to recover a sum of money. ISAC impleaded the BOC as a necessary party
plaintiff in order that the reward of money of judgement shall be adjudged unto BOC.

RTC ordered Autocorp to pay ISAC and/or BOC the face value of the subject bonds
plus attorney’s fees. CA affirmed the trial court’s decision.

Issue: WON these bonds are now due and demandable

Held: YES. The indemnity agreements give ISAC the right to recover from petitioners
the face value of the subject bonds plus attorney’s fees at the time ISAC becomes liable
on the said bonds to the BOC, regardless of whether the BOC had actually forfeited the
bonds, demanded payment thereof and/or received such payment. The indemnity
agreements explicitly provide that petitioners shall be liable to indemnify ISAC “whether
or not payment has actually been made” and ISAC may proceed against petitioner by
court action or otherwise “even prior to making payment to the BOC which may
hereafter be done by ISAC.

Art. 2071. The guarantor, even before having paid, may proceed against the
principal debtor: (4) When the debt has become demandable, by reason of the
expiration of the period of payment

Wherefore, the instant petition is denied. The decision of the RTC is affirmed.
 Palmares v. CA
G.R. No. 126490, March 31, 1998

Facts: Pursuant to a promissory note, MB Lending extended a PHP 30,000.00 loan to

Sps. Azzaraga and Estrella Palmares, payable on or before 12 May 1990, with
compounded interest at 6% per annum to be computed every 30 days from the date
thereof. Palmares and Sps. Azzaraga were only able to pay PHP 16,300.00. MB
Lending filed a complaint against Palamres as the lone-party defendant, allegedly by
reason of Sps. Azzaraga’s insolvency. Palmares’ main contention was that she is to be
held liable only upon default of the principal Sps. Azzaraga. She avers that immediately
after the loan matured, she offered to settle the obligation by MB Lending refused, and
instead informed that they would try to collect from the spouses. In addition, partial
payment has been made.

RTC dismissed MB Lending’s complaint. The offer Palmares made is considered a valid
tender of payment sufficient to discharge her secondary liability on the instrument. As
co-maker, Palmares is only secondarily liable. CA reversed the trial court’s decision and
declared Palmares liable to MB Lending. Palmares is a surety since she bound herself
to be jointly and severally liable to Sps. Azzaraga when she signed as co-maker. She is
primarily liable and may be sued for the entire obligation.

Issue: WON Palmares is a guarantor or surety

Held: Surety. The undertaking to pay upon default of the principal debtors does not
automatically remove it from the ambit of a contract of suretyship. A contract of
suretyship is that wherein one tends his credit by joining in the principal’s obligation, so
as to render himself directly and primarily responsible with him, and without reference to
the solvency of the principal. In suretyship, there is but one contract, and the surety is
bound by the same agreement which binds the principal.

Moreover, Palmares’ argument that the complaint was prematurely filed for lack of
demand is unmeritorious because of the stipulations in the contract and for the reason
that a surety is not entitled to such. The commencement of a suit is sufficient demand.
Palmares’ argument that the filing of the complaint solely against her was improper is
unmeritorious. Under Art. 1216 of the Civil Code, the creditor must proceed against any
one of the debtors or some or all of them simultaneously. MB Lending’s mere failure to
immediately sue Palmares does not release her from liability. Also, leniency, by delay
permitted by the creditor, does not constitute an extension of the time of payment, which
would release the surety.

Wherefore, the judgement appealed from is hereby affirmed with modification.

 Allied Banking Corporation v. CA
G.R. No. 125851, July 11, 2006

Facts: Allied Banking Corp. (Allied) purchased an export bill from GG Sportswear
Manufacturing Corp. in the amount of $20,085.00. The bill, drawn under a letter of
credit, covered training suit that was in transit to Uniger via Rotterdam. The export bill
was issued by Chekiang First Bank. With the purchase of the bill, Allied credited GGS
the peso equivalent of the aforementioned bill, amounting to PHP 151,474.52 and the
receipt of which was acknowledged by the latter. Alcron executed their respective letters
of guaranty, holding themselves liable on the export bill if it should be dishonored or
retired by the drawee for any reason. Sps. De Villar and Gidwani executed a surety to
guarantee the payment of credit accommodations which Allied may extend to GGS.

When Allied negotiated the export bill to Chekiang, payment was refused due to
material discrepancies in the documents submitted by GGS relative to the exportation
covered by the letters of credit. Consequently, Allied demanded payment from all the
respondents based on the letters of guaranty and surety in favor of Allied. Respondents
refused to pay, prompting Allied to file an action for a sum of money.

They admitted due execution of the export bill but they claim that it was blank and it was
filled up by Allied after they signed it. Sps. De Villa claimed that they were not aware of
the existence of the export bill; they signed blank forms of the surety; and averred that
the guaranty was not meant to secure the export bill.

The trial court dismissed the complaint. The CA ruled in favor of the bank.

Issue: WON respondents are liable under the letters of guaranty and the continuing
guaranty/comprehensive surety

Held: YES. What transpired in this case is a discounting arrangement of the subject
export bill, between Allied and GGS. While the negotiating bank owes no contractual
duty toward the beneficiary of the draft to discount or purchase it, it may still do so.
Nothing can prevent the negotiating bank from requiring additional requirements, like
contracts of guaranty and surety, in consideration of the discounting arrangement.

In this case, GGS, as the beneficiary of the export bill, instead of going to Chekiang
First Bank Ltd., the issuing bank, GGS went to petitioner Allied, to have the export bill
purchased or discounted. Before Allied agreed to purchase such, it required Gidwani
and Alcron to execute letters of guaranty, holding them liable on demand, in case the
subject export bill was dishonored or retired for any reason.
Wherefore, the instant petition is granted. The devision of the CA is modified.
 Escaño v. Ortigas
G.R. No. 151953, June 29, 2007

Facts: Private Development Corporation of the Philippines (PDCP) entered into a loan
agreement with Falcon Minerals, Inc. whereby PDCP agreed to make available and
lend to Falcon a sum certain. Respondent Rafael Ortigas, Jr., etal., stockholder officers
of Falcon, executed an Assumption of Solidary Liability whereby they agreed to assume
in their individual capacity, solidary liability with Falcon for the due and punctual
payment of the loan contracted by Falcon with PDCP. Two separate guaranties were
executed to guarantee the payment of the same loan by other stockholders and officers
of Falcon, acting in their personal and individual capacities. One Guaranty was
executed by petitioner Salvador Escaño, while the other by petitioners Mario M. Silos,
Ricardo C. Silverio, et al.

Two years later, an agreement developed to cede control of Falcon to Escaño, Silos
and Joseph M. Matti. Thus, contracts were executed whereby Ortigas, George A.
Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned
their shares of stock in Falconto Escaño, Silos and Matti.

Part of the consideration that induced the sale of stock was a desire by Ortigas, et al., to
relieve themselves of all liability arising from their previous joint and several
undertakings with Falcon, including those related to the loan with PDCP. Thus, an
Undertaking was executed by the concerned parties with Escaño, Silos and Matti
identified in the document as “sureties,” on one hand, and Ortigas, Inductivo and the
Scholeys as “obligors,” on the other.

Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattel
mortgage, there remained a subsisting deficiency of P5,000,000, which Falcon did not
satisfy despite demand. In order to recover the indebtedness, PDCP filed a complaint
for sum of money against Falcon, Ortigas, Escaño, Silos, Silverio and Inductivo.

The RTC issued the summary judgement, ordering Escaño, Silos, and Matti to pay
Ortigas, jointly and severally. The CA dismissd the appeals and affirmed the summary
judgement.

Issue: Whether the obligation is solidary or merely joint

Held: JOINT. The Undertaking does not contain any express stipulation that the
petitioners agreed “to bind themselves jointly and severally” in their obligations to the
Ortigas group, or any such terms to that effect. Hence, such obligation established in
the Undertaking is presumed only to be joint.

As provided in Art. 2047 in a surety agreement, the surety undertakes to be bound

solidarily with the principal debtor. Thus, a surety agreement is an ancillary contract as it
presupposes the existence of a principal contract. It appears that Ortigas’ argument
rests solely on the solidary nature of the obligation of the surety under Art. 2047.

A suretyship requires a principal debtor to whom the surety is solidarily bound by way of
an ancillary obligation of segregate identity from the obligation between the principal
debtor and the creditor. The suretyship does not bind the surety to the creditor,
inasmuch as the latter is vested with the right to proceed against the former to collect
the credit in lieu of proceeding against the principal debtor for the same obligation. At
the same time, there is also a legal tie created between the surety and the principal
debtor to which the creditor is not privy or party to. The moment the surety fully answers
to the creditor for the obligation created by the principal debtor, such obligation is
extinguished. At the same time, the surety may seek reimbursement from the principal
debtor for the amount paid, for the surety does in fact “become subrogated to all the
rights and remedies of the creditor.”

Wherefore, the petition is granted in part.

 Ong v. PCIB
G.R. No. 160466, January 17, 2005

Facts: Baliwag Mahogany Corp. (BMC) needed additional capital for its business and
applied for various loans, amounting to a total of PHP 5 Million with the respondent
bank. Alfredo (President) and Susana Ong (Treasurer) acted as sureties for these loans
and issued 3 promissory notes for the purpose. It was stipulated in the notes that the
bank may consider BMC in default and demand payment of the remaining balance of
the loan upon the levy, attachment or garnishment of any of its properties, or upon
BMC’s insolvency, or if it is declared to be in a state of suspension of payments.
Thereafter, BMC filed a petition for rehabilitation and suspension of payments with SEC
after the creditors attached its properties. The bank then sought the collection of the
payment of the debt from the petitioners as sureties.

PCIB filed a case for collection of a sum of money against petitioner-spouses. A MOA
was executed by BMC, the petitioners and the consortium of creditor banks of BMC
(including PCIB). Petitioners then moved to dismiss the complaint arguing that the MOA
suspended any pending civil action against BMC. Hence, the benefits of the MOA
should also be extended to the petitioners as sureties.

The trial court denied the motion to dismiss. The CA affirmed the trial court’s ruling that
a creditor can proceed against petitioners as surety independently of its right to proceed
against BMC.

Issue: WON Art. 2063 and 2081 of the NCC apply to suretyship contracts

Held: NO. Articles 2063 and 2081 of the NCC refer to contracts of guaranty. They do
not apply to suretyship contracts. Petitioner-spouses are not guarantors but sureties of
BMC’s debts. A guarantor insures the solvency of the debtor while a surety is an insurer
of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part
of the guarantor. It is only after the creditor has proceeded against the properties of the
principal debtor and the debt remains unsatisfied that a guarantor can be held liable to
answer for any unpaid amount. This is the principle of excussion. In a suretyship
contract, however, the benefit of excussion is not available to the surety as he is
principally liable for the payment of the debt.

As the surety insures the debt itself, he obligates himself to pay the debt if the principal
debtor will not pay, regardless of whether or not the latter is financially capable to fulfill
his obligation. Thus, a creditor can go directly against the surety although the principal
debtor is solvent and is able to pay or no prior demand is made on the principal debtor.
In view whereof, the petition is dismissed for lack of merit.
 Prudential Guarantee and Assurance Corp., v. Equinox Land Corp.
G.R. Nos. 152505-06, September 13, 2007

Facts: Respondent Equinox Land Corporation constructed five additional floors to its
existing building. In the bidding, Equinox formally awarded to J’Marc the contract to
build for a consideration of PHP 37,000,000.00 as part of their undertaking. J’Marc
submitted to Equinox two bonds issued by the petitioner PGAI, a surety bond in the
amount of PHP 9,250,000.00 to guarantee the unliquidated portion of the advance
payment payable to J’Marc and a performance bond in the amount of PHP
7,400,000.00 to guarantee J’Marc’s faithful performance of its obligations under the
construction agreement. Equinox paid J’Marc a down payment of PHP 9,250,000.00
equivalent to 25% of the contract price.

For failure of J’Marc to finish the project on time, Equinox terminated its contract with
J’Marc and took over the project. Equinox filed with the RTC a complaint for sum of
money and damages against J’Marc and Prudential. Equinox prayed that J’Marc be
ordered to reimburse the amounts corresponding to its advanced payments and
unliquidated portion of its down payment. Equinox also prayed that Prudential be
ordered to pay its liability under the bonds.

The CIAC rendered its decision in favor of Equinox. The CA affirmed with modification
the decision of the CIAC.

Issue: WON the CA erred in finding petitioner solidarily liable with J’Marc for damages

Held: NO. The Court held that it is not disputed that Prudential entered into a suretyship
contract with J’Marc. Section 175 of the Insurance Code defines a suretyship as “a
contract or agreement whereby a party, called the suretyship, guarantees the
performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the oblige. It includes official recognizances,
stipulations, bonds, or undertakings issued under Act 53, as amended.” Corollarily,
Article 2047 of the Civil Code provides that suretyship arises upon the solidary binding
of a person deemed the surety with the principal debtor for the purpose of fulfilling an
obligation.

The SC affirmed the decision of the CA in toto.

 Oronce v. CA
G.R. No. 125766, October 19, 1998

Facts: Private respondent obtained a 4 million-peso loan from the China Banking
Corporation. To guarantee the payment of the loan, private respondent mortgaged the
Gilmore property and all its improvements to said bank. Gonzales, the president of the
corporation, signed and executed a Deed of Sale with Assumption of Mortgage covering
said property in favor of Rosita Flaminiano and Felicidad Oronce.

In fulfillment of the terms and conditions embodied in the Deed of Sale with Assumption
of Mortgage, petitioners paid private respondents’ indebtedness with the bank.
However, private respondent reneged on its obligation to deliver possession of the
premises to petitioners upon the expiration of the one-year period. Almost six months
later since the execution of the instrument, petitioners caused the registration of the
Deed of Sale with Assumption of Mortgage with the Register of Deeds. Simultaneously,
they obtained a new title.

Petitioners then filed before the MTC a complaint for unlawful detainer against private
respondent. They added, in violation of the terms of that document, that private
respondent refused to surrender possession of the premises. Consequently, they
demanded that private respondent vacate the premises through notices sent by
registered mail that were, however, returned to them unclaimed.

Issue: WON the document was one of mortgage

Held: YES. A closer look into the allegations of the complaint would show that
petitioners failed to make out a case for unlawful detainer. By the allegations in the
complaint, private respondent as a mortgagor had the right to possess the property. A
mortgage is a real right constituted to secure an obligation upon real property or rights
therein to satisfy with the proceeds of the sale thereof such obligation when the same
becomes due and has not been paid or fulfilled. The mortgagor generally retains
possession of the mortgaged property because by mortgaging a piece of property, a
debtor merely subjects it to alien but ownership thereof is not parted with. In case of the
debtor’s nonpayment of the debt secured by the mortgage, the only right of the
mortgagee is to foreclose the mortgage and have the encumbered property sold to
satisfy the outstanding indebtedness. The mortgagor’s default foes not operate to vest
in the mortgagee the ownership of the encumbered property, for any such effect is
against public policy. Even if the property is sold at a foreclosure sale, only upon
expiration of the redemption period, without the judgement debtor having made use of
his right of redemption, does ownership of the land sold become consolidated in the
purchaser.
 Tambunting Pawnshop Inc., v. CIR
G.R. No. 179085, January 21, 2010

Facts: Petitioner was issued an assessment for deficiency VAT for the taxable year of
1999. Petitioner, after his protest with the CIR merited no response, it filed a Petition for
Review with the CTA raising that pawnshops are not subject to VAT under the NIRC
and that pawn tickers are not subject to documentary stamp tax. The CTA ruled that
petitioner is liable for the deficiency VAT and the documentary stamp tax.

The petitioner argues that a pawnshop is not enumerated as one of those engaged in
sale or exchange of services in Section 108 of the National Internal Revenue Code and
citing the case of Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshops,
Inc. as basis.

Issue: WON petitioner is liable for the deficiency VAT, WON the petitioner is liable for
the documentary stamp tax

Held: YES. The Court cited the case of First Planters Pawnshop, Inc. v. Commissioner
of Internal Revenue. In the foregoing case, since the imposition of VAT on pawnshops,
which are non-bank financial intermediaries, was deferred for the tax years 1996 to
2002, petitioner is not liable for VAT for the tax year 1999.

NO. The pawn ticket is neither a security nor a printed evidence of indebtedness, but
precisely being a receipt for a pawn, it documents the pledge. A pledge is a real
contract; hence, it is necessary in order to constitute the contract of pledge, that the
thing pledged be placed in the possession of the creditor, or of a third person by
common agreement. Consequently, the issuance of the pawn ticket by the pawnshop
means that the thing pledged has already been placed in its possession and that the
pledge has been constituted.

Sections 195 of the NIRC provides that on the pledge of personal property, there shall
be collected a documentary stamp tax.

Wherefore, the petition is in part granted. The decision of the CTA is affirmed with
modification.
 PNB v. Heirs of Estanislao Militar
G.R. No. 164801, June 30, 2006

Facts: Spouses Jalbuna mortgaged the subject property to PNB. On the same date, the
mortgage was registered with the Register of Deeds of Iloilo City. Again, from that date,
the respondents were deemed to have "constructive notice" of the registration.

PNB foreclosed the mortgage on September 5, 1978. The Notice of Extrajudicial

Foreclosure of Mortgage was published in a newspaper of general circulation. The
publication likewise operated as "constructive notice" to all persons who would be
adversely affected by the impending foreclosure of the property. A Certificate of Sale
over the property was issued in favor of PNB as the highest bidder in the auction sale.
The Certificate of Sale was again registered and annotated in the title of the property.
Again, the respondents had "constructive notice" of the registration.

PNB consolidated its title to the property and a Deed of Sale was issued in its favor. On
December 6, 1982, a Transfer Certificate of Title was issued in favor of PNB.
Respondents should likewise be charged with notice of such fact. Since that time up to
November 9, 1987 when the property was sold to the Lucero Spouses, or for five (5)
long years, the property was an acquired asset of the bank. During this time it can be
deduced that it was the bank who paid the real estate taxes and who appeared as
owner in the tax declarations and other documents pertaining to the property.

On November 9, 1987, the property was sold by PNB to the petitioners Lucero Spouses
and a Transfer Certificate of Title was issued in their name on November 11, 1987. The
respondents however filed their Complaint for reconveyance and damages only on
October 2, 1989, or nearly two (2) years after title to the property was issued in favor of
the Lucero Spouses.

Issue: WON PNB is a mortgagee in good faith, WON respondents may recover
possession of the property

Held: NO. While it may be true that the bank could not have known the forgery
committed by the Jalbuna Spouses at the time the disputed property was mortgaged to
it, still it could not be completely exonerated from any liability arising from its apparent
omission, if not negligence, to further investigate the nature of the possession or the title
of the respondents who were the alleged occupants of the property. PNB did not
present any witness before the trial court who had personal knowledge of whether or
not the bank had conducted the requisite ocular inspection or investigation before
accepting the property as security for the loan of the Jalbuna Spouses.

NO. The Deed of Sale, having been executed on April 24, 1975 (in favor of Sps.
Jalbuna), the respondents had more than enough time and opportunity from the death
of their ascendants to institute proceedings to have the property adjudicated to them, if
indeed it was true that they were the lawful heirs of Deogracias, Glicerio, Tomas and
Caridad, and were the new owners of the property by succession. This, they did not do.

The actuations of respondents were not normal for those claiming in good faith
legitimate ownership over a parcel of land sufficient to make third persons conclude that
their claim is well-founded as against the registered owner, in this case, PNB. Indeed,
respondents were frozen in the shackles of inactivity for too long. They bestirred
themselves for their long slumber after the Lucero Spouses started to recover
possession of the property which is a mere incident to the ownership that they have
already gained. In essence, the respondents slept on their rights, and hence, must
suffer the consequences of their passivity and inaction.

The decision is modified. The MR of the PNB is denied with finality. However, the MR of
the Spouses Lucero is granted.
 Yuliongsiu v. PNB
G.R. No. L-19227, February 17, 1968

Facts: Plaintiff was the owner of 3 vessels. In 1947, plaintiff obtained a loan from
defendant for PHP 50,000.00 guaranteed by a pledge of the 3 vessels to PNB, which
pledge contract was duly registered with the Office of the Customs Collector of Cebu.
Plaintiff effected partial payment of said loan amounting to PHP 20,000.00 and
delivered 2 promissory notes for the balance. These 2 notes were never paid at all by
plaintiff on their respective due dates.

In 1948, the defendant filed criminal charges against plaintiff for estafa thru falsification
of the documents. With the institution of the criminal action, defendant took physical
possession of the 3 pledged vessels. After the first note fell due, without the plaintiff
electing payment, the defendant, pursuant to the terms of the contract, executed a
document of sale transferring the vessels to itself. 2 of the vessels were later sold to a
third party.

Yuliongsiu filed an action to recover the vessels or their value plus damages. The trial
court decided in favor of defendant. The conviction was affirmed by the CA.

Issue: WON the pledgor could take actual possession of the of the thing pledged

Held: YES. Art. 2110 cannot apply because the pledge contract here which was
entered into on June 30, 1947. On the other hand, there is an authority supporting the
proposition that the pledgee can temporarily entrust the physical possession of the
chattels pledged to the pledgor without invalidating the pledge. In such a case, the
pledgor is regarded as holding the pledged property merely as trustee for the pledgee.

Since the defendant PNB was, pursuant to the terms of the contract, in full contract of
the vessels thru the plaintiff, the former could take actual possession at any time during
the life of the pledge to make more effective its security. Its taking of the vessels.
Therefore, was not unlawful, nor was it unjustified considering that plaintiff had just
defrauded the defendant.

Wherefore, the appealed judgement is affirmed.

 Fort Bonifacio Development Corp. v. Yllas Lending Corp.
G.R. No. 158997, October 6, 2008

Facts: FBDC executed a lease contract in favor of Tirreno, Inc. over a unit at the
Bonifacio Global City in Taguig. The parties had the lease contract notarized on the day
of its execution. Due to Tirreno’s alleged failure to settle its outstanding obligations,
FBDC entered and occupied the leased premises. FBDC also appropriated the
equipment and properties left by Tirreno pursuant to Section 22 of their Contract of
Lease as partial payment for Tirreno’s outstanding obligations.

Despite FBDC’s service upon him of an affidavit of title and third party claim, the sheriff
proceeded with the seizure of certain items from FBDC’s premises. The sheriff delivered
the seized properties to Yllas. FBDC questioned the propriety of the seizure and
delivery of the properties to respondents without an indemnity bond before the trial
court, which decided against FBDC. It stated that:
1. Section 22 of the lease contract between FBDC and Tirreno is void under Article
2088 of the Civil Code.
2. FBDC should have filed a separate complaint against respondents instead of filing a
motion to intervene.

The RTC dismissed the Third Party Claim. Likewise, the Motion to Intervene and Admit
Complaint in Intervention is denied. FBDC filed the present petition before this court to
review pure questions of law.

Issue: WON there is a pactum commissorium

Held: NO. The fourth requisite mentioned in Articles 2085 and 2093 of the Civil Code,
that the thing pledged is placed in the possession of the creditor, is absent. There is
non-compliance with the fourth requisite even if Tirreno’s personal properties are found
in FBDC’s real property. Tirreno’s personal properties are in FBDC’s real property
because of the Contract of Lease, which gives Tirreno possession of the personal
properties. Since Section 22 is not a contract of pledge, there is no pactum
commissorium.

On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in
payment, as the alienation of property to the creditor in satisfaction of a debt in money.
Philippine National Bank v. Pineda held that dation in payment requires delivery and
transmission of ownership of a thing owned by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. There is no dation in payment when
there is no transfer of ownership in the creditor’s favor, as when the possession of the
thing is merely given to the creditor by way of security.

Wherefore, the petition is granted.

 Insular Life Assurance Company, Ltd., v. Young
G.R. No. 140964, January 16, 2002

Facts: Respondent Robert Young, together with his associates and co-respondents
acquired by purchase Home Bankers Savings and Trust Co., now petitioner Insular
Savings Bank, from the Licaros family for PHP 65 Million. Young and his group obtained
55% equity in the bank, while Jorge Go and his group owned the remaining 45%.

Thereafter, Benito Araneta, a stockholder of the bank, signified his intention to purchase
99.82% of its outstanding capital stock for PHP 340 Million subject to the condition that
the ownership of all the shares will be consolidated in Young’s name. Araneta paid
Young PHP 14 Million as part of the downpayment. In order to carry out the intended
sale, Young bought from Jorge Go and his group their 45% equity in the Bank for PHP
153 Million. In order to pay this amount, Young obtained a short-term loan of PHP 170
Million from International Corporate Bank ("Interbank") to finance the purchase.
However, Araneta backed out from the intended sale and demanded the return of his
downpayment.

Meanwhile, Young's loan from Interbank became due, causing his serious financial
problem. Consequently, he engaged the services of Asian Oceanic Investment House,
Inc. ("Asian Oceanic"), a domestic company owned and controlled by another petitioner,
Insular Life Assurance Co., Ltd. ("Insular Life"), to look for possible sources of capital.

On August 27, 1991, through the intervention of Asian Oceanic, Young and Insular Life
entered into a Credit Agreement. Under its provisions, Insular Life extended a loan to
Young in the amount of PHP 200 Million. To secure the loan, Young, acting in his behalf
and as attorney-in-fact of the other stockholders, executed on the same day a Deed of
Pledge over 1,324,864 shares which represented 99.82% of the outstanding capital
stock of the Bank. The next day, he also executed a promissory note in favor of Insular
Life in the same amount with an interest rate of 26% per annum to mature 120 days
from execution. The Credit Agreement further provides that Insular Life shall have the
prior right to purchase the Schedule I Shares (owned by Young) and the Schedule II
Shares (owned by the other stockholders of the Bank), as well as the 250,000 shares
which will be issued after the additional capital of PHP 25 Million (payable from the
proceeds of the loan) shall have been infused.

Insular Life and Insular Life Pension Fund formally informed Young of their intention to
acquire 30% and 12%, respectively, of the Bank's outstanding shares, subject to due
diligence audit and proper documentation. On October 9, 1991, Insular Life and Young,
authorized to represent the other stockholders, entered into a Memorandum of
Agreement (MOA), wherein Insular Life and its Pension Fund agreed to purchase
830,860 common shares and 311,572 common shares, respectively, for a total
consideration of PHP 198 Million. The MOA is subject to “condition precedents,” such
as: 1) Young shall infuse additional capital of PHP 50 Million into the bank and 2)
Insular Life and its Pension Fund shall undertake a due diligence audit on the Bank to
determine whether the provision for PHP 60 Million doubtful account made by Young is
sufficient.

Young assumed responsibility of the irregularities in the Bank’s “kiting operations.”

Young then signed a letter stating that due to business reverses, he shall not be able to
pay his obligations under the Credit Agreement between him and Insular Life.
Consequently, Young “unconditionally and irrevocably waive the benefit of the period” of
the loan and Insular “may consider his obligations thereunder as defaulted.” He likewise
interposes no objection to Insular Life’s exercise of its rights under the said agreement.

Forthwith, Insular Life instructed its counsel to foreclose the pledge constituted upon the
share. On the day of the auction sale, only Insular Life submitted a bid. The next day, a
second auction was held. Again, Insular Life is the sole bidder. Insular Life then
appropriated to itself not only the 1,324,864 shares, but also the 250,000 shares
subsequently issued by the Bank and delivered to Insular Life by way of pledge.
Thereafter, title to the said shares was consolidated in the name of Insular Life.

Young and his associates filed with the RTC a complaint for annulment of notarial sale,
specific performance and damages. The RTC dismissed the complaint, ordering the
respondents to pay the Bank their respective loans with interest and monthly penalty
interest. The CA reversed the RTC decision.

Issue: WON the CA erred in declaring that the auction sale is void because of failure to
send a separate notice for the second auction

Held: YES. Article 2112 of the Civil Code provides:

"The creditor to whom the credit has not been satisfied in due time, may proceed before
a Notary Public for the sale of the thing pledged. The sale shall be made at a public
auction, and with notification to the debtor and the owner of the thing pledged in a
proper case, stating the amount for which the public sale is to be held. If at the first
auction the thing is not sold, a second one with the same formalities shall be held; and if
at the second auction there is no sale either, the creditor may appropriate the thing
pledged. In this case he shall be obliged to give an acquittance for his entire claim."
Clearly, there is no prohibition contained in the law against the sending of one notice for
the first and second public auction as was done here by petitioner Insular Life. The
purpose of the law in requiring notice is to sufficiently apprise the debtor and the pledgor
that the thing pledged to secure payment of the loan will be sold in a public auction and
the proceeds thereof shall be applied to satisfy the debt. When petitioner Insular Life
sent a notice to Young informing him of the public auction scheduled on October 28,
1991, and a second auction on the next day, October 29, in the event that the shares
are not sold on the first auction, the purpose of the law was achieved. We thus reject
respondents' argument that the term "second one" refers to a separate notice which
requires the same formalities as the first notice.

Notably, the Deed of Pledge which secured the Credit Agreement between the parties,
covered not only 1,324,864 shares which then constituted 99.82% of the total
outstanding shares of petitioner Bank, but also the 250,000 shares subsequently
issued. Consequently, when Young waived in his letter the period granted him under the
said agreement and manifested his inability to pay his obligation (which waiver has
been declared by the RTC and the CA to be valid), the loan extended by petitioner
Insular Life became due and demandable. Definitely, petitioners merely exercised the
right granted to them under the law, which is to foreclose the pledge constituted on the
shares, in satisfaction of respondent Young's loan.

Wherefore the petition is granted.

 Sps. Paray v. Rodriguez
G.R. No. 132287, January 24, 2006

Facts: Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez

Realty Inc. In 1979 to 1980, respondents secured by way of pledge of some of their
shares of stock to petitioners Bonifacio and Faustina Paray the payment of certain loan
obligations.

When the Parays attempted to foreclose the pledges on account of respondents’ failure
to pay their loans, respondents filed with RTC of Cebu City. The actions sought the
declaration of nullity of the pledge agreements, among others. However the RTC
dismissed the complaint and gave due course to the foreclosure and sale at public
auction of the various pledges. This decision attained finality after it was affirmed by the
CA and the SC.

Respondents then received Notices of Sale which indicated that the pledged shares
were to be sold at public auction. However, before the scheduled date of auction, all od
respondents caused the consignation with the RTC Clerk of Court various amounts. It
was claimed that respondents had attempted to tender payment to the Parays but had
been rejected.

Notwithstanding the consignations, the public auction took place as scheduled, with
petitioner Vidal Espeleta successfully bidding for all of the pledged shares. None of
respondents participated or appeared at the auction. Respondents instead filed a
complaint with the RTC seeking the declaration of nullity of the concluded public
auction. The RTC dismissed the complaint, expressing agreement with the position of
the Parays. The CA however reversed the RTC on appeal, ruling that the consignations
extinguished the loan obligations and the subject pledged contracts; and the auction
sale is null and void.

Issue: WON pledged shares of stock auctioned off in a notarial sale could still be
redeemed by their owners

Held: NO. Preliminarily, it must be clarified that the subject sale of pledged shares was
an extrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale as
typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs
extrajudicially, without intervention by the courts. All the creditor needs to do, if the
credit has not been satisfied in due time, is to proceed before a Notary Public to the sale
of the thing pledged.
In the case at bar, the petitioners attempted to proceed extrajudicially but it was stayed
by the filing of the civil cases filed by the respondents which sought to annul the pledge
contracts. This was decided favorably in a final judgement in favor of the petitioners.
While the decision did authorize the sale by public auction, such declaration could not
detract from the fact that the sale so authorized is actually extrajudicial in character.
Note that the final judgement in said cases expressly did not direct the sale by public
auction of the pledged shares, but instead upheld the right of petitioners to conduct
such sale at their own volition.

A pledge contract is an accessory contract, and is necessarily discharged if the principal

obligation is extinguished.

Wherefore, the petition is granted. The assailed decision of the CA is set aside.
 Prudential Bank v. Panis
G.R. No. L-50008, August 31, 1987

Facts: Spouses Magcale secured a loan in the sum of PHP 70,000 from the Prudential
Bank. To further secure said loan, the spouses executed a real estate mortgage over
the residential building, with a right to occupy the lot. The real estate mortgage also
included information about the sales patent applied for by the spouses for the lot to
which the building stood. The spouses secured an additional loan from Prudential Bank
in the sum of PHP 20,000 where the spouses executed in favor of Prudential Bank
another deed of REM over the same properties previously mortgaged.

The Sec. of Agriculture issued a Miscellaneous Sales Patent over the lot which was
then mortgaged to the bank in favor of the Magcales. The spouses defaulted on both
loans. Thus, the real estate mortgage was extrajudicially foreclosed, and sold in a public
auction.

The respondent court declared the deeds of REM as null and void.

Issue: WON a valid real estate mortgage can be constituted on the building erected on
the land belonging to another

Held: YES. The original mortgage on the building and right to occupancy of the land
was executed before the issuance of the sales patent and before the government was
divested of title to the land. Under the foregoing, it is evident that the mortgage
executed by private respondent on his own building was a valid mortgage. As to the
second mortgage, it was done after the sales patent was issued and thus prohibits
pertinent provisions of the Public Land Act.

The fact that the spouses executed the real estate mortgage over the building before
executing the second real estate mortgage over the land proved that the spouses
intended for the building to be an immovable separate and distinct from the land on
which it is built.

But it is a different matter, as regards the second mortgage executed over the same
properties on May 2, 1973 for an additional loan of P20,000.00 which was registered
with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is
evident that such mortgage executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121,
122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore
null and void.
The decision of the CFI of Zambales and Olongapo City is hereby modified, declaring
that the deed of REM for PHP 70,000.00 is valid but ruling that the deed of REM for an
additional loan of PHP 20,000.00 is null and void.
 PNB v. RBL Enterprises Inc.
G.R. No. 149569, May 28, 2004

Facts: Respondents Ramon Lacson and Sps. Ledesma opened a prawn hatchery in
San Enrique, Negros Occidental, and for this purpose, leased from Nelly Bedrejo a
parcel of land where the operations were conducted. Lacson and Sps. Ledesma applied
for and was approved a loan of PHP 2 Million by petitioner PNB. A real estate mortgage
over two parcels of land, located at Bago City, Negros Occidental, and another real
estate and chattel mortgage over the buildings, culture tanks and other hatchery
facilities located in the leased property of Nelly Bedrejo were executed in favor of PNB.

PNB partially released the sum of PHP 1 Million. However, during the mid-part of the
construction of the improvements, PNB refused to release the balance of PHP 1 Million
because the respondents failed to comply with the bank’s requirement that Bedrejo
should execute an undertaking or a lessors’ conformity. For said alleged failure to
comply with the additional requirement and the demand of PNB to pay the released
amount of PHP 1 Million, PNB foreclosed the mortgaged properties.

The RTC ruled that PNB’s partial release of the loan had estopped it from requiring the
respondents to secure the lessor’s signature. The CA affirmed the RTC’s findings
adding that Bedrejo, being a non-party to the mortgage contract could not be compelled
to affix her signature.

Issue: WON PNB’s non-release of the loan was justified

Held: NO. The records show that the real estate and chattel mortgages were registered
with the Register of Deeds of Bago City, Negros Occidental, and annotated at the back
of the mortgaged titles. Thus, PNB had ample security to protect its interest. Even if the
mortgaged property is in the possession of the debtor, the creditor is still protected. To
protect the latter from from the former’s possible disposal of the property, the chattel
mortgage is made effective against third persons by the process of registration.

Article 2126 of the Civil Code describes the real nature of a mortgage: it is a real right
following the property, such that in subsequent transfers by the mortgagor, the
transferee must respect the mortgage. A registered mortgage lien is considered
inseparable from the property inasmuch as much as it is a right in rem. The mortgage
creates a real right or a lien which, after being recorded, follows the chattel wherever it
goes. Under Article 2129 of the same Code, the mortgage on the property may still be
foreclosed despite the transfer.

Wherefore, the petition is partly granted. The assailed decision is affirmed with the
modification that the award of actual and exemplary damages is deleted.
 PNB v. Mallorca
G.R. No. L-22538, October 31, 1967

Facts: Ruperta Lavilles mortgage a 48.695 square-meter parcel of land in Iloilo to the
PNB as security for a loan of PHP 1,800.00. The mortgage was duly recorder. While the
subject mortgage was in full force and effect, and without PNB’s knowledge and
consent, Lavilles sold 20,000 square meters of the mortgaged land to appellant.
Mallorca moved to have the sale to her duly annotated on the tile, and, for the purpose,
to require PNB to surrender the owner’s copy of the Transfer Certificate of Title to the
Register of Deeds. The RD then cancelled the TCT and issued a new one, making 2 co-
owner’s copies of the title – one each for Lavilles and for Mallorca. PNB’s mortgage lien
was annotated on both copies. Lavilles failed to pay her mortgage debt. PNB then
foreclosed the mortgage extrajudicially.

A certificate of sale was issued to PNB as the highest bidder in the foreclosure sale.
This certificate of sale was registered with the RD. Mallorca refused to surrender her co-
owner’s copy of the property. Mallorca’s stand is that her undivided interest of the
mortgaged lot remained unaffected by the foreclosure and subsequent sale to PNB
because she was not a party to the real estate mortgage in favor of PNB, and she
“neither secured nor contracted a loan” with said bank.

Mallorca sued PNB to enforce her right of redemption with damages. Judgement was
rendered, dismissing the claim for damages but declaring Mallorca “entitled to exercise
her right of redemption with respect to the 20,000 square meters sold to her by Ruperta
Lavilles within the period specified by law.” Mallorca's appeal from this judgment was
denied by the lower court – it was filed out of time. Her move to reconsider was
rejected. She then went to the Court of Appeals on mandamus. The appellate court
denied the same for lack of merit.

Issue: WON Mallorca’s undivided interest of the mortgaged lot was unaffected by the
foreclosure and subsequent sale to PNB

Held: NO, the property is not unaffected. Article 2126 of the Civil Code states that, a
“mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it
was constituted.” Sale or transfer cannot affect or release the mortgage. A purchaser is
necessarily bound to acknowledge and respect the encumbrance to which is subjected
the purchased thing, and which is at the disposal of the creditor “in order that he, under
the terms of the contract, may recover the amount of his credit therefrom.”
For a recorded real estate is a right in rem, a lien on the property whoever its owner
may be. Because the personality of the owner is disregarded; the mortgage subsists
notwithstanding changes of ownership; the last transferee is just as much of a debtor as
the first one; and this, independent of whether the transferee knows or not the person of
the mortgagee. So it is, that a mortgage lien is inseparable from the property
mortgaged. All subsequent purchasers thereof, must respect the mortgage, whether the
transfer to them be with or without the consent of the mortgagee. For, the mortgage,
until discharge, follows the property.

The lower court order is hereby affirmed.

 Tambunting v. Rehabilitation Finance Corporation
G.R. Nos. L-54224-25, August 16, 1989

Facts: Spouses Jose and Eleuteria Escueta obtained loans from the Rehabilitation
Finance Corporation (RFC) in the aggregate sum of PHP 59,000.00. The loans were
secured by a mortgage constituted by said spouses over land (and improvements
thereon) owned by them, covered by TCTs of the RD of Pasay City. Later, and with the
consent of the RFC, the Escuetas created a second mortgage over the same property
as security for a loan in the amount of PHP 16,000.00 obtained by them from the Sps.
Antonio and Aurora Tambunting. Both first and second mortgages were recorded in the
RD of Pasay City.

The Escuetas defaulted in the payment of both loans. The RFC commenced
proceedings for the extra-judicial foreclosure of its first mortgage, which resulted in the
sale at public auction of the mortgaged property to the highest bidder, the RFC itself,
subject to the right of redemption of the mortgagors, the Escuetas. The RFC then
applied for and obtained a writ of possession from the proper Court and in virtue
thereof, took possession of the foreclosed property.

The Tambuntings, as second mortgages, offered to redeem the property. The RFC
agreed, subject to the Escuetas’ right of redemption as former owners thereof. The
deed contained the following stipulation: This contract may be evoked within one (1)
year from September 16, 1955 at the option of the vendor should the former owner
exercise his right to redeem the property herein sold. In case the property is redeemed
or repurchased within said period by the former owner or his successor-in-interest, the
vendor shall refund to the vendees any and all amounts that the vendees may have
paid to the vendor under the conditional sale with interest as provided for by law,
rendering, thereby this instrument automatically null and void and without effect.

The RFC then notified the Tambuntings that their contract of conditional sale was
deemed revoked in view of the redemption by Hernandez, the Escuetas' successor-in-
interest.

The Tambuntings instituted in the CFI an action against the RFC, the Escueta Spouses
and the Hernandez Spouses, for the nullification of the latter’s redemption of the
property, the declaration of the validity of the deed of conditional sale, payment of
damages and payment by the Escuetas.
The trial court’s judgement went against Tambuntings. The CA affirmed the trial court’s
decision in toto.

Issue: WON the Hernandezes may redeem the subject property

Held: YES. The assignment by the Escuetas of their right of redemption (as regards
both mortgage obligations) to the Hernandez Spouses operated as a transfer of the
property itself, together with its recorded encumbrances. The acquisition by the
Hernandezes of the Escuetas' rights over the property carried with it the assumption of
the obligations burdening the property, as recorded in the Registry of Property, i.e., the
mortgage debts in favor of the RFC (DBP) and the Tambuntings. The Hernandezes, by
stepping into the Escuetas' shoes as assignees, had the obligation to pay the mortgage
debts, otherwise, these debts would and could be enforced against the property subject
of the assignment. Stated otherwise, the Hernandezes, by the assignment, obtained the
right to remove the burdens on the property subject thereof by paying the obligations
thereby secured; that is to say, they had the right of redemption as regards the first
mortgage, to be exercised within the time and in the manner prescribed by law and the
mortgage deed; and as regards, the second mortgage, sought to be judicially foreclosed
but yet unforeclosed, they had the so-called equity of redemption.

There is no dispute about the fact that the redemption by the Hernandezes, as
assignees of the mortgagor spouses, the Escuetas, was made within the time and in the
manner laid down by law and the RFC itself. Their redemption was deemed by the RFC
to have been properly exercised. The RFC therefore revoked its contract with the
Tambuntings, as it was bound to pursuant to the explicit provision thereof above
quoted-indeed, that contract was, by its terms, rendered "automatically null and void
and without effect" by the redemption-and executed in the Hernandezes' favor a deed of
conditional sale, substantially identical to that earlier signed in favor of the Tambuntings.

Wherefore, the petition is denied, and the judgement of the CA is affirmed.

 Sps. Litonjua v. L&R Corporation
G.R. No. 130722, December 9, 1999

Facts: Loans were obtained by the Sps. Litonjua in the aggregate sum of PHP
400,000.00. The loans were secured by a mortgage constituted by the spouses upon
their two parcels of land and the improvements thereon. The mortgage was duly
registered with the RD. The spouses sold to Philippine White House Auto Supply, Inc.
(PWHAS) the parcels of land they had previously mortgaged to L&R Corporation for the
sum of PHP 430,000.00. Meanwhile, with the Sps. Litonjua having defaulted in the
payment of their loans, L&R initiated extrajudicial foreclosure proceedings. The
mortgaged properties were sold at public auction to L&R Corporation as the only bidder
for the amount of PHP 221,624.58.

L&R wrote a letter to the Sheriff, stating that 1) the sale of the mortgaged properties was
without its consent and in contravention of their Deed of Real Estate Mortgage and 2) it
was PWHAS who was seeking to redeem the foreclosed properties when they had no
legal personality or capacity to redeem the same.

On the other hand, the spouses asked the RD to annotate their Certificate of
Redemption as an adverse claim on the titles of the subject properties on account of the
refusal of L&R to surrender the owner’s duplicate copies of the titles to the subject
properties. With the refusal of the RD to do so,the Litonjua spouses filed a complaint for
Quieting of Title, Annulment of Title and Damages. The trial court dismissed the
complaint on the thesis that the sale between the Sps. Litonjua and PWHAS, as well as
the redemption subsequently made, was null and void and unenforceable against L&R
Corporation. The appellate court set aside the judgement of the trial court, but
reconsidered and reversed its previous stand.

Issue: WON the sale of the mortgaged properties without the knowledge and consent of
L&R Corporation is valid and enforceable

Held: YES. Any stipulation securing the written consent and permission of the
mortgagee shall be construed as directed against subsequent mortgages or
encumbrances, not to an alienation of the immovable itself. Stipulations forbidding the
owner from alienating the immovable mortgaged are expressly declared void in Article
2130 of the Civil Code. The clear intention of the law is to outlaw a stipulation that would
effectively prevent the mortgagor from freely conveying the property during the life of
the mortgage. Needless to say, the injunction of the law may not be circumvented,
whether directly or indirectly by the parties.
Wherefore, the decision appealed from is hereby affirmed with modifications.
 Isaguirre v. De Lara
G.R. No. 138053, May 31, 2000

Facts: Alejandro De Lara was the original applicant-claimant for a Miscellaneous Sales
Application over a parcel of land with an area of 2,324 square meters. Upon death, he
was succeeded by his wife (respondent) as claimant. By a decision rendered by the
Secretary of Agricultural and Natural Resources, the lot was reduced to 1,000 square
meters. On this lot stands a two-story residential-commercial apartment named to
respondent’s sons.

Respondent obtained several loans from PNB. She then executed a Deed of Sale and
Special Cession of Rights and Interests on a 250 square meter portion of the lot,
together with the structure for a sum of PHP 5,000 in favor of petitioner. Petitioner then
filed a sales application over the subject property based on the deed of sale and
acquired an OCT in his name. Meanwhile, sales application of respondent for the entire
1,000 square meters was granted an OCT in the name of respondent.

Petitioner then filed an action for quieting of title and damages. The trial court ruled in
favor of petitioner. The CA reversed the decision, holding that the transaction entered
into by the parties was an equitable mortgage, not a sale, thereby declaring petitioner’s
title null and void.

Issue: WON the mortgage in an equitable mortgage has the right to retain possession
of the property pending actual payment to him of the amount of indebtedness by the
mortgagor

Held: NO. A mortgage is a contract entered into in order to secure the fulfillment of a
principal obligation. It is constituted by recording the document in which it appears with
the proper Registry of Property, although, even if it is not recorder, the mortgage is
nevertheless binding between the parties. Thus, the only right granted by law in favor of
the mortgagee is to demand the execution and the recording of the document in which
the mortgage is formalized.

As a general rule, the mortgagor retains possession of the mortgaged property since a
mortgage is merely a lien and title to the property does not pass to the mortgagee.
However, even though a mortgagee does not have a possession over the property,
there is no impairment of his security since the mortgage directly and immediately
subjects the property upon which it is imposed, whoever the possessor may be, to the
fulfillment of the obligation for whose security it was constituted. If the debtor is unable
to pay his debt, the mortgage creditor may institute an action to foreclose the mortgage,
whether judicially or extrajudicially, whereby the mortgaged property will be sold at a
public auction and the proceeds therefrom given to the creditor to the extent necessary
to discharge the mortgage loan. Apparently, petitioner’s contention that “to require him
to deliver possession of the property to respondent prior to the full payment of the
latter’s mortgage loan would be equivalent to the cancellation of the mortgage” is
without basis. Regardless of its possessor, the mortgaged property may still be sold,
with the prescribed formalities in the event of the debtor’s default in the payment of his
loan obligation.

Wherefore, the assailed decision of the CA is affirmed.

 Mobil Oil v. Diocares
G.R. No. L-26371, September 30, 1969

Facts: Defendants entered into a contract of loan and real estate mortgage wherein
plaintiff extended to the said defendants a loan of PHP 45,000.00. In a condition that
Diocares would buy from plaintiff a minimum of 50,000 liters of petroleum per month.
Defendants will repay the said loan in monthly installments of PHP 950.88 for a period
of 5 years. To secure the performance of their obligation, defendants executed a first
mortgage on 2 parcels of land. In case of failure of the defendants to pay any of the
installments due and non-fulfillment of their obligation to buy petroleum, plaintiff had the
right to foreclose.

Defendants defaulted when the third installment was due. Mobil Oil then filed a
complaint. Lower court held that the loan agreement created a personal obligation but it
did not establish a real estate mortgage because the mortgage was not registered.
Hence, the foreclosure cannot be ordered.

Issue: WON the unregistered mortgage contract is binding between the parties

Held: YES. Article 2125 is clear and explicit. Even if the instrument were not recorded,
"the mortgage is nevertheless binding between the parties." The law cannot be any
clearer. Effect must be given to it as written. The mortgage subsists; the parties are
bound. As between them, the mere fact that there is as yet no compliance with the
requirement that it be recorded cannot be a bar to foreclosure.

Moreover to rule as the lower court did would be to show less than fealty to the purpose
that animated the legislators in giving expression to their will that the failure of the
instrument to be recorded does not result in the mortgage being any the less "binding
between the parties." In the language of the Report of the Code Commission: "In article
[2125] an additional provision is made that if the instrument of mortgage is not recorded,
the mortgage is nevertheless binding between the parties." We are not free to adopt
then an interpretation, even assuming that the codal provision lacks the forthrightness
and clarity that this particular norm does and, therefore, requires construction, that
would frustrate or nullify such legislative objective.

Wherefore, the lower court order is affirmed with modification.

 Lim Julian v. Lutero
G.R. No. L-25235, December 9, 1926

Facts: The purpose of this action was to foreclose a certain mortgage given to secure
future advancements for the sum of P12,000, interest, commissions, damages, and
such other amounts as may be due at the time of maturity. It was executed and
delivered to Lim Julian by Tiburcio Lutero and his wife Asuncion Magalona on the 15th
day of April, 1920. It was duly registered in the office of the registrar of deeds of the
Province of Iloilo on the 16th day of June, 1920. It was executed to secure future
"advancements" to be made by Lim Julian to the mortgagors to cover expenses
"incurred by the mortgagors in the cultivation and harvesting of the agricultural crops for
the year 1920-1921." To be a little more specific concerning the purposes of the said
"advancements," reference may be made to the mortgage itself. The mortgage recites
"that said credit (for future advancements) is given to the mortgagors exclusively for the
purpose of being employed in the cultivation and care of the sugar plantations and the
milling and production of sugar from said sugar plantations and in the purchase of
animals for the work in connection therewith and all expenses that may be necessary
for the work concerning said sugar plantations."
 Banate v. Philippine Countryside Rural Bank
G.R. No. 163825, July 13, 2010

Facts: Sps. Maglasang and Sps. Cortel asked PCRB’s permission to sell the properties
which they mortgaged with the bank. They likewise requested that the said properties
be released from the mortgage since the two other loans were adequately secured by
the other mortgages. Sps. Maglasang and Sps. Cortel claimed that the PCRB, acting
through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but
required first the full payment of the subject loan.

They thereafter sold to petitioner Banate the subject properties for PHP 1,750,000.00
and used the amount to pay the subject loan with PCRB. After settling the subject loan,
PCRB gave the owner’s duplicate certificate of title to Banate, who was able to secure a
new title in her name. It, however, carried the mortgage lien in favor of PCRB,
prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As
PCRB refused to comply with the petitioners’ request, the petitioners instituted an action
for specific performance before the RTC to compel PCRB to execute the release deed.

Accordingly, PCRB claimed that full payment of the three loans, obtained by the Sps.
Maglasang, was necessarily before any of the mortgages could be released; the
settlement of the subject loan merely constituted partial payment of the total obligation.
Thus, the payment does not authorize the release of the subject properties from the
mortgage lien.

RTC ruled in favor of the petitioners. CA reversed the RTC’s decision.

Issue: WON Mondigo, as branch manager of PCRB, has the authority to modify the
original mortgage contract on behalf of the company

Held: NO. He is not authorized to modify the mortgage contract, that would in effect
cause novation. Under the doctrine of apparent authority, acts and contracts of the
agent, as are within the apparent scope of the authority conferred on him, although no
actual authority to do such acts or to make such contracts has been conferred, bind the
principal.

The principal’s liability, however, is limited only to third persons who have been led
reasonably to believe by the conduct of the principal that such actual authority exists,
although none was given. In other words, apparent authority is determined only by the
acts of the principal and not by the acts of the agent. There can be no apparent
authority of an agent without acts or conduct on the part of the principal; such acts or
conduct must have been known and relied upon in good faith as a result of the exercise
of reasonable prudence by a third party as claimant, and such acts or conduct must
have produced a change of position to the third party's detriment.
In the present case, the decision of the trial court was utterly silent on the manner by
which PCRB, as supposed principal, has "clothed" or "held out" its branch manager as
having the power to enter into an agreement, as claimed by petitioners. No proof of the
course of business, usages and practices of the bank about, or knowledge that the
board had or is presumed to have of, its responsible officers' acts regarding bank
branch affairs, was ever adduced to establish the branch manager's apparent authority
to verbally alter the terms of mortgage contracts. Neither was there any allegation,
much less proof, that PCRB ratified Mondigo's act or is estopped to make a contrary
claim.

Wherefefore, the petitioner’s petition for review is denied.

 Prudential Bank v. Alviar
G.R. No. 150197, July 28, 2005

Facts: Sps. Alviar are the registered owners of the parcel of land in San Juan, Metro
Manila. They executed a deed of real estate mortgage of the said property in favor of
petitioner to secure the payment of a loan worth PHP 250,000.00. A promissory note
was then issued covering the said loan, which provides that the loan matured on August
4, 1976 at an interest rate of 12% per annum with a 2% service charge, and that the
note is secured by a real estate mortgage as aforementioned with a “blanket mortgage
clause” or the “dragnet clause.” The spouses thereafter issued other promissory notes.

Sps. Alviar paid petitioner PHP 2,000,000.00, to be applied to the obligations of G.B.
Alviar Realty and Development, Inc. and for the release of the real estate mortgage for
PHP 450,000.00 loan covering the two lots in San Juan, MM. The payment was
acknowledged by petitioner who accordingly released the mortgage over the two
properties.

Prudential Bank moved for the extrajudicial foreclosure of the mortgage on the property
since respondents had the total obligation of PHP 1,608,256.68, covering the three
promissory notes. Respondents then filed a complaint for damages with a prayer for the
issuance of a writ of preliminary injunction with the RTC of Pasig claiming that they have
paid their principal loan secured by the mortgaged property, and thus the mortgage
should not be foreclosed.

RTC favored respondents saying that the extrajudicial foreclosure was improper for the
mortgage only covers the first loan of PHP 250,000.00. CA affirmed the decision of the
RTC.

Issue: WON real estate mortgage secures only the first loan of PHP 250,000.00

Held: YES. While the existence and validity of the “dragnet clause” cannot be denied,
there is a need to respect the existence of other securities given for the two other
promissory notes. The foreclosure of the mortgaged property should only then be for the
PHP 250,000.00 loan and for any amount not covered by the security for the second
PN. Petitioner and respondents intended the real estate mortgage to secure not only the
PHP 250,000.00 loan from the petitioner, but also future credit facilities and
advancements that may be obtained by the respondents. However, the subsequent
loans obtained by respondents were secured by other securities.
When the mortgagor takes another loan for which another security was fiven it could not
be inferred that such loan was made in reliance solely on the original security with the
“dragnet clause,” but rather, on the new security given. This is the “reliance on the
scrutiny test. If the parties intented that the “blanket mortgage clause” shall cover
subsequent advancement secured by separate securities, then the same should have
been indicated in the mortgage contract. This ambiguity shall be interpreted strictly
against petitioner for having drafted the same.

However, both lower courts found that respondent have not yet paid the PHP
250,000.00. Thus, the mortgaged property could still be properly subjected to
foreclosure proceedings for the unpaid PHP 250,000.00 loan, and as mentioned earlier
for any deficiency after security for PN has been exhausted, subject of course to
defenses which are available to respondents.

Wherefore, the petition is denied. The decision of the CA is affirmed.

 Suico Rattan & Buri Interiors v. CA
G.R. No. 138145, June 15, 2006

Facts: SRBII and Metrobank entered in a Credit Line Agreement where the latter
granted the amount of PHP 7 Million and an EBP/DP line of PHP 10 Million. The
drawings on the credit line are secured by a Continuing Surety Agreement for the sum
of PHP 17.5 Million executed by the Suico spouses and a real estate mortgage. SRBII
and the Suico spouses were unable to pay their obligations prompting Metrobank to
extrajudicially foreclose the four mortgages. Metrobank, being the lone and highest
bidder, acquired the said properties during the auction sale. A Certificate of Sale was
then issued in its favor.

Metrobank filed an action for the recovery of a sum of money arising from the unpaid
export bills. SRBII and the Suico spouses contended that the value of the mortgaged
properties is more than enough to answer for all their obligations to Metrobank.

RTC ruled in favor of Suico. CA reversed the trial court’s decision.

Issue: WON spouses are solidarily liable with SRBII in view of the surety agreement

Held: YES. The time-honored rule is that the surety obligates himself to pay the debt if
the principal debtor will not pay, regardless of whether or not the latter is financially
stable to fulfill his obligation. Thus, a creditor can go directly against the surety although
the principal debtor is solvent and is able to pay or no prior demand is made on the
principal debtor. Although a surety contract is secondary to the principal obligation, the
liability of the surety is direct, primary and absolute; or equivalent to that of a regular
party of the undertaking.

A surety is considered in law to be on the same footing as the principal debtor in relation
to whatever is adjudged against the latter. In the present case, it is clear from the
Continuing Surety Agreement executed by the Suico spouses that they hold themselves
solidarily liable with SRBII in the payment of the latter’s obligations.

Wherefore, the petition is partially granted. The assailed decision of the CA is reversed
and set aside.
 Sps. Torres v. Medina
G.R. No. 166730, March 10, 2010
 Chieng v. Sps. Santos
G.R. No. 169647, August 31, 2007

Facts: Petitioner Antonio Chieng extended a loan in favor of respondent spouses

Eulogio and Teresita Santos. As security for such loan, the respondents executed in
favor of petitioner a Deed of Real Estate Mortgage over a piece of land. Thereafter,
respondent Eulogio issued several checks in favor of petitioner as payment for the loan.
Some of these checks were dishonored, prompting the petitioner to file a criminal case
against respondent Eulogio for violation of BP Blg. 22. During the pre-trial conference of
these cases, petitioner and respondent Eulogio entered into a compromise agreement,
but respondent Eulogio failed to comply with his obligation in the compromise
agreement.

Petitioner then filed with the RTC an action for foreclosure of mortgage. The
aforementioned rendered a Decision8ordering the respondents to pay petitioner their
loan obligation amounting to 600,000.00, plus interests and attorney’s fees. After the
respondents have filed a Motion for Reconsideration, the court issued an Order setting
aside its earlier Decision. Instead of foreclosing the mortgage on their property,
petitioner chose to institute criminal cases against respondent Eulogio for issuing
bouncing checks in violation of Batas Pambansa Blg. 22.

The RTC rendered a Decision directing the respondents to pay petitioner the sum of
377,000.00 and other costs. Respondents filed an appeal and pronounced that Criminal
Cases cannot be re-litigated and that the proper course of action for petitioner was to
seek the execution of the said order. The CA reversed the trial court’s decision.

Issue: WON petitioner, by filing Criminal Cases for violation of Batas Pambansa Blg. 22
against respondent Eulogio, was already barred or precluded from availing himself of
the other civil remedy of the foreclosure of the real estate mortgage

Held: NO. A mortgage-creditor may, in the recovery of a debt secured by a real estate
mortgage, institute against the mortgage-debtor either a personal action for debt or a
real action to foreclose the mortgage. These remedies available to the mortgage-
creditor are deemed alternative and not cumulative. An election of one remedy operates
as a waiver of the other.

When petitioner filed the Criminal Cases for violation of Batas Pambansa Blg. 22
against respondent Eulogio, petitioner’s civil action for the recovery of the amount of the
dishonored checks was impliedly instituted therein pursuant to Section 1(b) of Rule111
of the 2000 Rules on Criminal Procedure. Under the present revised Rules, the criminal
action for violation of B.P. 22 shall be deemed to include the corresponding civil action.
The reservation to file a separate civil action is no longer needed.

Wherefore, the instant petition is hereby granted. The decision of the CA is reversed
and set aside.
 Tambunting Jr. v. Sps. Sumabat
G.R. No 144101, September 16, 2005

Facts: A certain parcel of land in Caloocan City was previously registered in the names
of respondents. But they mortgaged it to Tambunting for security of the loan amounting
to PHP 7,000.00. Respondents were then informed that their debt increased to PHP
15,000.00 for failure to pay the monthly amortizations. When respondents defaulted in
their obligation, petitioner Commercial House Finance (CHFI) as assignee of the
mortgage, initiated foreclosure proceedings but it did not push through because of the
complaint for injunction filed by respondents.

Respondents then filed an action for declaratory relief seeking a declaration of the
extent of their actual indebtedness. Petitioners were declared in default for failure to file
an answer within the reglementary period. They moved for dismissal on the ground that
the mortgage deed, had already been breached prior to the filing of the declaratory
relief.

Respondents received a notice of a sheriff’s sale wherein the mortgaged property was
foreclosed by CFHI and an extrajudicial sale of the property would be held.
Respondents instituted a petition for preliminary injuction, damages and cancellation of
annotation of encumbrance but the public action scheduled on the same day proceeded
and the property was sold to CFHI. Respondents failed to redeem the property. Hence,
consolidation of ownership to CFHI.

The RTC nullified the foreclosure and extrajudicial sale of the property, as well as the
consolidation of title in CFHI’s name.

Issue: WON petitioners’ right of action has prescribed

Held: YES. Article 1142 of the Civil Code is clear. A mortgage action prescribes after
ten years. An action to enforce a right arising from a mortgage should be enforced
within ten years from the time the right of action accrues. Otherwise, it will be barred by
prescription and the mortgage creditor will lose his rights under the mortgage.

Here, petitioners' right of action accrued in May 1977 when respondents defaulted in
their obligation to pay their loan amortizations. It was from that time that the ten-year
period to enforce the right under the mortgage started to run. The period was
interrupted when respondents filed Civil Case No. C-6329 sometime after May 1977
and the CFI restrained the intended foreclosure of the property. However, the period
commenced to run again on November 9, 1977 when the case was dismissed.

The respondents' institution of Civil Case No. C-7496 in the CFI on March 16, 1979 did
not interrupt the running of the ten-year prescriptive period because, as discussed
above, the court lacked jurisdiction over the action for declaratory relief. All proceedings
therein were without legal effect. Thus, petitioners could have enforced their right under
the mortgage, including its foreclosure, only until November 7, 1987, the tenth year from
the dismissal of Civil Case No. C-6329. Thereafter, their right to do so was already
barred by prescription.

The foreclosure held on February 8, 1995 was therefore some seven years too late. The
same thing can be said about the public auction held on March 27, 1995, the
consolidation of title in CHFI's favor and the issuance of TCT No. 310191 in its name.
They were all void and did not exist in the eyes of the law.

Wherefore, the petition is denied.

 PNB v. Maraya Jr.
G.R. No. 164104, September 11, 2009

Facts: The spouses Maraya secured a loan for P6,000.00 from PNB and constituted a
real estate mortgage of their aforesaid property. The spouses then defaulted in the
payment of their loan obligation. Upon their failure to pay their obligation, defendant-
appellant PNB initiated an extrajudicial foreclosure of the mortgaged property without
having the intended foreclosure sale published in the newspaper of general circulation.
PNB emerged as the highest bidder and was awarded the Sheriff's certificate of sale.

For failure of the spouses Maraya to redeem the property and their failure to buy back
the same despite several periods granted by PNB after one year allowed by law, PNB
decided to sell the property. A public bidding was conducted for the said purpose with
defendant appellant Jesus Cerro as the successful bidder.

PNB through its Branch Manager Francisco Bangi, executed a Deed of Absolute Sale
over the aforementioned land in favor of Jesus Cerro. Sps. Maraya were notified by
PNB of the sale in favor of Jesus Cerro and were advised to vacate the premises. As
they refused to vacate, Jesus Cerro was constrained to file a complaint for unlawful
detainer against them before the Municipal Trial Court which rendered a decision in
favor of Jesus Cerro. Sps. Maraya appealed the said decision and it was during the
pendency of the appeal that Sps. Maraya filed the complaint for Annulment of Sale and
Quieting of Title against PNB and the spouses Cerro before the RTC.

The RTC ruled in favor of Sps. Maraya. The appellate court affirmed the decision of the
trial court.

Issue: WON the extrajudicial foreclosure sale conducted is valid even in the absence of
publication of the notice of foreclosure of mortgage

Held: NO. This Court cannot bring itself to agree with PNB's position that its failure to
comply with the requirement of publication is excusable because the spouses Maraya
had knowledge of the extrajudicial foreclosure proceedings.

Statutory provisions governing publication of notice of mortgage foreclosure sales must

be strictly complied with, and that even slight deviations therefrom will invalidate the
notice and render the sale at least voidable. Indeed, one of the most important
requirements of Act No. 3135 is that the notice of the time and place of sale shall be
given. If the sheriff acts without notice, or at a time and place other than that designated
in the notice, the sheriff acts without warrant of law. Publication is required to give the
extrajudicial foreclosure sale a reasonably wide publicity such that those interested
might attend the public sale. To allow the parties to waive this jurisdictional requirement
would result in converting into a private sale what ought to be a public auction.

Wherefore, the petition is denied.

 Tambunting v. CA
G.R. No. L-48278, November 8, 1988

Facts: Private respondents, spouses Damaso R. Cruz and Monica Andres obtained a
loan from petitioners, spouses Antonio and Aurora Tambunting in the amount of PHP
3,600.00. The Tambuntings are engaged in the lending-pawnshop business using the
name and style "Agencia de Tambunting", with co-petitioner Jose P. Tambunting as
Manager. The loan was evidenced by a promissory note executed by the Cruzes. As
security for payment of the loan, a Deed of Real Estate Mortgage was executed by the
Cruzes in favor of the Tambuntings over a parcel of land belonging to the Cruzes,
covered by a Transfer Certificate of Title.

Due to debtors' failure to pay the loan obligation at maturity, a petition for extrajudicial
foreclosure of mortgage was filed by the creditors. Thereafter, a notice of sheriff's sale
was posted announcing an auction sale. As shown by the affidavit of publication, the
notice of sale was published in the Rizal Chronicle, a newspaper of general circulation
in Rizal province, but petitioners were enjoined from proceeding with the scheduled
sale. This happened for the second time.

On 26 January 1968, the Cruzes thru counsel wrote the Provincial Sheriff of Rizal
asking that the auction sale set for that day be postponed to some other date
considering that there was no compliance with the notices required by law. The
mortgage property was nonetheless sold at public auction on 26 January 1968 to
Aurora Tambunting and Antonio Tambunting for P9,400.05. Thereafter, mortgagee-
vendee Antonio Tambunting sold and transferred his ½ share in the property to his wife
Aurora Tambunting. Private respondents filed a complaint for the subsequent transfers
of the mortgaged property despite alleged non-compliance with the requirement of Act
No. 3135, Section 3 on posting and publication of the notice of foreclosure sale.

The CFI held that the deed of sale is null and void. The CA affirmed the judgement of
the CFI.

Issue: WON Section 3 of Act No. 3135 was not complied with

Held: YES. Petitioners assign two (2) errors allegedly committed by the Court of
Appeals: First, the Court of First Instance and the Court of Appeals erroneously nullified
and set aside the auction sale for lack of compliance with the formalities of law, when
the sale on 26 January 1968 was purely a postponement of previously scheduled sales,
notices of which had been posted and published as required by law. Consequently, the
nullification of the various deeds of transfer and transfer certificates of title resulting from
said sale is unwarranted, contend the petitioners. Second, the Court of Appeals erred in
granting the Cruzes' petition for accounting of fruits, etc. after judgment had been
rendered, because this was tantamount to a modification of the trial court's judgment,
and an appellee, who is not an appellant, cannot seek affirmative relief from the
appellate court.

Where required by the statute or by the terms of the foreclosure decree, public notice of
the place and time of the mortgage foreclosure sale must be given, a statute requiring it
being held applicable to subsequent sales as well as to the first advertised sale of the
property. It has been held that failure to advertise a mortgage foreclosure sale in
compliance with statutory requirements constitutes a jurisdictional defect invalidating the
sale and that a substantial error or omission in a notice of sale will render the notice
insufficient and vitiate the sale.

Wherefore, petition is denied.

 Ouano v. CA
G.R. No. 129279, March 4, 2003

Facts: Respondent Julieta Ouano, now deceased, obtained a loan from PNB in the
amount of PHP 104,280.00. As security for said loan, she executed a real estate
mortgage over two parcels of land located at Opao, Mandaue City. She defaulted on her
obligation. PNB then filed a petition for extrajudicial foreclosure with the City Sheriff of
Mandaue City.

The sheriff prepared a notice of sale setting the date of public auction of the two parcels
of land. He caused the notice to be published in the Cebu Daily Times, a newspaper of
general circulation in Mandaue City. He likewise posted copies thereof in public places
and in the place where the properties are located. However, the sale as scheduled and
published did not take place as the parties, on four separate dates, executed
Agreements to Postpone Sale (Agreements). These Agreements were addressed to the
sheriff, requesting the latter to defer the auction sale to another date at the same time
and place, "without any further republication of the Notice."

In all these postponements, no new notice of sale was issued, nor was there any
republication or reposting of notice for the rescheduled dates. Finally, on May 29, 1981,
the sheriff conducted the auction sale, awarding the two parcels of land to PNB, the only
bidder. He executed a Certificate of Sale certifying the sale for and in consideration of
PHP 195, 510.50.12.

Julieta filed a complaint with the RTC of Cebu for the nullification of the foreclosure sale.
The RTC rendered a decision in favor of Julieta, holding that the lack of republication
rendered the foreclosure sale void. The CA affirmed the trial court’s ruling.

Issue: WON the requirements of Act No. 3135 were complied with in the May 29, 1981
foreclosure sale

Held: NO. It is a well-settled rule that statutory provisions governing publication of

notice of mortgage foreclosure sales must be strictly complied with, and that even slight
deviations therefrom will invalidate the notice and render the sale at least voidable. In a
number of cases, we have consistently held that failure to advertise a mortgage
foreclosure sale in compliance with statutory requirements constitutes a jurisdictional
defect invalidating the sale. Consequently, such defect renders the sale absolutely void
and no title passes.
Publication is required to give the foreclosure sale a reasonably wide publicity such that
those interested might attend the public sale. To allow the parties to waive this
jurisdictional requirement would result in converting into a private sale what ought to be
a public auction.

Wherefore, the decision of the Court of Appeals is affirmed.

 Olizon v. CA
G.R. No. 107075, September 1, 1994

Facts: Sps. Olizon obtained a loan from Prudential Bank in the amount of PHP
25,000.00 and as security, they executed in favor of the bank a real estate mortgage
over a parcel of land consisting of 1,000 square meters. Olizon spouses failed to pay
their obligation upon its maturity so the bank extrajudicially foreclosed the REM. At a
public auction held thereafter, the subject property was sold to respondent bank as the
highest bidder, pursuant to which it was issued a certificate of sale as of the same date.
The said certificate of sale was duly annotated at the back of Olizon’s TCT.

Due to the failure of the spouses to redeem the foreclosed property within the period of
redemption, title to the property was consolidated in favor of the bank. The bank then
filed with the RTC a petition to reconstitute TCT which was lost in the Office of the
Registry of Deeds. It was granted. Old TCT in the name of the spouses was cancelled
and a new TCT was issued in the name of the bank.

The bank then filed with the RTC a petition for the issuance of a writ of possession
against the spouses. A petition, by way of opposition, was filed by the spouses wherein
they sought the cancellation of the writ of possession, the nullification of the certificate
of sale, and the nullification of the foreclosure proceedings. They alleged lack of notice
of the auction sale and lack of posting of the notice of sale as required by Section 3 of
Act No. 3135, as amended.

The RTC ruled that the foreclosure of the real estate mortgage executed by the bank
and the certificate of sale as null and void. The CA reversed the RTC’s decision.

Issue: WON personal notice to the mortgagors about the foreclosure is necessary,
WON the requirement on posting the notice of sale was not complied with

Held: NO, on both issues. It is now a well-settled rule that personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary. Section 3 of Act
No. 3135 requires only the posting of the notice of sale in three public place and the
publication of that notice in a newspaper of general circulation. Hence, the lack of
personal notice to the mortgagors, herein petitioners, is not a ground to set aside the
foreclosure sale.
There was sufficient publicity of the sale through the newspaper publication. There is
completely no showing that the property was sold for a price far below its value as to
insinuate any bad faith, not was there any showing or even an intimation of collusion
between the sheriff who conducted the sale and respondent bank. This being so, the
alleged non-compliance with the posting requirement, even if true, will not justify the
setting aside of the sale.

Wherefore, the instant petition is denied. The assailed judgement of the CA is affirmed.
GSIS v. CA
 Global Holiday Ownership Corp. v. MBTC
G.R. No. 184081, June 19, 2009

Facts:
 Belisario v. IAC
G.R. No 73503, August 30, 1988
 GC Dalton Industries Inc. v. Equitable PCI Bank
G.R. No. 171169, August 24, 2009

Facts: Equitable PCI Bank extended a PHP 30 Million credit line to Camden Industries
Inc. (CII) allowing the latter to avail of several loans (covered by promissory notes and
to purchase trust receipts. To facilitate collection, CII executed a “hold-out” agreement
in favor of respondent authorizing it to deduct from its savings account any amounts
due. To guarantee payment, petitioner executed a third-party mortgage of its real
properties in Quezon City and Malolos, Bulacan as security for CII’s loans. CII did not
pay its obligations despite respondent’s demands. Consequently, respondent filed a
petition for extrajudicial foreclosure of petitioner’s Bulacan properties in RTC of Bulacan.

The mortgaged properties were then sold at a public auction where respondent was
declared the highest bidder. Consequently, a certificate of sale was issued in
respondent’s favor. Thereafter, respondent filed the certificate of sale and an affidavit of
consolidation of ownership in the Register of Deeds of Bulacan pursuant to Section 47
of the General Banking Law. Hence, petitioner’s TCTs covering the Bulacan properties
were cancelled and new ones were issued in the name of respondent.

Issue: WON the petitioner can still redeem the property

Held: NO. The mortgagor loses all legal interest over the foreclosed property after the
expiration of the redemption period. Under Section 47 of the General Banking Law, if
the mortgagor is a juridical person, it can exercise the right to redeem the foreclosed
property until, but not after, the registration of the certificate of foreclosure sale within
three months after foreclosure, whichever is earlier. Thereafter, such mortgagor loses
its right of redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the RD of
Bulacan on September 13, 2004. This terminated the redemption period granted by
Section 47 of the General Banking Law. Because consolidation of title becomes a right
upon the expiration of the redemption period, respondent became the owner of the
foreclosed properties. Therefore, when petitioner opposed the ex parte motion for the
issuance of the writ of possession on January 10, 2005 in the Bulacan RTC, it no longer
had any legal interest in the Bulacan properties. Nevertheless, even if the ownership of
the Bulacan properties had already been consolidated in the name of respondent,
petitioner still had, and could have availed of the remedy provided in Section 8 of Act
No. 3135.
 Sy v. CA
G.R. No. 83139, April 12, 1989
 Medida v. CA
G.R. No. 98334, May 8, 1992

Facts:
 Idolor v. CA

Facts: Teresita Idolor executed in favor of private respondent Gumersindo De Guzman

a Deed of Real Estate Mortgage with right of extra-judicial foreclosure upon failure to
redeem the mortgage. Upon the failure of the petitioner to settle her mortgage,
respondents went to the Barangay which resulted into a ― Kasunduang Pag-aayos
which noted that the petitioner shall pay within 90 days and her failure would warrant
the foreclosure of the property with the right to repurchase within one year without
interest.

Petitioner failed to comply with her undertaking; thus respondent Gumersindo De

Guzman filed an extrajudicial foreclosure of the real estate mortgage. The property was
sold in a public auction to respondent Gumersindo and the Certificate of Sale was
registered. After more than a year, petitioner filed with the Regional Trial Court of
Quezon City, Branch 220, a complaint for annulment of Sheriff’s Certificate of Sale with
prayer for the issuance of a temporary restraining order (TRO) and a writ of preliminary
injunction.Trial court subsequently issued the TRO and the writ. CA anulled the writ.
 Villanueva v. Cherdan Lending Investors Corp.
G.R. No. 177881, October 13, 2010

Facts: Spouses Peñaredondo obtained from respondent Cherdan Lending Investors

Corporation a loan secured by a real estate mortgage over a parcel of land. Despite
demand, spouses Peñaredondo failed to pay the obligation. Hence, respondent
extrajudicially foreclosed the mortgage. Cherdan won the bid. Upon the expiration of the
redemption period, the title to the property was consolidated and a new title was issued
in respondent’s name.
Writ of possession was issued for Cherdan. Emmanuel C. Villanueva moved for the
reconsideration of the order and the setting aside of the writ of possession on the
ground that he is the owner and is in actual possession of the subject property.
RTC granted Villanueva’s motion and ordered that the same be allowed possession of
the property pending finality of decision of the matter. And writ of possession previously
issued in favor of Cherdan was recalled. Cherdan instituted a special civil action for
certiorari before the CA. CA granted the petition.

Issue: WON a case for annulment of foreclosure is a bar to issuance of writ of

possession

Held: YES. It is settled that the buyer in a foreclosure sale becomes the absolute owner
of the property purchased if it is not redeemed within one year after the registration of
the sale. As such, he is entitled to the possession of the property and can demand that
he be placed in possession at any time following the consolidation of ownership in his
name and the issuance to him of a new TCT.

Time and time again, we have held that it is ministerial upon the court to issue a writ of
possession after the foreclosure sale and during the period of redemption. Upon the
filing of an ex parte motion and the approval of the corresponding bond, the court issues
the order for a writ of possession. The writ of possession issues as a matter of course
even without the filing and approval of a bond after consolidation of ownership and the
issuance of a new TCT in the name of the purchaser..
 Philippine Trust Co., v. Tan Siua
G.R. No. 29736, February 28, 1929

Facts: The plaintiff bank granted to the Visayan General Supply Co., Inc., credit in
current account to the extent of P40,000. Among the stipulations of this contract
material are the following: First, that the Visayan General Supply Co., Inc., should pay
interest on the average daily debit balances of its said current account at the rate of 10
per cent annum, or at such other time as the party of the second part might deem
expedient, and the amount thereof debited in said current account; secondly, that the
debit balance shown in said current account by the books of the bank should be taken
and held to be the true and correct amount owing by the debtor; thirdly, the debtor party
agreed to furnish for the payment of any sum advanced by the bank to debtor.

The defendant mortgaged to the bank the five parcels of land which are the subject of
this proceeding for the purpose of securing the aforesaid indebtedness. In said contract,
there is a further provision that execution should issue against the defendant for any
balance of the aforesaid indebtedness which should not be satisfied from the proceeds
of the sale.

The Visayan General Supply Co. Inc. defaulted and the CFI ruled in favor of the bank,
declaring the defendant to be indebted to the bank in the amount of P53,741.82, with
interest at the rate of P10 per cent per annum, and P4,000 for stipulated attorney's fee.

Issue: WON execution should issue personally against the defendant or the third party
mortgagor

Held: NO. The last error assigned is directed to that feature of the appealed decision in
which the trial court ordered that execution should issue personally against the
defendant for any deficiency that might result from the failure of the mortgaged property
to bring the full amount of the indebtedness due to the creditor. it is admitted by the
appellee that this feature of the judgment must be eliminated, since the defendant did
not assume personal liability for the debt but only mortgaged his property in security
therefor.
From what has been said it follows that that portion of the dispositive part of the
appealed judgment which purports to make the defendant liable for any deficiency must
be eliminated.
 Limpin Jr., v. IAC
G.R. No. 70987, January 30, 1987