CASE DIGEST

CASE No. 1 SORIANO V. BAUTISTA 6 SCRA 946 (1962)

FACTS: Spouses Bautista are the absolute and registered owners of a parcel of land. In May 30, 1956, the said
spouses entered into an agreement entitled Kasulatan ng Sanglaan (mortgage) in favor of spouses Soriano for
the amount of P1,800. Simultaneously with the signing of the deed, the spouses Bautista transferred the
possession of the subject property to spouses Soriano. The spouses Soriano have, since that date, been in
possession of the property and are still enjoying the produce thereof to the exclusion of all other persons
Sometime after May 1956, the spouses Bautista received from spouses Soriano the sum of P450 pursuant to the
conditions agreed upon in the document. However, no receipt was issued. The said amount was returned by the
spouses Bautista
In May 13, 1958, a certain Atty. Ver informed the spouses Bautista that the spouses Soriano have decided to
purchase the subject property pursuant to par. 5 of the document which states that “…the mortgagees may
purchase the said land absolutely within the 2-year term of the mortgage for P3,900.”
Despite the receipt of the letter, the spouses Bautista refused to comply with Soriano’s demand
As such, spouses Soriano filed a case, praying that they be allowed to consign or deposit with the Clerk of Court
the sum of P1,650 as the balance of the purchase price of the land in question
The trial court held in favor of Soriano and ordered Bautista to execute a deed of absolute sale over the said
property in favor of Soriano.
Subsequently spouses Bautista filed a case against Soriano, asking the court to order Soriano to accept the
payment of the principal obligation and release the mortgage and to make an accounting the harvest for the 2
harvest seasons (1956-1957).
CFI held in Soriano’s favor and ordered the execution of the deed of sale in their favor
Bautista argued that as mortgagors, they cannot be deprived of the right to redeem the mortgaged property, as
such right is inherent in and inseparable from a mortgage.

ISSUE: WON spouses Bautista are entitled to redemption of subject property

HELD: No. While the transaction is undoubtedly a mortgage and contains the customary stipulation concerning
redemption, it carries the added special provision which renders the mortgagor’s right to redeem defeasible at
the election of the mortgagees. There is nothing illegal or immoral in this as this is allowed under Art 1479 NCC
which states: “A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An
accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor
if the promise supported by a consideration apart from the price.”
In the case at bar, the mortgagor’s promise is supported by the same consideration as that of the mortgage
itself, which is distinct from the consideration in sale should the option be exercised. The mortgagor’s promise
was in the nature of a continuing offer, non-withdrawable during a period of 2 years, which upon acceptance by
the mortgagees gave rise to a perfected contract of sale.

TENDER INEFFECTIVE AS PREEMPTIVE RIGHT TO PURCHASE BY OTHER PARTY HAS BEEN EXERCISED
The tender of P1,800 to redeem the mortgage by spouses Bautista was ineffective for the purpose intended.
Such tender must have been made after the option to purchase had been exercised by spouses Soriano.
Bautista’s offer to redeem could be defeated by Soriano’s preemptive right to purchase within the period of 2
years from May 30, 1956. Such right was availed of and spouses Bautista were accordingly notified by Soriano.
Offer and acceptance converged and gave rise to a perfected and binding contract of purchase and sale.

CASE No. 2 Santiago v Dionisio

FACTS:
In 1935, Roman San Diego sold a land to Apolonia Santiago, and the sale was recorded in the Register of
Deeds of Bulacan, in accordance with Revised Administrative Code. However, prior to the sale, Roman had already
mortgaged the land to Eulalia Resurreccion. Since the mortgage was also registered pursuant to the Administrative
Code, the mortgage to Eulalia had precedence over the sale. Roman defaulted in his debt, so Eulalia foreclosed the
mortgage and the land was sold at public auction to Angela Dionisio as the highest bidder.
Upon discovery of the sale of the same land to Dionisio, Santiago brought an action to annul the sale to
Dionisio, and Santiago also intervened for the confirmation of the sale and filed her opposition thereto. The lower
court confirmed the sale to Dionisio without prejudice to the rights of Santiago.
Judge Roldan, in Santiago’s action for annulment, ruled that the sale of the land in favor of Dionisio was null
and void, since Santiago was not included as a party to the foreclosure proceedings, but the ownership of Santiago
over the land is subject to the mortgage in favor of Eulalia.
In 1936, Santiago filed an application for registration of the land under her name, and among the oppositors
was Dionisio, who claimed title to the land as purchaser in a foreclosure. Judge PotencianoPecson ruled that the
foreclosure sale did not affect the rights of the applicant Santiago, who had not been made a party to the
proceedings, and decreed the registration of the land in her favor. So, Dionisio filed the present appeal.
ISSUES:
1. Whether or not the sale of land to Dionisio was valid, despite Santiago not being impleaded to the foreclosure
proceedings.
2. Whether or not the land should be registered in the name of Santiago.
HELD: 1. YES, insofar as to the parties to the suit, but not to Santiago. Dionisio argued that Santiago intervened in
the foreclosure suit, thus she is bound by its results. But, the Court found that Santiago’s intervention consisted
merely in opposing the confirmation of the sale. This is not the same as being a party to the suit to the extent of
being bound by the judgment. That judgment had already been rendered and was already in the process of
execution when Santiago intervened. Though the sale was confirmed, the court said that the confirmation was to
be without prejudice to the rights of Santiago. Judge Roldan did not declare the foreclosure sale entirely void, but
only "with regards to the rights of Apolonia Santiago". This means that the foreclosure was ineffective as against
Santiago, although it may be valid as between the parties to the suit (Eulalia and Dionisio). Also, the sale is subject
to Santiago's unforeclosed equity of redemption.
While it is true that Santiago’s interest in the land was subordinate to that of the mortgagee, Eulalia, the
rule of procedure in force at the time the foreclosure was section 255 of Act 190, which required that in an action for
foreclosure "all persons having or claiming an interest in the premises subordinate in right to that of the holder of
the mortgage . . .be made defendants in the action." This rule applied not only to a subordinate lienholder, but also
to a purchaser of real property already mortgaged to another. Failure to implead a subordinate lienholder or
subsequent purchaser renders the foreclosure ineffective as against them. Therefore, there remains in their favor
the "unforeclosed equity of redemption." But the foreclosure is valid as between the parties to the suit.
2. NO.Santiago’s application for registration of the land under her name should be denied. The unforeclosed
equity of Santiago still exists and must be recognized in either of the following ways: 1) to register the land in the
name of Santiago but subject to the mortgage in favor of Eulalia; 2) to register the land in the name of the
oppositorDionisio subject to redemption by Apolonia Santiago.
The Court’s preference is the second method, which was already ruled in the case of De la Paz, et al. vs.
McCondray& Co., Inc., supra, where the Court granted the registration applied for but subject to the prior
purchasers' equitable right of redemption.
It is the previous purchaser, Santiago, who has applied for the registration of the land. However, both by
statute and by jurisprudence, registration may be decreed in favor of an oppositor (Dionisio in this case) whose
ownership has been established. More so, in the present case, the record shows that the opposition of Dionisio
prays for the registration of the land in her favor by asking that she be substituted in place of Apolonia Santiago in
the application for registration.
Registration of the land in the name of Dionisio, the herein oppositor, is proper, subject to Apolonia
Santiago's equitable right of redemption.
Registration of the land in the name of Santiago, who does not become its owner until she has exercised her
right to redeem, would be subject to the objection that it is premature, if not altogether anomalous. But, Santiago’s
equity of redemption is registerable, but only as an encumbrance on a registered title of ownership.
The judgment appealed from is revoked and another one entered, decreeing the registration of the land in
the name of Angela Dionisio, but subject to Apolonia Santiago's equitable right of redemption, which right should
be exercised by her within three months from the date this decision becomes final.

CASE No. 3 RCBC v CA

FACTS
GOYU was granted credit facilities and accommodations by the RCBC initially in the amount of P 30 million.
Upon GOYU’s application, the credit was increased to P50 Million, then P90 Million, then P117 Million. As security,
GOYU executed 2 REM and 2 CM in favor of RCBC, which were registered with the RD. Under the 4 contracts, GOYU
committed itself to insure the mortgaged properties with an insurance company approved by RCBC, and
subsequently endorse and deliver the insurance policies to RCBC. GOYU then obtained 10 policies from MICO.
GOYU’s buildings were gutted by fire and it claimed indemnity from MICO but the latter denied the claim on the
ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by
various courts or that the proceeds were also claimed by other creditors of GOYU. GOYU, alleging better rights to
the proceeds, filed for specific performance and damges before the RTC of Manila Br 3. The trial court ruled in favor
of GOYU for the fire loss claims but ordered it to pay RCBC its loan obligations. On appeal to the CA, it affirmed the
ruling with regard to the liabilities of MICO and RCBC. The trial court and appellate courts both held that, since the
endorsements do not bear the signature of any officer of GOYU, they concluded that the endorsements are
defective. The CA then ordered GOYU to pay its obligation to RCBC without any interest, surcharges and penalties.
ISSUE
Whether or not the ruling of the appellate court is correct.
HELD
The Court held in the negative. The essence or rationale for the payment of interest or cost of money is separate and
distinct from that of surcharges and penalties. The charging of interest for loans forms a very essential and
fundamental element of the banking business.
 CASE No. 4 VEGA v SSS
Topic: Article 1237 – Whoever pays on behalf of the debtor without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or
penalty.
Facts:
Magdalena Reyes owned a piece of titled land in Pilar Village, Las PiñasCIty. On August 17, 1979, she got a
housing loan from SSS for which she mortgaged her land. Late 1979, Reyes asked the Sps Vega to assume the loan
and buy her house and lot since she was to emigrate.
An employee at SSS said, however, that SSS did not approve of members transferring their mortgaged
homes. But the Sps Vega (Vegas) could make a private arrangement with Reyes provided that they pay the monthly
amortizations on time. Vegas agreed for Reyes to execute in their favor a deed of assignment of real property with
assumption of mortgage and paid Reyes P20,000 after she undertook to update the amortizations before leaving
the country. The Vegas took possession of the house in January 1981.
Reyes did not execute the deed of assignment. She left the country and left her sister (Julieta Ofilada) a
special power of attorney to convey ownership of property. Sometime between 1983 and 1984, Ofilada executed the
deed of assignment in favor of the Vegas, kept the original and gave the Vegas two copies, one to be given to the
Home Development Mortgage Fund and kept the other. A storm in 1984 resulted in flood and destroyed their
personal copy.
In 1992, the Vegas learned that Reyes did not update the amortizations because they received a notice to
Reyes from the SSS. They told the SSS that they already gave the payment to Reyes but, since it appeared
indifferent, on January 6, 1992, the Vegas updated the amortization and paid P115,738.48 to the SSS. They
negotiated seven additional remittances and the SSS accepted P8,681 more from the Vegas.
On April 16, 1993, PDC filed an action for sum of money against Reyes before the RTC of Manila, claiming
that Reyes borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500 to buy the lot and construct a
house on it. Apex assigned Reyes' credit to PDC on December 29, 1992. RTC: Reyes must pay the PDC the loan of
P46,398 plus interest and penalties beginning April 11, 1979 as well as attorney's fees and costs. Unable to pay, RTC
issued a writ of execution against Reyes and its Sheriff levied on the property in Pilar Village.
On Feb 16, 1994, the Vegas requested the SSS to acknowledge their status as subrogees and to give them an
update of the account so they could settle it in full. SSS did not reply. RTC sheriff published a notice for the auction
sale of the property on Feb 24, March 3 and 10, 1994. He also gave notice to the Vegas on March 20. The Vegas filed
an affidavit of third party claimant and a motion to quash the levy on the property. However, RTC directed the
sheriff to proceed with the execution.
The Vegas got a telegram informing them that the SSS intended to foreclose on the property to satisfy the
unpaid debt of P38,789.58. The Vegas requested from the SSS in writing for the exact amount of the indebtedness
and for assurance that they would be entitled to the discharge of the mortgage and delivery of the proper
subrogation documents upon payment. They also sent a P37,521.95 manager's check that SSS refused to accept.
The Vegas filed an action for consignation, damages, and injunction with application for preliminary
injunction and TRO against SSS, PDC, the RTC sheriff and the Register of Deeds before the RTC in Las Piñas. While
the case was pending, SSS released the mortgage to PDC. A writ of possession evicted the Vegas from the property.
RTC decided in favor of the Vegas. CA reversed.

Issues:
Whether Reyes validly sold her SSS-mortgaged property to the Vegas given a provision in the mortgage agreement
that she could not do so without the written consent of SSS.

Held:
Yes. SC reversed CA decision.
- The Vegas were able to present adequate proof of Reye's sale of the property to them. The Vegas proved the loss
of the deed of assignment in their favor and what it contained, they offered strong corroboration of the fact of
Reyes' sale of the property to them. They took possession of the house and lot after they bought it. They also paid
for the amortizations to the SSS. And when SSS wanted to foreclose the property, the Vegas sent a manager's check
for the balance of the loan.
- Article 1237 of the Civil Code cannot apply in this case since the debtor (Reyes) consented to the transfer of
ownership of the mortgaged property to the Vegas. Although Paragraph 4 of the mortgage agreement which states
that Reyes must secure the consent of SSS before selling the property, is valid and binding in the sense that SSS
cannot be compelled to recognize the sale before the loan is completely paid, it does not absolutely forbid her, as
owner, from selling the property while the loan remained unpaid. Such stipulation is against public policy, being an
undue impediment or interference on the transmission of property.
- Article 2129 of the Civil Code gives SSS the option of collecting from the third person in possession of the
mortgaged property.

***There are other issues but I focused on that which involved Art. 1237
 CASE No. 5 DBP V MIRANG
The ruling in DBP vs. Mirang (66 SCRA 141 [1975]), wherein the mortgagor was ordered to pay his entire
indebtedness before the redemption was allowed is not controlling because of the different factual settings. The
charter of the mortgagee (DBP) requires the payment of such amount. In the redemption of the mortgaged
property, no charter requires the payment of sums of money other than those provided for under Section 30 of
Rule 39.
Redemption of properties mortgaged with the Philippine National Bank and the Development Bank of the
Philippines and foreclosed either judicially or extrajudicially are governed by special laws which provide for the
payment of all the amounts owed by the debtor. This special protection given to government lending
institutions is not accorded to judgment creditors in ordinary civil actions.27

CASE No. 6 Rural Bank of Caloocan v CA

G.R. No. L-32116 April 2l, 1981

FACTS:

Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for a loan. Valencia
arranged everything about the loan with the bank. He supplied to the latter the personal data required for Castro's
loan application. After the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the
Valencia spouses, signed a promissory note corresponding to her loan in favor of the bank. On the same day, the
Valencia spouses obtained from the bank an equal amount of loan for P3,000.00. They signed another promissory
note (Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her signature as
co-maker.
Both loans were secured by a real-estate mortgage on Castro's house and lot. Later, the sheriff of Manila sent a
notice to Castro, saying that her property would be sold at public auction to satisfy the obligation covering the two
promissory notes plus interest and attorney's fees. Upon request by Castro and the Valencias and with conformity of
the bank, the auction sale was postponed, but was nevertheless auctioned at a later date.
Castro claimed that she is a 70-year old widow who cannot read and write in English. According to her, she has only
finished second grade. She needed money in the amount of P3,000.00 to invest in the business of the defendant
spouses Valencia, who accompanied her to the bank to secure a loan of P3,000.00. While at the bank, an employee
handed to her several forms already prepared which she was asked to sign, with no one explaining to her the nature
and contents of the documents. She also alleged that it was only when she received the letter from the sheriff that
she learned that the mortgage contract which was an encumbrance on her property was for P6.000.00 and not for
P3,000.00 and that she was made to sign as co-maker of the promissory note without her being informed.
Castro filed a suit against petitioners contending that thru mistake on her part or fraud on the part of Valencias she
was induced to sign as co-maker of a promissory note and to constitute a mortgage on her house and lot to secure
the questioned note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with
the court a quo in full payment of her personal loan plus interest.
Castro prayed for:
(1) the annulment as far as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6")
insofar as it exceeds P3,000.00; and
(2) for the discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the court
a quo upon the filing of her complaint.
ISSUE:
Whether or not respondent court correctly affirmed the lower court in declaring the promissory note (Exhibit 2)
invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid
up to the amount of P3,000.00 only.
HELD:
Yes.
RATIO:
While the Valencias defrauded Castro by making her sign the promissory note and the mortgage contract, they also
misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan. Thus, as a
result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and
the bank committed mistake in giving their consents to the contracts. In other words, substantial mistake vitiated
their consents given. For if Castro had been aware of what she signed and the bank of the true qualifications of the
loan applicants, it is evident that they would not have given their consents to the contracts.
Article 1342 of the Civil Code which provides:
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.
We cannot declare the promissory note valid between the bank and Castro and the mortgage contract binding on
Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated insofar as they affect the
bank and Castro on the ground of fraud because the bank was not a participant thereto, such may however be
invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and
misrepresentation inflicted by the Valencias.
Thus, in the case of Hill vs. Veloso, this Court declared that a contract may be annulled on the ground of vitiated
consent if deceit by a third person, even without connivance or complicity with one of the contracting parties,
resulted in mutual error on the part of the parties to the contract.
The fraud particularly averred in the complaint, having been proven, is deemed sufficient basis for the declaration of
the promissory note invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract valid only up to
the amount of P3,000.00.
CASE No. 7Tan Chat v CN-Hodges

G.R. No. L-8219 April 28, 1956

BENITO TAN CHAT, Plaintiff-Appellee, vs. C. N. HODGES, ET AL.,defendants;

C. N. HODGES, Defendant-Appellant.

Jose Ma. Lopez Vito, Jr. for appellee.

Gellado and Galingan for appellant.

PARAS, C. J.: chanrobles virtual law library

The defendant-appellant, C. N. Hodges, was the owner of three lots which he sold on July 6, 1941 to the
plaintiff-appellee, Benito Tan Chat, for P15,105. The latter paid P3,105 in cash mortgaged the lots in favor of the
appellant to secure the payment of the balance of P12,000. The appellant handed over to the appelle a printed form
of mortgage contract which the appellee more or less followed in drafting the deed of mortgage actually executed
and signed by him. In view of appellee's failure to comply with its conditions, the appellant filed a petition with the
sheriff of Iloilo City for the sale of the mortgaged lots in accordance with the provisions of Act No. 3135 as amended.
The corresponding notice was made and the sale at public auction was set for November 23, 1953. Whereupon the
appellee filed in the Court of First Instance of Iloilo a petition for prohibition with injunction. After trial the court
rendered a decision granting the petition and ordering the defendants C. N. Hodges and the sheriff of Iloilo City to
desist from carrying out the scheduled sale. The defendant C. N. Hodges has appealed. law library

The main issue to be decided is whether or not the deed of mortgage contains a special power to foreclose
extra-judicially. The model printed form, Exhibit E, contains in paragraph 7 of the condition that "this mortgage shall,
after notice to the mortgagor, be considered automatically foreclosed, without the necessity of any judicial
proceedings upon the failure of the mortgagor (to comply with the conditions therein specified)"; and, in paragraph
8, the condition that "when this mortgage is automatically foreclosed for any of the causes or reasons enumerated
in the next proceeding paragraph, the mortgagee is hereby authorized by the mortgagor to take possession of the
property herein mortgage without the necessity of resorting to any court proceedings, or any other judicial action."
These provisions were omitted in the deed of mortgage, Exhibit D, actually executed by the appellee in favor of the
appellant, although this contains the following conditions:

3. It is also stipulated that the MORTGAGEE, in selling the property at public auction, shall follow the
procedure provided for in Act No. 3135, the MORTGAGOR in any case to be notified by the MORTGAGEE in
writing by registered mail of the sale. library

4. It is further agreed and stipulated that the conditions and stipulations set forth in the preceding
paragraphs shall not be construed as depriving the MORTGAGEE of his right to institute the corresponding
judicial proceedings to foreclose this mortgage if, in the opinion of the MORTGAGEE, his interests require
such an action.

It is contended for the appellee that the elimination from Exhibit D of the conditions contained in paragraphs
7 and 8 of Exhibit E shows a clear intention on his part to disauthorized extra-judicial foreclosure; and that, in any
event, the special power to foreclose extra-judicially referred to in Act No. 3135 should be specific and unequivocal.

Upon the other hand, it is the theory of the appellant that while the provisions contained in paragraphs 3
and 4 of the deed of mortgage, Exhibit D, do not contain direct phraseology, they nevertheless amount to an
express authority to foreclose extra-judicially. law library

We are inclined to rule in favor of appellant's contention. Section 1 of Act No. 3135, as amended by Act no.
4118, provides that "when a sale is made under a special power inserted in or attached to any real estate mortgage
hereafter made as security for the payment of money or the fulfillment of any other obligations, the provisions of
the following sections shall govern as to the manner in which the sale and redemption shall be effected, whether or
not provisions for the same is made in the power." The sale spoken of is extra-judicial. Paragraphs 3 and 4 of the
deed of mortgage, Exhibit D, taken together, is plainly an express authority for the mortgagee to foreclose extra-
judicially. It is noteworthy that paragraph 3 is to the effect that the mortgagee, in selling the property at public
auction, shall follow the procedure prescribed in Act No. 3135, the mortgagor to be notified by the mortgagee in
writing by registered mail of the date of the sale; and paragraph 4 reserves to the mortgagee the right to foreclose
judicially. If these were not intended to allow extra-judicial foreclosure, the procedure prescribed in Act No. 3135
would not have been mentioned and the mortgagee would not have been required to notify the mortgagor in
writing by registered mail of the sale; and the right would not be reserved to the mortgagee to institute judicial
foreclosure proceedings. This reservation implies the existence of another right, namely, the only remaining remedy
of extra-judicial foreclosure. The omission in Exhibit D of paragraphs 7 and 8 contained in the printed form, Exhibit E
is of no moment since paragraphs 3 and 4 of the deed of mortgage are already sufficient.

While it has been held that a power of sale will not be recognized as contained in mortgage unless it
is given by express grant and in clear and explicit terms, and that there can be no implied power of sale
where a mortgage holds by a deed absolute in form, it is generally held that no particular formality is
required in the creation of the power of sale. Any words are sufficient which evince an intention that the sale
may be made upon default or other contingency. (41 Corpus Juris, p. 926.).

We are not inclined, however, to render judgment in favor of the appellant with reference to his claim for
expenses, attorney's fees, and damages.

Wherefore, the appealed decision is reversed and the petition for prohibition with injunction filed in the
court below dismissed. So ordered, with costs of both instances against the plaintiff-appellee. law library

Reyes, A., Jugo, Bautista Angelo, Concepcion, and Reyes, J. B. L., JJ.,concur.

CASE No. 8 Lim v CA

G.R. No. L-40095 July 29, 1985

FACTS:

It is a Petition for Review on Certiorari filed by spouses LIM assailing the Decision of the Appellate Court in CA-G.R.
No. 35006-R. Based on records, Amparo LIM one of the petitioner, acquired a twenty one (21) hectares property,
comprising of two parcel, at Brgy. Luna, Claveria, Misamis Oriental from Catalino ALEMAN on January 19, 1959,
through a foreclosure for nonpayment of mortgage. The first and second parcel comprising of 11 hectares and 10
hectares, was mortgage to LIM by ALEMAN on February 1, 1957 and March 3, 1960, respectively. Because of
nonpayment, LIM prompted to initiate a foreclosure proceeding against ALEMAN before the Court of First Instance
of Misamis Oriental.

On January 19, 1959, the court rendered judgment, foreclosing the property in favor of LIM. However, on February
29, 1959, the disputed property was levied and sold at a public auction by the Provincial Sheriff of Misamis Oriental
on order of the MTC, Cagayan de Oro. Eugenio LAMBERANG, being the highest bidder, won and took possession of
the property. Thereafter, a corresponding certificate of sale was issued in his favor. On February 27, 1960, LIM
through the sheriff, offered redemption but LAMBERANG objected. Thus, on March 14, 1960 and April 11, 1960
respectively, the court finally issued a certificate of conveyance and writ of possession to LAMBERANG.

On October 31, 1960, the petitioners (spouses LIM) seek final judicial remedy, by filing a case against the Sheriff for
the annulment of execution of sale. It was alleged, that the disputed property cannot be made the subject of any
levy and execution since it was still a public agricultural land at the time of the sale. Ultimately, the court ruled in
favor of petitioner, declaring that the Disputed Property, having been a public land, could not be subjected to a levy
and sale at the public auction. As intervenor, LAMBERANG brought the case on appeal to the CA, which reversed the
judgment.

ISSUE: Whether or not the auction sale of the Disputed Property was valid?

RULING:

The court gave weight and credence to the petition of spouses LIM. Two important dates were given full attention
by the Court; firstly, the mortgage date which would have otherwise appear as January 19,1959 instead of January 17,
1957 and secondly, thepublic auction initiated by the Deputy Sheriff of Misamis Orientalon February 28, 1959, levying
and selling the two parcels of land in question. The court declared that when the Disputed Property was sold at
public auction on February 28, 1959, ALEMAN, as judgment debtor, was no longer the owner of the Disputed
Property, the ownership having been acquired by LIM on January 19, 1959 trough a foreclosure. Therefore, the sale
to LAMBERANG could not have been valid as a result. At the very least, LIM having acquired substantial rights over
the Disputed Property by virtue of the foreclosure, should have been allowed to redeem within the one year period.
Indisputably, LIM offered to do it on February 27, 1960 counting from the one year starting February 28, 1959 during
the auction sale. Also, the mortgage in favor of LIM was executed on February 1, 1957, while the judgment against
ALEMAN was rendered on June 18, 1956. The mortgage was then subsequent to the judgment. In this wise, the court
declared that it is not necessary to rule on whether or not the Disputed Property had already become private
property on the date of the public auction. What is important is the "rights" acquired over the Disputed Property,
irrespective of whether the physical property was or was not a private property. Petitioner’s motion was upheld and
Court of First Instance Order was reinstated, setting aside the decision of C.A. in CA-G.R. No. 35006-R.

CASE No. 9 Malayan Bank v Lagrama

CASE No. 10 Dizon v Gamorro
Facts:
Petitioner, Jose P. Dizon, was the owner of the three parcels of land, situated in Mabalacat, Pampanga. He
constituted a first mortgage to DBP to secure a loan of P38,000.00 and a second mortgage to PNB amounting
P93,831.91.

Petitioner defaulted in the payment of his debt, therefore, the Development Bank of the Philippines
foreclosed the mortgage extrajudicially. Gaborro became interested in the lands of Dizon. But since the property
was already foreclosed by the DPB. They then entered into a contract captioned as “Deed of sale with assumption of
mortgage” and the second contract executed the same day, is called “Option to Purchase Real Estate” After the
execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land.

After the execution of the contract and its conditions to him, Gaborro made several payments to the DBP
and PNB. He improved, cultivated the kinds raised sugarcane and other crops produce.

Jose P. Dizon through his lawyer, wrote a letter to Gaborro informing him that he is formally offering
reimburse Gaborro of what he paid to the banks. Gaborro did not agreed to the demands of the petitioner,
hence, Jose P. Dizon instituted a complaint in the Court of First Instance of Pampanga, alleging that the documents
Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate did not express the true
intention and agreement between the parties. Petitioner, contended that the two deeds constitute in fact a single
transaction that their real agreement was not an absolute sale of the land but merely an equitable mortgage or
conveyance by way of security for the reimbursement or refund by Dizon to Gaborro of any and all sums which the
latter may have paid on account of the mortgage debts in favor of the DBP and the PNB.

Issue:
Whether or not the contract showed the true agreement between the parties.

Held:
No. The court held that the true agreement between the plaintiff and defendant is that the defendant would
assume and pay the indebtedness of the plaintiff to DBP and PNB, and in consideration therefore, the defendant
was given the possession and enjoyment of the properties in question until the plaintiff shall have reimbursed to
defendant fully the amount of P131,831.91 plus 8% interest per annum from October 6, 1959 until full payment, said
right to be exercised within one year from the date the judgment becomes final, if he fails to do so within the said
period, then he is deemed to have lost his right over the lands forever.

CASE No. 11 Belgian v Magallanes

Facts:
X Co. (Magallanes Press) had a mortgage credit against Y Co. (JP Helbronn) for the sum of P14,000 secured
by a first chattel mortgage. Z Co.(Belgian Catholic Missionaries) also had a mortgage credit for the amount of
P30,000 secured by a second chattel mortgage on the same personal property. After this second mortgage has been
executed, the payment of the mortgage credit of X Co. (Magallanes Press) became due, which credit had been
reduced to the sum of P8,000 through partial payments.
W (Jose Ma. Mamije –transferee) acquired said mortgage credit and increased it by P6,000.
Issue:
WON Z co.(Belgian), the second mortgagee, or W (Mamije), the transferee has preferential right to the
mortgage right to the mortgaged property
Held:
Z Co. (Belgian) X CO. (Magallanes), at the time of the transfer of its mortgage right to W (Mamije), had a
preferential right over that of Z Co. (Belgian) for the reminder of the amount of the credit, that is P8,000. Z Co.
(Belgian) had a preferential right to the rest of the value of the mortgaged property after deducting the remaining
mortgage credit of X Co. (Magallanes) The increase of the mortgage security becomes a new mortgage in itself,
inasmuch as the original mortgage did not contain any stipulation in regard to the increase of the mortgage credit,
and even if it did, said increase would take effect only from the date on the increase
CASE No. 12 Baretto v Villanueva
• Rosario Cruzado obtained a loan from Rehabilitation Finance Corporation (RFC).
• To secure payment, she mortgaged the land owned by her and her deceased husband.
• As she failed to pay certain installments on the loan, the mortgage was foreclosed and the RFC acquired the
property.
• Later on, the land was sold back to her conditionally for the amount of P14,269.03, payable in seven years.
• Cruzado, with the consent of RFC, sold to respondent Pura L. Villanueva for P19,000.00 "all their rights, interest,'
title and dominion and over the land.
• Respondent paid P5,500 in advance and executed a promissory note for the balance.
• She was, subsequently, able to secure in her name TCT covering the property and she mortgaged it to petitioner
Magdalena C. Barretto as security for a loan the amount of P30,000.00.
• Having failed to pay the remaining installments on the promissory note, a “Vendor’s lien” (unregistered) was
constituted upon the property in favor of the Cruzados said lien being annotated at the back of TCT.
• She likewise failed to pay her indebtedness of P30,000.00 to petitioner, the latter, instituted against the Villanueva
spouses an action for foreclosure of mortgage.
• The lower court the vendor's lien of Cruzado and the mortgage credit of petitioner Barretto should be paid pro
rata from the proceeds.
• Barettos sought reconsideration of the order of the court giving due course to the said vendor's lien arguing that:
“The vendor's lien, under the New Civil Code of the Philippines, can only become effective in the event of
insolvency of the vendee which has not been proved to exist in the instant case”.

WON vendor’s lien can only become effective in the event of insolvency of vendee.

• YES. (See 1962 Ruling)

1961 CASE(in case Sir will ask)

• NO.
• Nothing in the law shows that the articles of the Civil Code on concurrence and preference of credits, particularly
2242 and 2249, are applicable only to the insolvent debtor.
• If they are intended only for insolvency cases, then other creditor-debtor relationships where there are
concurrence of credits would be left without any rules to govern them, and it would render purposeless the
special laws on insolvency.
• Article 2242 of the new Civil Code enumerates the claims, mortgage and liens that constitute an encumbrance on
specific immovable property, and among them are:
• (2) For the unpaid price of real property sold, upon the immovable sold; and
• (5) Mortgage credits recorded in the Registry of Property.”
• Article 2249of the same Code provides that "if there are two or more credits with respect to the same specific real
property or real rights, they shall be satisfied pro-rataafter the payment of the taxes and assessment upon the
immovable property or real rights.
• Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants the
proceeds of the foreclosure sale.

1962 CASE (Important. This is the new ruling.)

• YES. The SC set aside its original decision (1961 case).
• The question as to whether the Civil Code and the insolvency Law can be harmonized is settled by Article 2243.
• Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles (2242, 2249 concurrence and preference of
credits) shall be considered as mortgages or pledges of real or personal property, or liens within the purview
of legal provisions governing insolvency.
• The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the
Insolvency Law.
• There being no insolvency or liquidation, the claim of the Cruzado, as unpaid vendor, did not require the
character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must remain
subordinate to the latter.

*NOTE: Cruzado is no longer the owner of the property. RFC is the owner.

CASE No. 13 State investment house v CA

 Petitioner SIHI asked to be declared to have highest preference, as mortgagee of respondent PBM, over
specifi c real property subject of the mortgage despite the pendency of rehabilitation/receivership proceedings
pending before the Securities and Exchange Commission (SEC).

Facts:
Petitioner fi led with the SEC in the pending action for settlement of claims of the various creditors of
respondent PBM, a “Motion to Declare and Confi rm the Highest Preference of Movant’s First Mortgage Lien.’’
The SEC hearing offi cer denied said motion. Petitioner appealed this denial to the SEC en banc, which dismissed
the appeal. Then, on appeal before respondent court, the Court of Appeals affi rmed the SEC decision. Finally, fi
nding no reversible error committed by respondent Court of Appeals, the Supreme Court denied due course to
the instant petition. Now, the present motion for reconsideration.

Issue:
Is SIHI entitled to be declared to have highest preference over the property subject of the mortgage?
Held:

“Under the factual circumstances obtaining in the instant case, as well as the applicable provisions of the
law, the Court is duty bound to resolve this issue in the negative.

(1) Petitioner’s motion premature. — “In any rehabilitation/ receivership proceedings where claims of several
creditors shall have to be resolved, the provisions of Title XIX of the Civil Code — “Concurrence and Preference
of Credits’’ apply. In the present case where a mortgaged piece of realty is involved, the following relevant
articles [Arts. 2242 and 2243.] govern, to wit: x x x.
It may easily be seen that petitioner’s motion to declare and confi rm the highest preference of its first
mortgage lien is at the very least premature. There may or may not exist claims enumerated in the above-
cited Article 2242 which, by virtue of Article 2243, shall be considered as mortgagees of the specific property
involved. At best this issue should be resolved in the light of the rehabilitation plan approved by the SEC on
January 3, 1990 which includes the schedule of payment.
Verily, this rehabilitation plan is not included among the matters submitted for review in the present
petition. On this score alone, without having to refer to any of the above-cited decisions yet, the instant
petition may already be dismissed. We shall reserve our ruling on whether or not petitioner may be adjudged
to be a preferred creditor at the proper opportunity when the entire judgment of the SEC shall be before us
for review.’’

(2) The RCBC Case. — “Petitioner cannot compel us to blindly adhere to the case of Philippine Commercial
International Bank vs. Court of Appeals (172 SCRA 436 [1989]), which relied upon the case of Chartered Bank vs.
Imperial and National Bank. (48 Phil. 931 [1928]) It is signifi cant to note that Chartered Bank was decided before the
passage of Republic Act No. 386, the Civil Code of the Philippines (which took effect on August 30, 1950), when the
above cited Articles 2242 and 2243 or any similar provisions were not yet operative.
However, if only to appease petitioner on its insistence that the instant case should be consolidated with
the RCBC as these two cases involve similar facts and issues, we rule to deny such prayer fi rst, because the
decision in RCBC had long been rendered, and second, the factual premises in RCBC are not on all fours with the
instant case.
It is worthy to stress that RCBC was precipitated by the Rizal provincial sheriff’s refusal to execute a
certifi cate of sale of the property sold on public auction before any writ of execution against the conduct of
such public auction had been issued. The regional trial court before which the action for mandamus was fi led by
RCBC granted the petition, thereby ordering respondent provincial sheriff to execute and deliver to petitioner
the Certifi cate of Auction Sale of January 29, 1985, involving the property sold therein. (RCBC vs. IAC, 213 SCRA
830, 833-834.)
Aggrieved thereby, BF Homes fi led an original complaint with then Intermediate Appellate Court (IAC)
for the annulment of this judgment of the regional trial court. This action for annulment before the IAC
prospered and the Register of Deeds of Pasay City was accordingly ordered to suspend the issuance to the
mortgagee-purchaser RCBC of the owner’s copies of the new land titles until the matter shall have been
resolved by the Securities and Exchange Commission in the rehabilitation case before it. It was this judgment of
the IAC which was the subject of the aforecited RCBC Case.
The issues involved in the RCBC Case are, therefore, essentially different from the issues in the instant
case. There, the question of retroactive application of the writ of injunction to the foreclosure proceedings was
involved. Also, the propriety of the IAC’s disposition of the original action for annulment of judgment which is
the proper subject of the petition in the RCBC Case necessarily involves issues concerning the requisite elements
of a void judgment, such as lack of jurisdiction and/ or fraud, accident, mistake or excusable negligence.’’

(3) The case at bar. — “In the present petition, the foreclosure sale of the mortgaged property was declared
by this Court in G.R. No. 87053 to be totally null and void, and petitioner SIHI’s claim was accordingly referred to the
SEC for determination of the preferences or priorities under the law in the settlement of claims of fi rms under
receivership or liquidation. Hence, unlike in RCBC, in the present case there are no longer any previous foreclosure
proceedings to speak of. Also, in the present petition, the factual considerations in the issuance of the pertinent
rehabilitation plan where SIHI’s claim had been reportedly included in the schedule of payment fi nds relevance. This
was not true in the RCBC Case.
As seen in the foregoing disquisition, the resolution of the motion for reconsideration in the RCBC Case is
not a crucial matter in the present case.’’ (State Investment House, Inc. vs. Court of Appeals, 277 SCRA 209
[1997].)

CASE No. 14 Central bank v Morfe

A bank depositor obtained a final judgment for the payment of his time deposit in a savings bank prior to the
institution of liquidation proceedings but after the bank was declared insolvent.
Facts:
The Monetary Board of the Central Bank found F savings bank insolvent and directed the superintendent of
banks to take charge of its assets. Prior to the institution of liquidation proceedings, but after declaration of
insolvency, D, bank depositor, instituted a complaint in the CFI for the recovery of the balance of his time deposit.
A final judgment for the payment of his time deposit was obtained by D.
Issue:
Is the final judgment a preferred claim against the bank?
Held:
No.
(1) Bank deposits not preferred credits. — Bank deposits (Art. 1980.) are considered simple loans and, as such,
are not preferred credits. Considering that the deposit in question, in its inception, was not a preferred credit, it
does not seem logical and just that it should be raised to the category of a preferred credit simply because D, taking
advantage of the long interval between the declaration of insolvency and the fi ling of the petition for judicial
assistance and supervision, was able to secure judgment for the payment of his time deposit.
(2) Effect of contrary rule. — Article 2244(14, b) does not apply to judgments for the payment of deposits in an
insolvent bank which were obtained after the declaration of insolvency. (see Sec. 29, R.A. No. 265 [Central Bank
Act].) A contrary rule or practice would be productive of injustice, mischief and confusion. To recognize such
judgments as entitled to priority would mean that depositors, after learning that the bank is insolvent, would rush to
the courts to secure judgments for the payment of their deposits. Some of the judgments would be default
judgments. Less alert depositors would be prejudiced.
The general principle of equity that the assets of an insolvent are to be distributed ratably among general
creditors applies with full force to the distribution of the assets of a bank.
(3) Effect of final judgment. — The effect of the fi nal judgment is only to fi x the amount of the debt, and not
give priority over other depositors and creditors. After the Monetary Board has declared that a bank is insolvent and
has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefi t of all the
creditors, including depositors. After its insolvency, one cannot obtain an advantage or a preference over another by
an attachment, execution or otherwise.
CASE No. 15 PSB v Lantin
[G.R. No. L-33929. September 2, 1983.]

Facts:
Involved in this case is a duplex-apartment house on a lot situated at San Diego Street, Sampaloc, Manila, and owned
by the spouses Filomeno and Socorro Tabligan.
The duplex-apartment house was built for the spouses by private respondent Candido Ramos, a duly licensed
architect and building contractor, at a total cost of P32,927.00. The spouses paid private respondent the sum of
P7,139.00 only. Hence, the latter used his own money, P25,788.50 in all, to finish the construction of the duplex-
apartment. Later on, the spouses got a loan from Philippine Savings Bank (PSB) and they mortgaged the said
apartment. At the time the mortgages were registered in 1967, the titles were clean from any encumbrance. The
spouses failed to pay. In 1969, the bank foreclosed the property. However, prior to that, year 1968, the architect
filed a collection suit against the spouses. A judgment was rendered in favor of the architect. In 1970, the bank
consolidated ownership.
As the spouses did not have any properties to satisfy the judgment in Civil Case No. 69228, the private respondent
addressed a letter to the petitioner for the delivery to him (private respondent) of his pro-rata share in the value of
the duplex-apartment in accordance with Article 2242 of the Civil Code. The petitioner refused to pay the pro-rata
value prompting the private respondent to file the instant action. As earlier stated, a decision was rendered in favor
of the private respondent.
The parties are agreed that the only issue is whether or not the private respondent is entitled to claim a pro-rata
share in the value of the property in question.
The bank states that the proceeding before the court could not apply Article 2242 because in order to do so, there
must first be foreclosure proceedings or other insolvency proceedings. Consequently, it is argued that private
respondent's unpaid contractor's claim did not acquire the character of a statutory lien equal to the petitioner's
registered mortgage.
Upon the other hand, private respondent Ramos maintains that the proceedings had before the court below can
qualify as a general liquidation of the estate of the spouses Tabligan because the only existing property of said
spouses is the property subject matter of this litigation.

I: WON a collection suit, with only 2 creditors, can be qualified as a settlement of a decedent’s estate thereby
allowing the application of Art 2242?

H:
The proceedings in the court below do not partake of the nature of the insolvency proceedings or
settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid cost of the construction
of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem which are
binding against the whole world. All persons having interest in the subject matter involved, whether they were
notified or not, are equally bound. Consequently, a liquidation of similar import or "other equivalent general
liquidation' must also necessarily be a proceeding in rem so that all interested persons whether known to the parties
or not may be bound by such proceeding.
In the case at bar, although the lower court found that "there were no known creditors other than the plaintiff and
the defendant herein", this can not be conclusive. It will not bar other creditors in the event they show up and
present their claims against the petitioner bank, claiming that they also have preferred liens against the property
involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the bank which is supposed to be
indefeasible would remain constantly unstable and questionable. Such could not have been the intention of Article
2243 of the Civil Code although it considers claims and credits under Article 2242 as statutory liens.
Respondent Ramos admitted in the partial stipulation of facts submitted by both parties that at the time of
the loans to the spouses, the petitioner's bank had no actual or constructive knowledge of any lien against the
property in question. The duplex apartment house was built for P32,927.00. The spouses Tabligan borrowed
P35,000.00 for the construction of the apartment house. The bank could not have known of any contractor's lien
because, as far as it was concerned, it financed the entire construction even if the stated purpose of the loans was
only to "complete" the construction.
Since the action filed by the private respondent is not one which can be considered as "equivalent general
liquidation" having the same import as an insolvency or settlement of the decedent's estate proceeding, the well
established principle must be applied that a purchaser in good faith and for value takes registered land free from
liens and encumbrances other than statutory liens and those recorded in the Certificate of Title. It is an admitted fact
that at the time the deeds of real estate mortgage in favor of the petitioner bank were constituted, the transfer
certificate of title of the spouses Tabligan was free from any recorded lien and encumbrances, so that the only
registered liens in the title were deeds in favor of the petitioner.