REAL ESTATE MORTGAGEISAGUIRRE V. DE LARA 2000Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales Applicationover a parcel of land identifiedGuianga Cadastre, filed with the Bureau of LandsUpon his death, Alejandro de Lara was succeeded by his wife - respondent Felicitas de Lara, as claimantUndersecretary of Agriculture and Natural Resources amended the sales application to cover only 1,600 square metersa subdivision survey was made and the area was further reduced to 1,000 square metersthis lot stands a two-story residential-commercial apartment declared for taxation purposesname of respondents sons - Apolonio and Rodolfo, both surnamed de Lara.respondent obtained several loans from the Philippine National BankWhen she encountered financial difficulties, respondent approached petitioner Cornelio M. Isaguirre, who was married to her niece, for assistancedocument denominated as "Deed of Sale and Special Cession of Rights and Interests" was executed by respondent and petitioner, whereby the former sold a 250 square meter portion of Lot No. 502, together with the two-story commercial and residential structure standing thereon, in favor of petitionerApolonio and Rodolfo de Lara filed a complaint against petitioner for recovery of ownership and possession of the two-story building.[3] However, the case was dismissed for lack of jurisdiction.petitioner filed a sales application over the subject property on the basis of the deed of sale. His application was approvedin the name of petitioner.the overlapping of titlesdamages with the Regional Trial Courtagainst respondentthe trial court rendered judgment onin favor of petitioner, declaring him to be the lawful owner of the disputed property.Court of Appeals reversed the trial courts decision, holding that the transaction entered into by the parties, as evidenced by their contract, was an equitable mortgage, not a saleappellate courts decision was based on the inadequacy of the consideration agreed upon by the parties, on its finding that the payment of a large portion of the "purchase price" was made after the execution of the deed of sale in several installments of minimal amountsthe fact that petitioner did not take steps to confirm his rights or to obtain title over the property for several years after the execution of the deed of saleespondentpraying for the immediate delivery of possession of the subject property, which motion was granted) whether or not the mortgagee 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 mortgagoCourt of Appeals held that petitioner was not entitled to retain possessionmortgagee merely has to annotate his claim at the back of the certificate of title in order to protect his rights against third persons and thereby secure the debt. There is therefore no necessity for him to actually possess the propertypetitioners imagined fears that his lien would be lost by surrendering possession are unfounded.there is nothing to stop the mortgagor de Lara from acquiring possession of the property pending actual payment of the indebtedness to petitioner. This does not in anyway endanger the petitioners right to security since, as pointed out by private respondents, the petitioner can always have the equitable mortgage annotated in the Certificate of Title of private respondent and pursue the legal remedies for the collection of the alleged debt secured by the mortgage. In this case, the remedy would be to foreclose the mortgage upon failure to pay the debt within the required period.It is unfortunate however, that the Court of Appeals, in declaring the transaction to be an equitable mortgage failed to specify in its Decision the period of time within which the private respondent could settle her account, since such period serves as the reckoning point by which foreclosure could ensue. As it is, petitioner is now in a dilemma as to how he could enforce his rights as a mortgageePetitioners claimsMoreover, considering that the transaction was merely an equitable mortgage, then he is entitled to payment of the amount of indebtedness plus interest, and in the event of non-payment to foreclose the mortgage. Meanwhile, pending receipt of the total amount of debt, private respondent is entitled to possession over the disputed property.Petitioner argues that the abovementioned decision merely settled the following matters: (1) that the transaction between petitioner and respondent was not a sale but an equitable mortgage; (2) that OCT No. P-13038 in the name of respondent is validWe do not agree with petitioners contentionsIn his Memorandum, he argues thatIt was respondent who asserted that her transfer of the Property to petitioner was by way of an equitable mortgage and not by sale. After her assertion was sustained by the Courts, respondent cannot now ignore or disregard the legal effects of such judicial declaration regarding the nature of the transaction.Petitioners right as mortgagee to retain possession of the Property so long as the mortgage loan remains unpaid is further supported by the rule that a mortgage may not be extinguished even though then mortgagor-debtor may have made partial payments on the mortgage loan:Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or the creditor.

"Therefore, the debtors heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.Neither can the creditors heir who has received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid."Petitioners position lacks sufficient legal and factual moorings.A mortgage is a contract entered into in order to secure the fulfillment of a principal obligation.[17] It is constituted by recording the document in which it appears with the proper Registry of Property, although, even if it is not recorded, the mortgage is nevertheless binding between the parties.[18] 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.[19] 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.[20] However, even though a mortgagee does not have possession of 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.[21] 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 then be sold at a public auction and the proceeds therefrom given to the creditor to the extent necessary to discharge the mortgage loan. Apparently, petitioners contention that "[t]o require [him] to deliver possession of the Property to respondent prior to the full payment of the latters 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 debtors default in the payment of his loan obligation.Court cannot find any justification in the records to uphold petitioners contention that respondent delivered possession of the subject property upon the execution of the "Deed of Sale and Special Cession of Rights and InterestsIn Alvano v. Batoon,[23] this Court held that "[a] simple mortgage does not give the mortgagee a right to the possession of the property unless the mortgage should contain some special provision to that effect." Regrettably for petitioner, he has not presented any evidence, other than his own gratuitous statements, to prove that the real intention of the parties was to allow him to enjoy possession of the mortgaged property until full payment of the loan.we hold that the trial court correctly issued the writ of possession in favor of respondentthus, it would be redundant for respondent to go back to court simply to establish her right to possess subject property. Contrary to petitioners claims, the issuance of the writ of possession by the trial court did not constitute an unwarranted modification of our decision in G.R. No. 120832, but rather, was a necessary complement theretopetitioner knew from the very beginning that there was really no sale and that he held respondents property as mere security for the payment of the loan obligation. Therefore, petitioner may claim reimbursement only for necessary expenses; however, he is not entitled to reimbursement for any useful expenses[26] which he may have incurredSAMANILLA V. CAJUCOM 1960petition presented by appellee Samanilla in said registration case alleging that respondents Cajucom had executed in her favor, on December 20, 1955, a real estate mortgage over their rights and participation on the parcel of landto secure a loan of P10,000.00; that sometime in February, 1956, respondents borrowed the title from her on the excuse that they needed it to segregate from the land the portion claimed by other persons; and that thereafter, petitioner asked for the return of the title so that she could register her mortgage, but respondents refused. Attached to the petition were the deed of mortgage and the affidavits of petitioner and a certain Antonio G. Javier, who allegedly was the one who borrowed the title from petitioner in behalf of respondentsespondents opposed the petition, claiming that the mortgage in question was void ab initio for want of consideration, and that the issues should be litigated in an ordinary civil action. The opposition notwithstanding, the lower court enterefinding the petition well-taken and ordering respondents to surrender their title either to the Register of Deeds or to the Court.The appeal has no merit. Appellants' sole objection to the registration of the deed of mortgage is that the same was executed without any consideration). This presumption appellants cannot overcome by a simple assertion of lack of consideration. Especially may not the presumption be so lightly set aside when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities as in this caseOnce a mortgage has been signed in due form, the mortgagee is entitled to its registration as a matter of right. By executing the mortgage the mortgagor is understood to have given his consent to its registration, and he cannot be permitted to revoke it unilaterally. The validity and fulfillment of contracts cannot be left to the will of one of the contracting partiesTo overcome the presumption of consideration, appellants must show the alleged lack of consideration of the mortgage by preponderance of evidence in a proper actionAppellants assert that they cannot be compelled to surrender their title for registration of the mortgage in question until they are given an opportunity to show its invalidity in an ordinary civil action, because registration is an essential element of a real estate mortgage and the surrender of their title would complete this requirement of registration. The argument is fallacious, for a mortgage, whether registered or not, is binding between the parties, registration being necessary only to make the same valid against third persons (Art. 2125, New Civil Code). In other words, registration only operates as a notice of the mortgage to others, but neither adds to its validity nor convert an invalid mortgage into a valid one between the parties. Appellants still have the right to show that the mortgage in question is invalid for lack of consideration in an ordinary action and there ask for the avoidance of the deed and the cancellation of its registration. But until such action is filed and decided, it would be too dangerous to the rights of the mortgagee to deny registration of her mortgage, because her rights can so easily be defeated by a transfer or conveyance of the mortgaged property to an innocent third personIn Gurbax Singh Pabla & Co., et al. vs. Reyes, et al., 92 Phil., 177; 48 Off. Gaz., 4365, this Court had the occasion to rule that "if the purpose of registration is merely to give notice, the questions regarding the effect or invalidity of instruments are expected to be decided after, not before, registration. It must follow as a necessary consequence that registration must first be allowed and validity or effect litigated afterwards".However, the appellee correctly points out that the same is inapplicable to this case because the only question raised and decide therein was whether an order of the registration court requiring the holder of a duplicate certificate of title for the purpose of annotating an attachment, lien, or adverse claim under sec. 72 of Act 496 is appealable or not, and we held that it was, because it resolves important questions as to the respective rights of the parties. It should be remembered that the Land Registration Court may summarily pass upon the validity of adverse claims sought to be registered under sections 72 and 110 of the Land Registration Act, if all the parties agree to submit the precise question to the court (see Gurbax Singh Pabla Co. vs. Reyes, supra); and when it is thus submitted, the losing party may appeal the court's ruling, as held in the Payva case. But appellants herein, by opposing appellee's petition on the ground that their defense of invalidity o the mortgage sought to be registered is contentious and should be litigated in a separate action, precisely refused to submit said question to the Land Registration Court. The court, then, acted correctly in ordering the recording without passing upon the validity of the mortgage in question.

The order appealed from is affirmed, without prejudice to appellants' right to bring a separate action to question the validity of the mortgage in question and ask for the cancellation of its registration. Costs against appellants.MOBIL OIL PHILIPPPINES V. DIOCARES 1969plaintiff alleged that on Feb. 9, 1965 defendants Ruth R. Diocares and Lope T. Diocares entered into a contract of loan and real estate mortgage wherein the plaintiff extended to the said defendants a loan of P45,000.00said defendants also agreed to buy from the plaintiff on cash basis their petroleum requirements in an amount of not less than 50,000 liters per month; that the said defendants will pay to the plaintiff 9-1/2% per annum on the diminishing balance of the amount of their loan; that the defendants will repay the said loan in monthly installments of P950.88 for a period of five (5) yearsto secure the performance of the foregoing obligation they executed a first mortgage on two parcels of land covered by Transfer Certificates of Titleboth issued by the Register of Deeds of Bacolod City.in case of failure of the defendants to pay any of the installments due and purchase their petroleum requirements in the minimum amount of 50,000 liters per month from the plaintiff, the latter has the right to foreclose the mortgage or recover the payment of the entire obligation or its remaining unpaid balance; that in case of foreclosure the plaintiff shall be entitled to 12% of the indebtedness as damages and attorney's feesA copy of the loan and real estate mortgage contract executed between the plaintiff and the defendants is attached to the complaint and made a part thereof. The complaint further alleges that the defendant paid only the amount of P1,901.76 to the plaintiff, thus leaving a balance of P43,098.24, excluding interest,said defendants also failed to buy on cash basis the minimum amount of petroleum which they agreed to purchase from the plaintiff. The plaintiff, therefore, prayed that the defendants be ordered to pay the amount of P43,098.24, with interest at 9-1/2% per annumin default of such payment that the mortgaged properties be sold and the proceeds applied to the payment of defendants' obligation."Defendants, Ruth R. Diocares and Lope T. Diocares, now appellees, admitted their indebtednessdenying merely the alleged refusal to pay, the truth, according to them, being that they sought for an extension of time to do so, inasmuch as they were not in a position to comply with their obligation. They further set forth that they did request plaintiff to furnish them with the statement of accounts with the view of paying the same on installment basis, which request was, however, turned down by the plaintiff.a motion from the plaintiff for a judgment on the pleadings, which motion was favorably acted on by the lower courts to why the foreclosure sought by plaintiff was denied, the lower court order on appealThe Court cannot, however, order the foreclosure of the mortgage of properties, as prayed for, because there is no allegation in the complaint nor does it appear from the copy of the loan and real estate mortgage contract attached to the complaint that the mortgage had been registered. The said loan agreement although binding among the parties merely created a personal obligation but did not establish a real estate mortgage. The document should have been registeredordering defendants "to pay the plaintiff the account of P43,098.24, with interest at the rate of 9-1/2% per annum from the date of the filing of the complaint until fully paid,plaintiff-appellant assigning as errors the holding of the lower court that no real estate mortgage was established and its consequent refusal to order the foreclosure of the mortgaged properties. As set forth at the outset, we find the appeal meritorious. The lower court should not have held that no real estate mortgage was established and should have ordered its foreclosure.The lower court predicated its inability to order the foreclosure in view of the categorical nature of the opening sentence of the governing article 10 that it is indispensable, "in order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property." Note that it ignored the succeeding sentence: "If the instrument is not recorded, the mortgage is nevertheless binding between the parties." Its conclusion, however, is that what was thus created was merely "a personal obligation but did not establish a real estate mortgage."The codal provision 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 foreclosureA contrary conclusion would manifest less than full respect to what the codal provision ordains. The liability of the mortgagor is therein explicitly recognized. To hold, as the lower court did, that no foreclosure would lie under the circumstances would be to render the provision in question nugatory. That we are not allowed to do. What the law requires in unambiguous language must be lived up to. No interpretation is needed, only its application, the undisputed facts calling for itMoreover 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." 12 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.or is the reason difficult to discern why such an exception should be made to the rule that is indispensable for a mortgage to be validly constituted that it be recorded. Equity so demands, and justice is served. There is thus full acknowledgment of the binding effect of a promise, which must be lived up to, otherwise the freedom a contracting party is supposed to possess becomes meaningless. It could be said of course that to allow foreclosure in the absence of such a formality is to offend against the demands of jural symmetry. What is "indispensable" may be dispense with. Such an objection is far from fatal. This would not be the first time when logic yields to what is fair and what is just. To such an overmastering requirement, law is not immune.WHEREFORE, the lower court order of February 25, 1966 is affirmed with the modification that in default of the payment of the above amount of P43,028.94 with interests at the rate of 9-1/2% per annum from the date of the filing of the complaint, that the mortgage be foreclosed with the properties subject thereof being sold and the proceeds of the sale applied to the payment of the amounts due the plaintiff in accordance with law. With costs against defendants-appellees.CRUZ V. BANCOM FINANCE CORPORATION 2002Brothers Rev. Fr. Edilberto Cruz and Simplicio Cruz, plaintiffs herein, were the registered ownersparcel of agricultural land together with improvements located in Barangay Pulang Yantoc, Angat, Bulacandefendant Norma Sulit, after being introduced by Candelaria Sanchez to Fr. Cruz, offered to purchase the land. Plaintiffs asking price for the land was P700,000.00, but Norma only had P25,000.00 which Fr. Cruz accepted as earnest money with the agreement that titles would be transferred to Norma upon payment of the balance of P675,000.00. Norma failed to pay the balance and proposed [to] Fr. Cruz to transfer the property to her but the latter refused, obviously because he had no reason to trust Norma. But capitalizing on the close relationship of Candelaria Sanchez with the plaintiffs, Norma succeeded in having the plaintiffs execute a document of sale of the land in favor of Candelaria who would then obtain a bank loan in her name using the plaintiffs land as collateral. On the same day, Candelaria executed another Deed of Absolute Sale over the land in favor of Norma. In both documents, it appeared that the consideration for the sale of the land was only P150,000.00. Pursuant to the sale, Norma was able to effect the transfer of the title to the land in her name under TCT No. T-248262.Evidence shows that aside from the P150,000.00, Candelaria undertook to pay the plaintiffs the amount of P655,000.00 representing the balance of the actual price of the land. In a Special Agreement dated September 1, 1978, Norma assumed Candelarias obligation, stipulating to pay the plaintiffs the said amount within six months on pain of fine or penalty in case of non-fulfillment. Unknown to the plaintiffs, Norma managed to obtain a loan from Bancom in the amount of P569,000.00 secured by a mortgage over the land now titled in her nameNormas failure to pay the amount stipulated in the Special Agreement and her subsequent disappearance from her usual address, plaintiffs were prompted to file the herein complaint for the reconveyance of the landNorma defaulted in her payment to the Bank and her mortgage was foreclosed. At the subsequent auction sale, Bancom was declared the highest bidder and was issued the corresponding certificate of sale over the land.trial court rendered the herein assailed Decision in favor of the plaintiffs. It ruled that the contract of sale between plaintiffs and Candelaria was absolutely simulated. Consequently, the second contract of sale, that is, between Candelaria and Norma, produced no legal effect. As for Bancom, the trial court held that the Bank was not a mortgagee in good faith thus it can not claim priority of rights over plaintiffs property.[In reversing the RTC, the CA held that the Deeds of Sale were valid and binding, not simulated. Thus, the Contract of Mortgage between Sulit and respondent was likewise valid.CA ruled, intended to be bound by the Contracts of Sale and Mortgage, because they did not seek to annul the same but instead executed a special agreement to enforce payment of the balance of the price in the amount of P665,000.00.[4]

Furthermore, it upheld respondent as a mortgagee in good faith; ergo, it had a preferential right to the land.Whether or not the Honorable Court of Appeals gravely erred when it ruled that respondent bank was a mortgagee in good faith, despite the fact that respondent Bancom was in truth and in fact a mortgagee in bad faith over the subject property.The Petition is meritorious.Validity of the Sale and the MortgageAs a general rule, when the terms of a contract are clear and unambiguous about the intention of the contracting parties, the literal meaning of its stipulations shall control. But if the words appear to contravene the evident intention of the parties, the latter shall prevail over the former.[9] The real nature of a contract may be determined from the express terms of the agreement, as well as from the contemporaneous and subsequent acts of the parties theretoOn the other hand, simulation takes place when the parties do not really want the contract they have executed to produce the legal effects expressed by its wordings.[11] Simulation or vices of declaration may be either absolute or relative. Article 1345 of the Civil Code distinguishes an absolute simulation from a relative one while Article 1346 discusses their effectsAlthough the Deed of Sale[14] between petitioners and Sanchez stipulated a consideration of P150,000, there was actually no exchange of money between them. Petitioner Edilberto Cruz narrated how the transaction came about:His claim was corroborated by Sanchez. She likewise said that the Deed of Sale[16] she executed with Sulit, for which she did not receive any consideration was only for the purpose of placing the title to the property in the latters name.Respondent never offered any evidence to refute the foregoing testimonies.[18] On the contrary, it even admitted that the stipulated consideration of P150,000 in the two Deeds of Sale had never been actually paid by Sanchez to petitioners;[19] neither by Sulit to the formerAnother telling sign of simulation was the complete absence of any attempt on the part of the buyers -- Sanchez and Sulit -- to assert their alleged rights of ownership over the subject property.[21] This fact was confirmed by respondent which, however, tried to justify the non-occupancy of the land by Sanchez and Sulit. Supposedly, because the two failed to pay the purchase price of the land, they could not force petitioners to vacate itThe mortgage was cancelled when she again mortgaged the property to respondent for P569,000 on August 22, 1979. It is also undisputed that petitioners did not receive any portion of the proceeds of the loan.Clearly, the Deeds of Sale were executed merely to facilitate the use of the property as collateral to secure a loan from a bank.[23] Being merely a subterfuge, these agreements could not have been the source of any consideration for the supposed sales.[24] Indeed, the execution of the two documents on the same day sustains the position of petitioners that the Contracts of Sale were absolutely simulated, and that they received no consideration thereforA simulated deed of sale has no legal effect; consequently any transfer certificate of title (TCT) issued in consequence thereof should be cancelled.[29] A simulated contract is not a recognized mode of acquiring ownership.[30]Good Faith of Mortgagee

Petitioners argue that respondent was not a mortgagee in good faith because, at the time it registered the real estate mortgage over the subject property, their adverse claim and notice of lis pendens had already been annotated on the TCT On the other hand, respondent maintains that petitioners were the ones in bad faith, because they already had knowledge of the existence of the mortgage over the property when they caused the annotation of their adverse claim and notice of lis pendens.As a general rule, every person dealing with registered land may safely rely on the correctness of the certificate of title and is no longer required to look behind the certificate in order to determine the actual owner.[31] To do so would be contrary to the evident purpose of Section 39 of Act 496 which we quote hereunder:

Sec. 39. Every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all encumbrances except those noted on said certificate, and any of the following encumbrances which may be subsisting, namely:First. Liens, claims, or rights arising or existing under the laws or Constitution of the United States or of the Philippine Islands which the statutes of the Philippine Islands cannot require to appear of record in the Registry.

Second. Taxes within two years after the same became due and payable.

Third. Any public highway, way, private way established by law, or any Government irrigation canal or lateral thereof, where the certificate of title does not state that the boundaries of such highway, way, or irrigation canal or lateral thereof, have been determined.

But if there are easements or other rights appurtenant to a parcel of registered land which for any reason have failed to be registered, such easements or rights shall remain so appurtenant notwithstanding such failure, and shall be held to pass with the land until cut off or extinguished by the registration of the servient estate, or in any other manner.

This rule is, however, subject to the right of a person deprived of land through fraud to bring an action for reconveyance, provided the rights of innocent purchasers for value and in good faith are not prejudiced. An innocent purchaser for value or any equivalent phrase shall be deemed, under Section 38 of the same Act,[32] to include an innocent lessee, mortgagee or any other encumbrancer for value.[33]

Respondent claims that, being an innocent mortgagee, it should not be required to conduct an exhaustive investigation on the history of the mortgagors title before it could extend a loan.[34]

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands.[35] A banking institution is expected to exercise due diligence before entering into a mortgage contract.[36] The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.[37]

In Rural Bank of Compostela v. CA,[38] we held that a bank that failed to observe due diligence was not a mortgagee in good faith.The evidence before us indicates that respondent bank was not a mortgagee in good faith.[40] First, at the time the property was mortgaged to it, it failed to conduct an ocular inspection.[41] Judicial notice is taken of the standard practice for banks before they approve a loan: to send representatives to the premises of the land offered as collateral and to investigate the ownership thereof.[42] As correctly observed by the RTC, respondent, before constituting the mortgage over the subject property,Respondent was clearly wanting in the observance of the necessary precautions to ascertain the flaws in the title of Sulit and to examine the condition of the property she sought to mortgage.[44] It should not have simply relied on the face of the Certificate of Title to the property, as its ancillary function of investing funds required a greater degree of diligence.[45] Considering the substantial loan involved at the time, it should have exercised more caution.[46]Unless duly registered, a mortgage does not affect third parties like herein petitioners, as provided under Section 51 of PD NO. 1529,[48] which we reproduce hereunder:

SEC. 51. Conveyance and other dealings by registered owner. - An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments [as] are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument except a will, purporting to convey or affect registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the clerk or register of deeds to make registration.

The act of registration shall be the operative act to convey and affect the land, and in all cases under this Act the registration shall be made in the office of the register of deeds for the province or city, where the land lies.

True, registration is not the operative act for a mortgage to be binding between the parties. But to third persons, it is indispensible.[49] In the present case, the adverse claim and the notice of lis pendens were annotated on the title on October 30, 1979 and December 10, 1979, respectively; the real estate mortgage over the subject property was registered by respondent only on March 14, 1980. Settled in this jurisdiction is the doctrine that a prior registration of a lien creates a preference.[50] Even a subsequent registration of the prior mortgage will not diminish this preference, which retroacts to the date of the annotation of the notice of lis pendens and the adverse claim.[51] Thus, respondents failure to register the real estate mortgage[52] prior to these annotations, resulted in the mortgage being binding only between it and the mortgagor, Sulit. Petitioners, being third parties to the mortgage, were not bound by it.[53] Contrary to respondents claim that petitioners were in bad faith because they already had knowledge of the existence of the mortgage in favor of respondent when they caused the aforesaid annotations, petitioner Edilberto Cruz said that they only knew of this mortgage when respondent intervened in the RTC proceedings.[54]

On the question of who has a preferential right over the property, the long-standing rule, as provided by Article 2085[55] of the Civil Code,[56] is that only the absolute owner of the property can constitute a valid mortgage on it. In case of foreclosure, a sale would result in the transmission only of whatever rights the seller had over of the thing sold.[57]

In the instant case, the two Deeds of Sale were absolutely simulated; hence, null and void.[58] Thus, they did not convey any rights that could ripen into valid titles.[59] Necessarily, the subsequent real estate mortgage constituted by Sulit in favor of respondent was also null and void, because the former was not the owner thereof. There being no valid real estate mortgage, there could also be no valid foreclosure or valid auction sale, either. At bottom, respondent cannot be considered either as a mortgagee or as a purchaser in good faith. This being so, petitioners would be in the same position as they were before they executed the simulated Deed of Sale in favor of Sanchez. They are still the owners of the property.[60]MEDIDA V. COURT OF APPEALS 1992whether or not a mortgagor, whose property has been extrajudicially foreclosed and sold at the corresponding foreclosure sale, may validly execute a mortgage contract over the same property in favor of a third party during the period of redemption.plaintiff spouses, alarmed of losing their right of redemption over lot 4731 of the Cebu City Cadastrefrom Mr. Juan Gandioncho, purchaser of the aforesaid lot at the foreclosure sale of the previous mortgage in favor of Cebu City Development Bank, went to Teotimo Abellana, president of defendant Association, to obtain a loan of P30,000.00.their son Teofredo Dolino filed a similar loan application for Twenty-Five Thousand (P25,000.00)with lot No. 4731 offered as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant association. Subsequently, they executed a promissory note in favor of defendant association. Both documents indicated that the principal obligation is for Thirty Thousand (P30,000.00) Pesos payable in one year with interest at twelve (12%) percent per annum.hen the loan became due and demandable without plaintiff paying the same, defendant association caused the extrajudicial foreclosure of the mortgageAfter the posting and publication requirements were complied with, the land was sold at public auctionno redemption having been effected by plaintiff, TCT No. 14272 was cancelledprivate respondents, as plaintiffs therein, assailed the validity of the extrajudicial foreclosure sale of their property, claiming that the same was held in violation of Act No. 3135, as amended, and prayed, inter alia, for the cancellation of Transfer Certificate of Title No. 68041 issued in favor of therein defendant City Savings and Loan Association, Inc., now known as City Savings Bank and one of the petitioners herein.In its answer, the defendant association therein denied the material allegations of the complaint and averred, among others, that the present private respondent spouses may still avail of their right of redemption over the land in question.the court below rendered judgment upholding the validity of the loan and the real estate mortgage, but annulling the extrajudicial foreclosure sale inasmuch as the same failed to comply with the notice requirements in Act No. 3135,Not satisfied therewith, herein private respondents interposed a partial appeal to respondent courcontending that the lower court erred in (1) declaring that the mortgage executed by the therein plaintiff spouses Dolino is validto collect interest after the same foreclosure proceedings and auction sale which are null and void from the beginning; (3) not ordering the forfeiture of the capital or balance of the loan with usurious interest; and (4) not sentencing therein defendant to pay damages and attorney's fees to plaintiffsrespondent Court of Appeals promulgated its decision modifying the decision of the lower courtthe decision appealed from is hereby MODIFIED declaring as void and ineffective the real estate mortgage executed by plaintiffs in favor of defendant associationthe present petition which, in synthesis, postulates that respondent court erred in declaring the real estate mortgage void, and also impugns the judgment of the trial court declaring ineffective the extrajudicial foreclosure of said mortgage and ordering the cancellation of Transfer Certificate of Titleissued in favor of the predecessor of petitioner bank.Said respondent court declared the real estate mortgage in question null and void for the reason that the mortgagor spouses, at the time when the said mortgage was executed, were no longer the owners of the lot, having supposedly lost the same when the lot was sold to a purchaser in the foreclosure sale under the prior mortgage. This holding cannot be sustained.issue of ownership of the mortgaged property was never alleged in the complaint nor was the same raised during the trial, hence that issue should not have been taken cognizance of by the Court of Appeals. An issue which was neither averred in the complaint nor ventilated during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rule of fair play, justice and due process.we are inclined to liberalize the rule so that we can in turn pass upon the correctness of its conclusion. We may consider such procedure as analogous to the rule that an unassigned error closely related to an error properly assigned, or upon which the determination of the question properly assigned is dependent, may be considered by an appellate court. 9 We adopt this approach since, after all, both lower courts agreed upon the invalidity of the extrajudicial foreclosure but differed only on the matter of the validity of the real estate mortgage upon which the extrajudicial foreclosure was based.' two instruments executed by and between petitioner Jose P. Dizon and Alfredo G. Gaborro (defendant below) on the same day, October 6, 1959, constitute in truth and in fact an absolute sale of the three parcels of land therein described or merely an equitable mortgage or conveyance thereof by way of security for reimbursement or repayment by petitioner Jose P. Dizon of any and all sums which may have been paid to the Development Bank of the Philippines and the Philippine National Bank by Alfredo G. Gaborro . . . ." Said documents were executed by the parties and the payments were made by Gaborro for the debt of Dizon to said banks after the Development Bank of the Philippines had foreclosed the mortgage executed by Dizon and during the period of redemption after the foreclosure sale of the mortgaged property to said creditor bank.The two instruments sought to be reformed in this case appear to stipulate rights and obligations between the parties thereto pertaining to and involving parcels of land that had already been foreclosed and sold extrajudicially, and purchased by the mortgage creditor, a third party. It becomes, therefore, necessary, to determine the legality of said rights and obligations arising from the foreclosure and sale proceedings not only between the two contracting parties to the instruments executed between them but also in so far as the agreement affects the rights of the third party, the purchaser Bank.In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right to redeem the lands, the possession, use and enjoyment of the same during the period of redemption. And these are the only rights that Dizon could legally transfer, cede and convey unto respondent Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. A-Stipulation), likewise the same rights that said respondent could acquire in consideration of the latter's promise to pay and assume the loan of petitioner Dizon with DBP and PNB.Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly, because there was absolutely no money consideration therefor, as admittedly stipulated, the sum of P131,831.91 mentioned in the document as the consideration "receipt of which was acknowledged" was not actually paid; and, secondly, because the properties had already been previously sold by the sheriff at the foreclosure sale, thereby divesting the petitioner of his full right as owner thereof to dispose and sell the lands., if not inconsistent, when considered in the context of the discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale merely acquired an inchoate right to the property which could ripen into ownership only upon the lapse of the redemption period without his credit having been discharged, it is illogical to hold that during that same period of twelve months the mortgagor was "divested" of his ownership, since the absurd result would be that the land will consequently be without an owner although it remains registered in the name of the mortgagor.That is why the discussion in said case carefully and felicitously states that what is divested from the mortgagor is only his "full right as owner thereof to dispose (of) and sell the lands," in effect, merely clarifying that the mortgagor does not have the unconditional power to absolutely sell the land since the same is encumbered by a lien of a third person which, if unsatisfied, could result in a consolidation of ownership in the lienholder but only after the lapse of the period of redemption. Even on that score, it may plausibly be argued that what is delimited is not the mortgagor's jus dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal which may correspondingly be restricted.Such mortgage does not involve a transfer, cession or conveyance of the property but only constitutes a lien thereon. There is no obstacle to the legal creation of such a lien even after the auction sale of the property but during the redemption period, since no distinction is made between a mortgage constituted over the property before or after the auction sale thereof.Thus, a redemptioner is defined as a creditor having a lien by attachment, judgment or mortgage on the property sold, or on some part thereof, subsequent to the judgment under which the property was sold. 11 Of course, while in extrajudicial foreclosure the sale contemplated is not under a judgment but the proceeding pursuant to which the mortgaged property was sold, a subsequent mortgage could nevertheless be legally constituted thereafter with the subsequent mortgagee becoming and acquiring the rights of a redemptioner, aside from his right against the mortgagor.In either case, what bears attention is that since the mortgagor remains as the absolute owner of the property during the redemption period and has the free disposal of his property, there would be compliance with the requisites of Article 2085 of the Civil Code for the constitution of another mortgage on the property. To hold otherwise would create the inequitable situation wherein the mortgagor would be deprived of the opportunity, which may be his last recourse, to raise funds wherewith to timely redeem his property through another mortgage thereon.it is undisputed that the real estate mortgage in favor of petitioner bank was executed by respondent spouses during the period of redemption. We reiterate that during said period it cannot be said that the mortgagor is no longer the owner of the foreclosed property since the rule up to now is that the right of a purchaser at a foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised. 12 The title to land sold under mortgage foreclosure remains in the mortgagor or his grantee until the expiration of the redemption period and conveyance by the master's deed. 13 To repeat, the rule has always been that it is only upon the expiration of the redemption period, without the judgment debtor having made use of his right of redemption, that the ownership of the land sold becomes consolidated in the purchaserwhere redemption is seasonably exercised by the judgment or mortgage debtor is not the recovery of ownership of his land, which ownership he never lost, but the elimination from his title thereto of the lien created by the levy on attachment or judgment or the registration of a mortgage thereon.We cannot rule on the plaint of petitioners that the trial court erred in declaring ineffective the extrajudicial foreclosure and the sale of the property to petitioner bank. The court below spelled out at length in its decision the facts which it considered as violative of the provisions of Act No. 3135, as amended, by reason of which it nullified the extrajudicial foreclosure proceeding and its effects. Such findings and ruling of the trial court are already final and binding on petitioners and can no longer be modified, petitioners having failed to appeal therefrom.An appellee who has not himself appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in the decision of the court below.WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the judgment of the trial court, is REVERSED and SET ASIDEDBP V. COURT OF APPEALS 1998Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government;2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977;3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights;4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes;5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question;6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question;7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982;8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband;9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale;10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982;11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba;12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question;13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property;14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 16, 1984;15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food.

ISSUE: Whether the act of DBP in appropriating to itself CUBAs leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid.

HELD: DBPs act of appropriating CUBAs leasehold rights was violative of Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of a debt.Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBAs failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation.The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBPs act of appropriation. Estoppel is unavailing in this case. As held by this Court in some cases,[13] estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel.Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26 October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba spouces] to pay their loan amortizations. This only goes to show that DBP was aware of the necessity of foreclosure proceedings.In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries cancelled CUBAs original lease permit, approved the deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the subsequent acts emanating from DBPs appropriation of the leasehold rights, should therefore be set aside. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code.We agree with CUBA that the assignment of leasehold rights was a mortgage contract.It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of which was covered by a promissory note. In all of these notes, there was a provision that: In the event of foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, if any. [7]Simultaneous with the execution of the notes was the execution of Assignments of Leasehold Rights [8] where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as borrower; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of the deed, it was provided that failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed. And, condition no. 33 provided that if foreclosure is actually accomplished, the usual 10% attorneys fees and 10% liquidated damages of the total obligation shall be imposed. There is, therefore, no shred of doubt that a mortgage was intended.Besides, in their stipulation of facts the parties admitted that the assignment was by way of security for the payment of the loans; thus:PEOPLES BANK AND TRUST CO V. DAHICAN LUMBER COMPANY 1967

I.FACTS

A. Dahican lumber company (DAMCO) obtained several loans amounting to 250,000 pesos from Peoples bank (BANK) and ,together with DALCO, another loan amounting to $250,000 from Export-Import bank secured by five promissory notes through peoples bank. In both loans, DAMCO executed and registered respective mortgages with inclusion of after acquired properties. DAMCO and DALCO failed to satisfy the fifth promissory note in favor of Export bank so Peoples bank paid it and subsequently filed an action for the foreclosure of the mortgaged properties of DAMCO including the after acquired machinery, equipment and spare parts upon the latter's failure to fulfill its obligation.

B. Contention of the Petitioner Peoples bank asserted that the after acquired machinery and equipment of DAMCO are subject to the deed of mortgage executed by DAMCO. Hence, these can be included in the foreclosure proceedings.C. Contentions of the Respondent

DALCO argued that the mortgages were void as regards the after acquired properties because they were not registered in accordance with the chattel mortgage law. Moreover, provision of the fourth paragraph of each of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof being that the mortgagor was willing to constitute a lien over such properties.

RTC- demns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with 7% interest per annum from July 13, 1950,

II.ISSUES TO BE RESOLVEDWhether the after acquired machinery and equipment of DAMCO are included as subject of the Real Estate mortgage, thus can be foreclosed.III.RULING OF THE SUPREME COURTJudgment rendered in favor of Plaintiff Peoples bank. The after acquired machinery and equipment are included in the executed mortgages.It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in the premises on July 13, 1950. In Law, therefore, they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein which were registered as such did not have to be registered a second time as chattel mortgages in order to bind the "after acquired properties" and affect third parties. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in connection with the premises that is, its lumber concession "shall immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included therein at the time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties, We see no useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used thus becoming subject to the inevitable wear and tear but with the understanding express or implied that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties given as security. Indeed, if such properties were of the nature already referred to, it would be poor judgment on the part of the creditor who does not see to it that a similar provision is included in the contract.

MOJICA V. COURT OF APPEALS 1991laintiff Leonardo Mojica (now deceased) contracted a loan of P20,000.00 from defendant Rural Bank of Kawit, Inc. (now respondent). This loan was secured by a real estate mortgage executed on the same date by the plaintiffs spouses Leonardo Mojica and Marina Rufidoreal estate mortgage contract states among others:if the mortgagors shall well and truly fulfill the obligation above stated according to the terms thereof then this mortgage shall become null and void.ouses mortgaged to the Rural Bank of Kawit, a parcel of land consisting of 218,794 square meters, located in Naic, Caviteloan of P20,000.00 by the plaintiffs spouses was fully and completely paid, a new loan in the amount of P18,000.00 was obtained by plaintiffs spouses from the defendant Rural Bank which loan matured on March 5, 1975No formal deed of real mortgage was constituted over any property of the borrowers, although the top of the promissory note dated March 5, 1974, contained the following notation.promissory note is secured by a Real Estate Mortgage executed before the Notary Public of the Municipality of KawiReal Estate Mortgage mentioned above is the registered mortgage which guaranteed the already paid loan of P20,000.00 granted on February 1, 1971The spouses Leonardo Mojica and Marina Rufido failed to pay their obligation after its maturity on March 5, 1975. Respondent rural bank extrajudicially foreclosed the real estate mortgage on the justification that it was adopted as a mortgage for the new loan of P18,000.00The subject property was set for auction sale by the Provincial Sheriff of Cavite for June 27, 1979. In that auction sale, defendant rural bank was the highest bidder, and its bid corresponded to the total outstanding obligation of plaintiffs spouses Mojica and Rufidoproceeds from the sale of the piece of land of plaintiffs spouses were applied to their outstanding obligation with defendant bankcorresponding certificate of sale in favor of defendant bank was executed by the Provincial SheriffThe one year period for redemption elapses after June 1980 without plaintiffs spouses having redeemed the foreclosure propertyDionisio Mojica, the son of petitioners-spouses, in an apparent attempt to pay the debt of P18,000.00 made a partial payment in the amount of P24,658.00 (P19,958.00 of this amount in check bounced) which the defendant rural bank received and accepted with the issuance of the defendant's official receipt No. 101 269, ackowledging the payment as partial payment of 'past due loan', together with the "interest on past due losenother partial payment was made by Dionisio Mojica in the amount of P9,958.00 in payment also of 64 past due loan' plus "interest on past due loan 7 which payment was received by the defendant rural bank and acknowledged with the issuance of official receipt No. 101844. These payments were, however, considered by the bank as deposit for the repurchase of the foreclosed propertybank executed an affidavit of consolidation of ownership, which it subsequently filed with the Register of Deeds of Cavite. As a result, Transfer Certificate of Title No. T-123964, covering the foreclosed piece of land, was issued in its favor by the Register of Deeds on January 19, 1982. After having consolidated its ownership over the foreclosed property, defendant bank scheduled the parcel of land to be sold at public auction on February 26, 1982, pursuant to the requirement of the law regarding the disposal by a bank of its acquired assets. Dionisio Mojica and one Teodorico Rufido, brother-in-law of plaintiff Leonardo Mojica, were notified of such auction sale However, no sale was consummated during that scheduled sale and the property concerned up to now still remains in the possession of respondent bankrefusal of the same bank to allow Dionisio Mojica to pay the unpaid balance of the loan as per the "Computation Slip" amounting to P21,272.50, resulted in the filing of a complainthe trial court rendered judgment dismissing the complaint.Appellate Court, rendered its decision, aiming in toto the decision of the trial court.petition is devoid of merit.ether or not the foreclosure sale by the Sheriff on June 27, 1979, had for its basis, a valid and subsisting mortgage contract. Otherwise stated, there is a need to ascertain the intention of the parties as to the coverage of the mortgage in question with respect to future advancements.Correspondingly, stipulations in the mortgage document constitute the law between the parties, which must be complied with faithfullyReal Estate Mortgage in the case at bar expressly stipulates that it serves as guaranty

... for the payment of the loan ... of P20,000.00 and such other loans or other advances already obtained or still to be obtained by the mortgagors as makers ...It has long been settled by a long line of decisions that mortgages given to secure future advancements are valid and legal contracts; that the amounts named as consideration in said contract do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements are paid (Lim Julian v. Lutero, 49 Phil. 704-705 [1926]). In fact, it has also been held that where the annotation on the back of a certificate of title about a first mortgage states "that the mortgage secured the payment of a certain amount of money plus interest plus other obligations arising there under' there was no necessity for any notation of the later loans on the mortgagors' title. It was incumbent upon any subsequent mortgagee or encumbrances of the property in question to e e the books and records of the bank, as first mortgagee, regarding the credit standing of the debtorsevidence on record shows that the amounts of P4,700.00 and P9,958.00 were accepted by the bank on July 19 and August 11, 1980 as deposits for conventional redemption after the property covered by real estate mortgage became the acquired asset of the bank and priced at P85,000.00 and after petitioner had lost all rights of legal redemption because more than one year had already elapsed from June 29, 1979, the date the certificate of sale was registered in the office of the Registry of Deeds of Cavite. Indeed, the conventional redemption was subject to be exercised up to March 3, 1982 and was extended up to April 19, 1982 for a fixed amount of P85,000.00. The respondent bank even favored the petitioner by giving them the first preference to repurchase the property but they failed to avail of this opportunity, although the bank "is certainly disposed to release at anytime" the deposits.bidder was the respondent bank which bid for P26,387.04. As the highest bidder, the respondent bank can rightfully consolidate its title over the property. As aptly stated by respondent Court:

It would then be unfair to impute that the trial court allowed defendant bank to appropriate the mortgage property, because after the plaintiff-appellants failed to repurchase the property and filed this action with 'lis pendens', the actions prevented the bank from negotiating for the sale of the property to other buyers.petition is DISMISSED and the assailed decision and resolution of the Intermediate Appellate Court (Court of Appeals) are AFFIRMED

SANTIAGO V. PIONEER SAVINGS AND LOAN BANK 1988

intiff-appellant, Emilia P. Santiago, is the registered owner of a parcel of land situated at Polo, Valenzuela,the Disputed Property).executed a Special Power of Attorney in favor of Construction Resources Corporation of the Philippines (CRCP, for short) authorizing and empowering CRCP:CRCP executed a Real Estate Mortgage over the Disputed Property in favor of FINASIA Investment and Finance Corporation to secure a loan of P1 million. The mortgage contract specifically provided that in the event of default in payment, the mortgagee may immediately foreclose the mortgage judicially or extrajudiciallySpecial Power of Attorney executed by plaintiff-appellant in CRCP's favor, the Real Estate Mortgage by CRCP in favor of FINASIA, together with the Board Resolution dated 28 March 1983 authorizing the CRCP President to sign for and on its behalf, were duly annotated on the TitleFINASIA executed in favor of defendant-appellee, Pioneer Savings & Loan Bank, Inc. (Defendant Bank, for brevity), an "Outright Sale of Receivables without Recourse" including the receivable of P610,752.59 from CRCP.FINASIA executed a "Supplemental Deed of Assignment" in favor of Defendant Bank confirming and ratifying the assignment in the latter's favor of the receivable of P610,752.59 from CRCP and of the mortgage constituted by CRCP over the disputed property.CRCP failed to settle its obligation and Defendant Bank opted for extrajudicial foreclosure of the mortgage. The notice of auction sale was scheduled on 16 May 1985.on learning of the intended sale, plaintiff-appellant filed before the Regional Trial Court of Valenzuela, Metro Manila, Branch CLXXII, an action for declaration of nullity of the real estate mortgage with an application for a Writ of Preliminary InjunctionTrial Court 1 issued a Temporary Restraining Order enjoining the sale at public auction of the Disputed Property.plaintiff-appellant claimed in her Complaint that she was not aware of any real estate mortgage she had executed in favor of Defendant Bank; that she had not authorized anyone to execute any document for the extrajudicial foreclosure of the real estate mortgage constituted on the Disputed Property and that since the notice of Sheriffs sale did not include her as a party to the foreclosure proceedings, it is not binding on her nor on her property.Defendant Bank opposed the application for Preliminary Injunction and asserted its right to extrajudicially foreclose the mortgage on the Disputed Property based on recorded public documents.Trial Court granted the Petition for Preliminary Injunction enjoining the public auction sale of the mortgaged propertTrial Court reconsidered its Order of 30 May 1985, dissolved the Writ of Preliminary Injunction, and ordered the dismissal of the case for lack of cause of action.Plaintiff-appellant appealed to the Court of Appeals, which, as stated at the outset, certified the case to us on a pure question of law.defendant Bank completed its extrajudicial foreclosure and the Disputed Property was sold at public auction on January 1986, after a re-publication of the notice of sale, since the first scheduled sale was enjoined by the Trial Court.Plaintiff-appellant maintains that:erred in dismissing the complaint and lifting the Preliminary Injunction by relying solely on the admission of the counsel of the plaintiff-appellant of certain documentary exhibits presented by the counsel of the defendant-appellee.without merit.The evidence on record sufficiently defeats plaintiff-appellant's claim for relief from extrajudicial foreclosure. Her Special Power of Attorney in favor of CRCP specifically included the authority to mortgage the Disputed Property. The Real Estate Mortgage in favor of FINASIA explicitly authorized foreclosure in the event of default. Indeed, foreclosure is but a necessary consequence of non-payment of a mortgage indebtedness. Plaintiff-appellant, therefore, cannot rightfully claim that FINASIA, as the assignee of the mortgagee, cannot extrajudicially foreclose the mortgaged property. A mortgage directly and immediately subjects the property upon which it is imposed to the fulfillment of the obligation for whose security it was constituted. 6

The assignment of receivables made by the original mortgagee, FINASIA, to Defendant Bank was valid, since a mortgage credit may be alienated or assigned to a third person, in whole or in part, with the formalities required by law. 7 Said formalities were complied with in this case. The assignment was made in a public instrument and proper recording in the Registry of Property was made. 8 While notice may not have been given to plaintiff-appellant personally, the publication of the Notice of Sheriff's Sale, as required by law, is notice to the whole world.

The full-dress hearing that plaintiff-appellant prays for wherein she intends to prove that she tried to contact the President of CRCP to urge him to pay the mortgage loan, that she had failed to do so despite several attempts; that she did not know that FINASIA had sold its receivables including that of CRCP to Defendant Bank; and that she was not informed by CRCP of the scheduled foreclosure sale will not tilt the scales of justice in her favor in the face of incontrovertible documentary evidence before the Court.

Plaintiff-appellant's recourse is against CRCP, specially considering her allegation that the latter had failed to observe their agreement.

PRUDENTIAL BANK V. ALVIAR 2005Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in San Juan, Metro Manilaexecuted a deed of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan worth P250,000.00.[2] This mortgage was annotatedrespondents executed the corresponding promissory noteovering the said loan, which provides that the loan matured on 4 August 1976real estate mortgage contained the following clause:Don Alviar executed another promissory note, PN BD#76/C-345 for P2,640,000.00, secured by D/A SFDX #129, signifying that the loan was secured by a hold-out on the mortgagors foreign currency savings account with the bank under Account No. 129, and that the mortgagors passbook is to be surrendered to the bank until the amount secured by the hold-out is settledrespondent spouses executed for Donalco Trading, Inc., of which the husband and wife were President and Chairman of the Board and Vice Presidentthe loan is secured by Clean-Phase out TOD CA 3923, which means that the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be converted into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of overdraftspetitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan of P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD. The letter likewise mentioned that the securities for the loan were the deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation equipment.[respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2) lots located at Vam Buren and Madison Streetspetitioner moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT No. 438157. Per petitioners computation, respondents had the total obligation of P1,608,256.68, covering the three (3) promissory notes,Respondents filed a complaint for damagesclaiming that they have paid their principal loan secured by the mortgaged property, and thus the mortgage should not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00 made on 6 March 1979 was not a payment made by respondents, but by G.B. Alviar Realty and Development Inc., which has a separate loan with the bank secured by a separate mortgagethe trial court dismissed the complaint and ordered the Sheriff to proceed with the extra-judicial foreclosure.trial court issued an Order setting aside its earlier decision and awarded attorneys fees to respondents.[15] It found that only the P250,000.00 loan is secured by the mortgage on the land covered by TCT No. 438157. On the other hand, the P382,680.83 loan is secured by the foreign currency deposit account of Don A. Alviar, while the P545,000.00 obligation was an unsecured loan, being a mere conversion of the temporary overdraft of Donalco Trading, Inc. in compliance with a Central Bank circular. According to the trial court, the blanket mortgage clause relied upon by petitioner applies only to future loans obtained by the mortgagors, and not by parties other than the said mortgagors, such as Donalco Trading, Inc., for which respondents merely signed as officers thereof.Court of Appeals affirmed the Order of the trial courtIt ruled that while a continuing loan or credit accommodation based on only one security or mortgage is a common practice in financial and commercial institutions, such agreement must be clear and unequivocal. In the instant case, the parties executed different promissory notes agreeing to a particular security for each loan. Thus, the appellate court ruled that the extrajudicial foreclosure sale of the property for the three loans is improper.[Petitioner maintains that the blanket mortgage clause or the dragnet clause in the real estate mortgage expressly covers not only the P250,000.00 under PN BD#75/C-252, but also the two other promissory notes included in the application for extrajudicial foreclosure of real estate mortgage.[20] Thus, it claims that it acted within the terms of the mortgage contract when it filed its petition for extrajudicial foreclosure of real estate mortgage.Finally, petitioner alleges that the mortgage contract was executed by respondents with knowledge and understanding of the dragnet clause, being highly educated individuals, seasoned businesspersons, and political personalities.[31] There was no oppressive use of superior bargaining power in the execution of the promissory notes and the real estate mortgagerespondents claim that the dragnet clause cannot be applied to the subsequent loans extended to Don Alviar and Donalco Trading, Inc. since these loans are covered by separate promissory notes that expressly provide for a different form of security.[33] They reiterate the holding of the trial court that the blanket mortgage clause would apply only to loans obtained jointly by respondents, and not to loans obtained by other parties.[34] Respondents also place a premium on the finding of the lower courts that the real estate mortgage clause is a contract of adhesion and must be strictly construed against petitioner bankissues pertaining to: (i) the validity of the blanket mortgage clause or the dragnet clause; (ii) the coverage of the blanket mortgage clause; and consequently, (iii) the propriety of seeking foreclosure of the mortgaged property for the non-payment of the three loans.it is important to note that one of the loans sought to be included in the blanket mortgage clause was obtained by respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco Trading, Inc. and not in their personal capacity.The mortgage contract states that the mortgage covers as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary. Well-settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders. Officers of a corporation are not personally liable for their acts as such officers unless it is shown that they have exceeded their authority.being an obligation of Donalco Trading, Inc., and not of the respondents, is not within the contemplation of the blanket mortgage clause. Moreover, petitioner is unable to show that respondents are hiding behind the corporate structure to evade payment of their obligations. Save for the notation in the promissory note that the loan was for house construction and personal consumption, there is no proof showing that the loan was indeed for respondents personal consumption. Besides, petitioner agreed to the terms of the promissory note. If respondents were indeed the real parties to the loan, petitioner, a big, well-established institution of long standing that it is, should have insisted that the note be made in the name of respondents themselves, and not to Donalco Trading Inc., and that they sign the note in their personal capacity and not as officers of the corporation.A blanket mortgage clause, also known as a dragnet clausephrased to subsume all debts of past or future origins.Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction.[39] A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.[40] Indeed, it has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts,[41] and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.[blanket mortgage clause in the instant case statesas well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondarycontrary to the finding of the Court of Appeals, petitioner and respondents intended the real estate mortgage to secure not only the P250,000.00 loan from the petitioner, but also future credit facilities and advancements that may be obtained by the respondents. The terms of the above provision being clear and unambiguous, there is neither need nor excuse to construe it otherwise.There, the subsequent loans were not covered by any security other than that for the mortgage deeds which uniformly contained the dragnet clause.In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by a hold-out on his foreign currency savings account, while PN BD#76/C-430, executed by respondents for Donalco Trading, Inc., was secured by Clean-Phase out TOD CA 3923 and eventually by a deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus, the critical issue is whether the blanket mortgage clause applies even to subsequent advancements for which other securities were intended, or particularly, to PN BD#76/C-345.two schools of thought have emerged on this question. One school advocates that a dragnet clause so worded as to be broad enough to cover all other debts in addition to the one specifically secured will be construed to cover a different debt, although such other debt is secured by another mortgage.[44] The contrary thinking maintains that a mortgage with such a clause will not secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the security specified therein,[45] such deficiency being an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it from the arrangement.[46] The latter school represents the better position. The parties having conformed to the blanket mortgage clause or dragnet clause, it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other securities, as the subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a corollary component of the dragnet clause. But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the dragnet clause, but rather, on the new security given. This is the reliance on the security test.based on the reliance on the security test, the California court in the cited case made an inquiry whether the second loan was made in reliance on the original security containing a dragnet clause. Accordingly, finding a different security was taken for the second loan no intent that the parties relied on the security of the first loan could be inferred, so it was held. The rationale involved, the court said, was that the dragnet clause in the first security instrument constituted a continuing offer by the borrower to secure further loans under the security of the first security instrument, and that when the lender accepted a different security he did not accept the offer.[47]In another case, it was held that a mortgage with a dragnet clause is an offer by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the offer was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance.[48]it has been held that in the absence of clear, supportive evidence of a contrary intention, a mortgage containing a dragnet clause will not be extended to cover future advances unless the document evidencing the subsequent advance refers to the mortgage as providing security thereforimproper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the three promissory notes. While the existence and validity of the dragnet clause cannot be denied, there is a need to respect the existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory note. As held in one case, where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security.[50] This is recognition that while the dragnet clause subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to.One other crucial point. The mortgage contract, as well as the promissory notes subject of this case, is a contract of adhesion, to which respondents only participation was the affixing of their signatures or adhesion thereto.[51] A contract of adhesion is one in which a party imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify.[52]If the parties intended that the blanket mortgage clause shall cover subsequent advancement secured by separate securities, then the same should have been indicated in the mortgage contract. Consequently, any ambiguity is to be taken contra proferentum, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care.[54] To be more emphatic, any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it,[55] which is the petitioner in this case.Even the promissory notes in issue were made on standard forms prepared by petitioner, and as such are likewise contracts of adhesion. Being of such nature, the same should be interpreted strictly against petitioner and with even more reason since having been accomplished by respondents in the presence of petitioners personnel and approved by its manager, they could not have been unaware of the import and extent of such contracts.Thus, the mortgaged property could still be properly subjected to foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses which are available to respondents.HEREFORE, the petition is DENIED.

PNB V. SPS CABATINGAN 2008Facts: Respondent spouses Cabatingan obtained two loans, secured by a real estate mortgage, in the total amount of P421, 200 from petitioner Philippine National Bank. However, they were unable to fully pay their obligation despite having been granted more than enough time to do so. Thus, on September 25, 1991, petitioner extrajudicially foreclosed on the mortgage pursuant to Act 3135. Thereafter, a notice of extrajudicial sale was issued stating that the foreclosed properties would be sold at public auction on November 5, 1991 between 9:00 a.m. and 4:00 p.m. at the main entrance of the office of the Clerk of Court on San Pedro St., Ormoc City. Pursuant to the notice, the properties were sold at public auction on November 5, 1991. The auction began at 9:00 a.m. and was concluded after 20 minutes with petitioner as the highest bidder. On March 16, 1993, respondent spouses filed a complaint with the RTC of Ormocfor annulment of extrajudicial foreclosure of real estate mortgage and the November 5, 1991 auction sale. They invoked Section 4 of Act 3135 which provides:Section 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon, and shall be under the direction o