CREDIT TRANSACTIONS PLEDGE
Pledge is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable (Article 2094) or document evidencing incorporeal rights (Article 2095) for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions.
KINDS OF PLEDGE:
1. Voluntary or conventional- created by agreement of the parties 2. Legal- created by operation of law
Characteristics
1. A real contract because it is perfected by the delivery of the thing pledged by the debtor who is called the pledgor to the creditor who is the pledge, or to a third person by common agreement;
2. An accessory contract because it has no independent existence of its own;
3. A unilateral contract because it creates an obligation solely on the part of the creditor to return the thing subject thereof upon the fulfillment of the principal obligation;
4. A subsidiary contract because the obligation incurred does not arise until the fulfillment of the principal obligation to which it is secured.
CAUSE OR CONSIDERATION
1) Principal obligation – In so far as the pledgor is concerned.
2) Compensation stipulated for the pledge or mere liberality of the pledgor – If pledgor is not the debtor.
PLEDGE MORTGAGE
Constituted on movables. Constituted on immovables. Property is delivered to the pledgee, or by
common consent to a 3rd person. Delivery not necessary. Not valid against 3rd persons unless a
description of the thing pledged and the date of the pledge appear in a public instrument.
Not valid against 3rd persons if not registered.
PROVISIONS COMMON TO PLEDGE AND MORTGAGE (Art 2085-2123) ESSENTIAL REQUISITES TO CONTRACTS OF PLEDGE AND MORTGAGE: 1. constituted to secure the fulfillment of a principal obligation
3. the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose
4. cannot exist without a valid obligation. Nevertheless, they may guarantee a voidable or an unenforceable obligation. It may also guarantee a natural obligation.
5. debtor retains the ownership of the thing given as a security and thus debtor-owner bears the risk of loss of the property.
6. when the principal obligation becomes due, the thing in which the pledge or mortgage consists may be alienated for the payment to the creditor.
7. The contract of pledge or mortgage may secure all kinds of obligations, be they pure or subject to a suspensive or resolutory condition.
Common Provisions Governing Pledge or Mortgage
1. Contract may be constituted only by the absolute owner of the thing pledged or mortgaged otherwise, the pledge or mortgage is void, such as that constituted by an impostor. (see De Lara vs. Ayroso, 95 Phil. 185 [1954]; Parqui vs. Philippine National Bank, 96 Phil. 157 [1954])
2. A mortgage of conjugal property by one of the spouses is valid only as to one-half (1/2) of the entire property. (Philippine National Bank vs. Court of Appeals, 98 SCRA 207 [1960]).
3. While it is true that under Article 2085 it is essential that the mortgagor be the absolute owner of the property mortgaged, a mortgagee has the right to rely upon what appears in the certificate of title and does not have to inquire further. Stated differently, an innocent purchaser for value (like a mortgagee) relying on a torrens title issued is protected. (Duran vs. Intermediate Appellate Court, 138 SCRA 491 [19685])
4. A stipulation whereby the thing pledged or mortgaged or under antichresis (Article 2137) shall automatically become the property of the creditor in the event of non-payment of the debt within the term fixed is known as pactum commisorium or pacto commissorio which is forbidden by law and declared null and void (article 2088) PROHIBITION AGAINST PACTUM COMMISSORIUM
1. Stipulation is null and void: Stipulation where thing or mortgaged shall automatically become the property of the creditor in the event of nonpayment of the debt within the term fixed.
2. Requisites of pactum commissorium:
a) There should be a pledge or mortgage.
b) There should be a stipulation for an automatic appropriation by the creditor of the property in the event of nonpayment.
3. Effect on security contract: Nullity of the stipulation does not affect validity and efficacy of the principal contract.
Cases:
Hechanova v. Adil, 1986
No valid mortgage has been constituted in plaintiff's favor, the alleged deed of mortgage being a mere private document and not registered; moreover, it contains a stipulation (pacto comisorio) which is null and void under Article 2088 of Civil Code. Even assuming that the property was validly mortgaged to the plaintiff, his recourse was to foreclose the mortgage, not to seek annulment of the sale.
Sps. Uy Tong v. CA, 1988
Article 2088, Civil Code furnishes the two elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period.
In the case at bar, there is no indication of any contract of mortgage entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks. Further, there was no automatic vesting of title because it took the intervention of the trial court to exact fulfillment of the obligation, which, by its very nature is ".. anathema to the concept of pacto commissorio".
Indivisibility of Mortgage and Pledge
Pledge or mortgage is indivisible. Every portion of the property pledged or mortgaged is answerable for the whole obligations. All the things pledged or mortgaged are liable for the totality of the debt and debtor or his heirs cannot ask for the proportionate extinction of the pledge or mortgage. Indivisibility is not the same as solidarity. The former refers to the object or prestation of the obligation while the latter, to the legal tie of the obligation.
Exceptions:
a) Where each of several things guarantees a determinate portion of the credit. b) Where only a portion of loan was released.
c) Where there was failure of consideration. Notes:
Rule that real property, consisting of several lots should be sold separately, applies to sales in execution, and not to foreclosure of mortgages.
The mere embodiment of a real estate mortgage and a chattel mortgage in one document does not have the effect of fusing both securities into an indivisible whole1
1 CENTRAL BANK vs. CA: The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract. For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art. 2052, of the Civil Code). It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage. It may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay. And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure. Where the
Cases:
Dayrit v. CA,
While it is true that the obligation is merely joint and each of the defendants is obliged to pay only his/her 1/3 share of the joint obligation, the undisputed fact remains that the intent and purpose of the Loan and Mortgage Agreement was to secure, inter alia, the entire loan of P150,000 that the respondent Mobil extended to the defendants.
A mortgage directly and immediately subjects the property upon which it is imposed, the same being indivisible even though the debt may be divided, and such indivisibility likewise being unaffected by the fact that the debtors are not solidarily liable.
"When several things are pledged or mortgaged, each thing for a determinate portion of the debt, the pledges or mortgages are considered separate from each other. But when the several things are given to secure the same debt in its entirety, all of them are liable for the debt, and the creditor does not have to divide his action by distributing the debt among the various things pledged or mortgaged. Even when only a part of the debt remains unpaid, all the things are still liable for such balance. Hence, a mortgage voluntarily constituted by the debtor on two or more parcels of land is one and indivisible, and the mortgagee has the right to have either or both parcels, jointly or singly, sold to satisfy his claim. In case the mortgaged properties are a house and lot, it cannot be claimed that the lot and the house should be sold separately and not together."
Central Bank of the Philippines v. CA, 1985
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case.
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.
Personal Action; Criminal Liability sets in only in case of Fraud/Misrepresentation A promise to constitute a pledge or mortgage, if accepted, gives rise only to a
personal right binding upon the parties and creates no real right on the property. Estafa is committed by a person who, pretending to be the owner of any real
property, shall convey, sell, encumber or mortgage the same or knowing that the real property is encumbered shall dispose of the same as unencumbered.
Provisions Applicable only to Pledge
indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due. The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply;
The pledgor retains his ownership of the thing pledged. He may, therefore, sell the same provided the pledgee consents to the sale. As soon as the pledgee gives his consent, the ownership of the thing pledged is transferred to the vendee subject to the rights of the pledgee, namely, that the thing sold may be alienated to satisfy the obligation (Article 2112) and that the pledgee must continue in possession during the existence of the pledge. (Article 2093, 2098).
Object of Pledge:
All movables within the commerce of man may be pledged as long as they are susceptible of possession.
Incorporeal rights may be pledged. The instruments representing the pledged rights shall be delivered to the creditor; if they be negotiable instruments, they must be indorsed.
Cases:
Vda. De Bautista v. Marcos, 1961
As it is an essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of the thing mortgaged (Art. 2085, N.C.C.), and it appearing that the mortgage was constituted before the issuance of the patent to the mortgagor, the mortgage in question is void and ineffective.
The invalidity of the mortgage contract does not imply the concomitant invalidity of the collateral agreement whereby possession of the land mortgaged was transferred to the mortgagee in usufruct, and the latter, not having been aware of any flaw in her mode of acquisition, is a possessor in good faith (Art. 526, N.C.C.) entitled to all the fruits received during the entire period of her possession in good faith (Art. 544, N.C.C.).
DBP v. CA, 1996
With regard to the validity of the mortgage contracts entered into by the parties, Art. 2085, par. 2, of the New Civil Code specifically requires that the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged. Thus, since the disputed property was not owned by the Olidiana spouses (considering that it was still the subject of a Free Patent Application and no patent was granted to the Olidiana spouses and thus it remains to part of the public domain) when they mortgaged it to petitioner the contracts of mortgage and all their subsequent legal consequences as regards Lot No. 2029 (Pls-61) are null and void. In a much earlier case we held that it was an essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of the property mortgaged, and it appearing that the mortgage was constituted before the issuance of the patent to the mortgagor, the mortgage in question must of necessity be void and ineffective. For, the law explicitly requires as imperative for the validity of a mortgage that the mortgagor be the absolute owner of what is mortgaged.
Cavite Development Bank v. Sps. Lim, 2000
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolgo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property because the
foreclosure sale, by virtue of which the property had awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art. 2085 of the Civil Code, in providing for the essential requisites of the contract of mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.
There is a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.
Under the circumstances of the case, CDB cannot be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagor's title, they cannot be excused from the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas, we noted that it is standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof, noting that banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, for their business is affected with public interest. In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. This self-executed deed should have placed CDB on guard against any possible defect in or question as to the mortgagor's title. Moreover, the alleged ocular inspection report by CDB's representative was never formally offered in evidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo. Duran v. IAC, 1985
In the case at bar, private respondents, in good faith relied on the certificate of title in the name of Fe S. Duran and as aptly stated by respondent appellate court "[e]ven on the supposition that the sale was void, the general rule that the direct result of a previous illegal contract cannot be valid (on the theory that the spring cannot rise higher than its source) cannot apply here for We are confronted with the functionings of the Torrens System of Registration. The doctrine to follow is simple enough: a fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title has already been transferred from the name of the true owner to the name of the forger or the name indicated by the forger.
Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the certificate of title; otherwise everyone dealing with property registered under the torrens system would have to inquire in every instance as to whether the title had been regularly or irregularly issued by the court. Indeed, this is contrary to the evident purpose of the law. Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property. Stated differently, an innocent purchaser for value relying on a torrens title issued is protected. A mortgagee has the right to rely on what appears in the certificate of title and, in the absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate.
Additional Requisites for Pledge
Pledge shall take effect against 3rd persons only if the following appear in a public instrument:
a) Description of the thing pledged. b) Date of the pledge.
Transfer of possession to the creditor or to third person by common agreement is essential in pledge.
o Actual delivery is important.
o Constructive or symbolic delivery of the key to the warehouse is sufficient to show that the depositary appointed by common consent of the parties was legally placed in possession.
Alienation by Owner of Pledge Thing Allowed Subject to Pledge
The thing pledged may be alienated by the pledgor or owner only with the consent of the pledgee. Ownership of the thing pledged is transmitted to the vendee or transferee as soon as the pledge consents to the alienation, but the latter shall continue to have possession. Northern Motors, Inc. v. Coquia, 1975
The contention that an unsecured judgment creditor's only recourse is to levy upon the mortgaged chattels in possession of the judgment debtor, while the unpaid seller and mortgagee has still an independent legal remedy against the mortgagor for recovery of the unpaid balance of the price, is not a justification for setting aside the holding that the said judgment creditor has no right to levy upon the mortgaged chattels and that he could levy only upon the mortgagor's equity of redemption.
The essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and not for the judgment credit of the mortgagor's unsecured creditor. The mortgagee is not obligated to file an "independent action" for the enforcement of his credit. To require him to do so would be a nullification of his lien and would defeat the purpose of the chattel mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his credit. (See Art. 1087, Civil Code)
The breach by the chattel mortgagor of his obligation affects said mortgagor's unsecured judgment creditor, although the latter is not privy to the chattel mortgage contract. The registration of the chattel mortgage is an effective and binding notice to the unsecured judgment creditor. The mortgage creates a real right (derecho real, jus in re or jus ad rem) or a lien which, being recorded, follows the chattel wherever it goes.
The proposition that levy made by the chattel mortgagor's unsecured judgment creditor against the former should prevail over the chattel mortgage credit is devoid of any legal sanction and is glaringly contrary to nature of a chattel mortgage. To uphold that contention is to destroy the essence of a chattel mortgage as a paramount encumbrance on the mortgaged chattel.
The third-party claim filed by the unpaid seller and mortgagee should alert the purchasers of the chattels at the execution sale to the risk which they are taking when take part in the auction sale. They should realize that at an execution sale the buyers acquired only the right of the judgment debtor, which in the case of mortgaged chattels is the mere right of equity of redemption and that the sale does not extinguish the preexisting mortgage lien.
The argument of the judgment creditor that the installments already paid to the mortgagee by the judgment debtor on the chattels (levied on execution by the judgment creditor) should be deducted from the execution sale of said mortgaged chattels, is a point which the judgment creditor does not directly affect him. That matter should be raised by the judgment debtor in a replevin case filed by the chattel mortgagee against the former. The mortgagee is entitled to the possession of the chattel mortgage, and the execution of the mortgaged chattels by the mortgagor's judgment creditor is not justified. Where the mortgaged chattels have been levied upon and sold at public auction to satisfy the judgment credit, which is inferior to the chattel mortgage, and the chattels could no longer be recovered because they had been transferred to persons whose addresses are unknown, the proceeds of the execution sale may be regarded as a partial substitute for the unrecoverable chattels, and the mortgagee is entitled to the entire proceeds without deduction of the expenses of execution.
Right of Pledgee to Retain Pledged Thing until Payment of Debt
The possession of the pledgee constitutes his security. Hence, the debtor cannot demand for its return until the debt secured by it is paid. (See Article 2105; Serrano vs. Court of Appeals, 196 SCRA 107 [1991]) But the right of retention is limited only to the fulfillment of the principal obligation for which the pledge was created. (Article 2098).
RIGHTS AND DUTIES OF CREDITOR IN A PLEDGE
1) Shall take care of the thing pledged with the diligence of a good father of a family. 2) Has right to reimbursement of the expenses made for preserving the thing. Shall be
liable for loss or deterioration of the thing by reason of fraud, negligence, delay or violation of the terms of the contract, but not for fortuitous events.
3) May bring actions pertaining to the owner of the thing in order to recover it from, or defend it against, a 3rd person.
4) Cannot use the thing without the authority of the owner. If he uses the thing without authority, or if he misuses the thing when he was authorized to use it, the owner may ask that it be judicially or extrajudicially deposited.
5) May use the thing if necessary for its preservation.
6) May either claim another thing in pledge or demand immediate payment of the principal obligation if he is deceived on the substance or quality of the thing.
RIGHTS AND DUTIES OF THE PLEDGEE
1) Cannot deposit the thing pledged with a 3rd person, unless there is a contrary stipulation2
Exception: stipulation authorizing pledgee to transfer possession.
2) Is responsible for the acts of his agents or employees with respect to the thing pledged.
3) Has no right to use the thing or to appropriate its fruits without authority from the owner3
4) May cause the public sale of the thing pledged if, without fault on his part, there is danger of destruction, impairment or dimunition in value of the thing. The proceeds of the auction shall be a security for the principal obligation.
PLEDGOR
1) Takes responsibility for the flaws of the thing pledged.
2) Cannot ask for the return of the thing against the will of the creditor, unless and until he has paid the debt and its interest, with expenses in proper cases.
3) Is allowed to substitute the thing which is in danger of destruction or impairment without any fault on the part of the pledgee, with another thing of the same kind and quality.
4) May require that the thing be deposited with a 3rd person, if through the negligence or willful act of the pledgee the thing is in danger of being lost or impaired.
EXTINGUISHMENT OF A PLEDGE 1) Ways to extinguish a pledge:
a) Payment of the debt.
b) Sale of the thing pledged at public auction.
c) Thing pledged is returned by the pledgee to the pledgor or owner.
d) Written statement by the pledgee that he renounces or abandons the pledge. For this purpose, neither the acceptance by the pledgor or owner nor the return of the thing pledged is necessary, and the pledgee becomes a depositary.
2) Presumptions4:
a) If, subsequent to the perfection of the pledge, the thing is found in the possession of the pledgor or owner, there is prima facie presumption that the thing has been returned by the pledgee.
b) If the thing is in the possession of a 3rd person who received it from the pledgor or owner after the constitution of the pledge, there is prima facie presumption that the thing has been returned by the pledgee.
2 YULIONGSIU vs. PNB: There is authority supporting the proposition that the pledgee can temporarily entrust me physical possession of the chattels pledged to the pledgor without invalidating the pledge. In such a case, the pledgor is regarded as holding the pledged property merely as trustee for the pledgee. The type of delivery will depend upon the nature and the peculiar circumstances of each case.
3 PNB vs. ATENDIDO: according to law, a pledgee cannot become the owner of, nor appropriate to himself, the thing given in pledge. If by the contract of pledge the pledgor continues to be the owner of the thing pledged during the pendency of the obligation, it stands to reason that in case of loss of the property, the loss should be borne by the pledgor.
4 MANILA BANKING v TEODORO: In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests (as earlier established in Lopez v. Court of Appeals)
REQUIREMENTS IN SALE OF THE THING PLEDGED BY A CREDITOR, IF CREDIT IS NOT PAID ON TIME
1) Debt is due and unpaid.
2) Sale must be at a public auction.
3) Notice to the pledgor and owner, stating the amount due. 4) Sale must be made with the intervention of a notary public. EFFECT OF THE SALE OF THE THING PLEDGED
1) Extinguishes the principal obligation, whether the price of the sale is more or less than the amount due.
2) if the price is more than amount due, the debtor is not entitled to the excess unless the contrary is provided.
3) If the price of the sale is less, neither is the creditor entitled to recover the deficiency. A contrary stipulation is void.
Manila Surety and Fidelity Co., Inc. v. Velayo, 1967
The accessory character is of the essence of pledge and mortgage. Under Art. 2085 of the Civil Code of 1950, an essential requisite of these contracts is that they be constituted to secure the fulfillment of a principal obligation.
Where the pieces of jewelry were delivered to a surety company "as collateral security and by way of pledge" in a contract of guaranty, and sold at a lower price than the amount of surety, the principal obligation was extinguished and the guarantor cannot recover the deficiency, because Art. 2115 of the Civil Code, in its last portion, clearly establishes that the extinction of the principal obligation supervenes by operation of imperative law that the parties cannot override: "If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary." The effect of this provision cannot be evaded. By electing to sell the articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must abide by the results of the sale.
Pledgee has the obligation to take care of the thing pledged with the diligence of a good father of the family. He is entitled to reimbursement of the expenses incurred for its preservation and he is liable for loss or deterioration by reason of fraud, negligence, delay or violation of the terms of the contract. (Articles 1174, 1170). Pledgee is not authorized to transfer possession of the thing pledged to a third
person.
o Exception: stipulation authorizing pledgee to transfer possession. (Article 2100)
The pledgee has no right to use the thing pledged or to appropriate the fruits thereof without the authority of the owner (Article 2104; see Article 1977). But the pledgee can apply the fruits, income, dividends, or interest, if owing and thereafter to the principal of his credit. (see Article 2132).
o Exception: contrary stipulation
The pledgor may ask that the thing pledged be deposited judicially or extrajudicially. o if the creditor uses the thing without authority;
o if he misuses the thing in any other way (Article 2104);
o if the thing is in danger of being lost or impaired because of the negligence or willful act of the pledge.
Pledgor cannot ask for the return of the thing pledged until said obligation is fully paid including interest due thereon and expenses incurred for its preservation (Article 2099).
o Exception: Pledgor is allowed to substitute the thing pledged which is in danger of destruction or impairment with another thing of the same kind and quality (Article 2107).
The possession of the thing pledged by the debtor or owner subsequent to the perfection of the pledge gives rise to a prima facie presumption that the thing has been returned and, therefore, that the pledge has been extinguished.
When the thing pledged is later found in the hands of the pledgor or the owner, only the accessory obligation of pledge is presumed remitted, not the principal obligation itself (Article 1274).
The sale of the thing pledged extinguishes the principal obligation whether the price of the sale is more or less than the amount due.
o If the price of the sale is more than the amount due the creditor, the debtor is not entitled to the excess unless the contrary is provided;
o In the same way, if the price of the sale is less, neither is the creditor entitled to recover the deficiency. A contrary stipulation is void (Article 2115).
Other Important Matters:
Third parties who has any right in or to the thing pledged may pay the debt as soon as it becomes due and demandable and the creditor cannot refuse to accept payment.
If credit is due before pledge is redeemed, pledge may collect amount due on the credit pledged and apply the same to the obligation and return the excess to pledgor.
If two or more things are pledged, pledgee has the right of choice to which of the things pledged he shall cause to be sold, unless there is a stipulation to the contrary. A third person who is not a party to the principal obligation may secure the latter by
pledging his own property. The law grants him the same rights as a guarantor and he cannot be prejudiced by any waiver of defense by the principal debtor.
Bank of America v. American Realty Corp., 1999
In the absence of express statutory provisions, a mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. In other words, he may pursue either of the two remedies, but not both. By such election, his cause of action can by no means be impaired, for each of the two remedies is complete in itself. Thus, an election to bring a personal action will leave open to him all the properties of the debtor for attachment and execution, even including the mortgaged property itself. And, if he waives such personal action and pursues his remedy against the mortgaged property, an unsatisfied judgment thereon would still give him the
right to sue for a deficiency judgment, in which case, all the properties of the defendant, other than the mortgaged property, are again open to him for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of action undiminished, and any advantages attendant to the pursuit of one or the other remedy are purely accidental and are all under his right of election. On the other hand, a rule that would authorize the plaintiff to bring a personal action against the debtor and simultaneously or successively another action against the mortgaged property, would result not only in multiplicity of suits so offensive to justice and obnoxious to law and equity, but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the residence of the plaintiff, and then again in the place where the property lies." The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary action to recover the indebtedness with the right to execute a judgment thereon on all the properties of the debtor, including the subject matter of the mortgage . . ., subject to the qualification that if he fails in the remedy by him elected, he cannot pursue further the remedy he has waived. Anent real properties in particular, the Court has laid down the rule that a mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage.
The remedies available to the mortgage creditor are deemed alternative and not cumulative. Notably, an election of one remedy operates as a waiver of the other. For this purpose, a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to the provision of Rule 68 of the 1997 Rules of Civil Procedure. As to extra-judicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the petition not with any court of justice but with the Office of the Sheriff of the province where the sale is to be made, in accordance with the provisions of Act No. 3135, as amended by Act No. 4118. In Cerna vs. Court of Appeals, we agreed with the petitioner in said case, that the filing of a collection suit barred the foreclosure of the mortgage. Hence, by the mere filing of the ordinary action for collection against the principal debtors, the petitioner in the present case is deemed to have elected a remedy, as a result of which a waiver of the other necessarily must arise. Corollarily, no final judgment in the collection suit is required for the rule on waiver to apply.
Private respondent ARC constituted real estate mortgages over its properties as security for the debt of the principal debtors. By doing so, private respondent subjected itself to the liabilities of a third party mortgagor. Under the law, third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. Notwithstanding, there is no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property, to be solidarily bound with the principal obligor. The signatory to the principal contract — loan — remains to be primarily bound. It is only upon default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan.
LEGAL PLEDGES
1) Necessary expenses shall be refunded to every possessor, but only a possessor in good faith may retain the thing until he has been reimbursed.
Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired and by reason thereof (Art. 546)
2) He who has executed work upon a movable has a right to retain it by way of pledge until he is paid. (Art. 1731)
3) The agent may retain the things which are the objects of agency until the principal effects the reimbursement and pays the indemnity. (Art. 1914)
4) The laborer’s wages shall be a lien on the goods manufactured or the work done. (Art. 1707)
NOTES:
Unlike in conventional pledge where the debtor is not entitled to the excess unless it is agreed otherwise, in legal pledge, the remainder of the price of the sale after payment of the debt and expenses, shall be delivered to the debtor.
In legal pledge, the pledge must make a demand of the amount due him because without such demand, he cannot exercise the right of sale at public auction.
The pledge must proceed with the sale within one month after demand otherwise, the debtor may require him to return the thing retained.
Special Laws apply to pawnshops and establishments engaged in making loans secured by pledges. Provisions of the Civil Code shall apply subsidiarily to them.
MORTGAGE Definition
Real Mortgage is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, specially subjecting to such security immovable property or real rights over immovable property in case the principal obligation is not complied with at the time stipulated5.
Characteristics
1. It is an accessory and subsidiary contract.
2. It is also unilateral because it creates only an obligation on the part of the creditor who must free the property from the encumbrance once the obligation is fulfilled.
3. The mortgagor, as a general rule, retains possession of the property mortgaged as security for the payment of the sum borrowed from the mortgagee, and pays the latter a certain percent thereof as interest on his principal by way of compensation for his sacrifice
5
DAYRIT v CA: Well-entrenched in law is the rule that a mortgage directly and immediately subjects the property upon which it is imposed, the same being indivisible even though the debt may be divided, and such indivisibility likewise being unaffected by the fact that 'the debtors are not solidarity liable. "When several things are pledged or mortgaged, each thing for a determinate portion of the debt, the pledges or mortgage, are considered separate from each other. But when the several things are given to secure the same debt in its entirety, all of them are liable for the debt, and the creditor does not have to divide his action by distributing the debt among the various things pledged or mortgaged. Even when only a part of the debt remains unpaid, all the things are still liable for such balance." (Tolentino)
in depriving himself of the use of said money and the enjoyment of its fruits, in order to give them to the mortgagor.
4. The objects of a real mortgage are immovable (Article 415) and alienable real rights imposed upon immovables.
Note: While a mortgage of land necessarily includes, in the absence of stipulation, the
improvements thereon, a building by itself may be mortgaged apart from the land on which it is built. Possessory rights over said property before title is vested on the grantee may be validly transferred or conveyed as in a deed of mortgage. (prudential Bank vs. Panis, 153 SCRA 390 [1967]); Nartales vs. GSIS, 156 SCRA 205 [1987]).
5. In order that a mortgage may be validly constituted, it must appear in a public document duly recorded in the Registry of Property (see Gaotian vs. Gaffud, 24 SCRA 706 [1969])
Note: If the instrument of mortgage is not recorded, the mortgage is nevertheless binding
between the parties.
6. A mortgage creates a real right (see Tuazon vs. Grosco, 5 Phil. 596 [1905]), a lien inseparable from the property mortgaged, which is enforceable against the whole world. Until discharged, it follows the property wherever it goes and subsists notwithstanding changes of ownership.
Note:
a.) If the mortgagor sells the mortgaged property, the property remains subject to the fulfillment of the obligation secured by it. (see Bonnevie vs. Court of Appeals, 125 SCRA 122 [1983]) All subsequent purchasers of the property must respect the mortgage, whether the transfer to them be with or without the consent of the mortgagee. But the mortgage must be registered (Article 2125) or, if not registered, the buyer must know of its existence. (see Phil. National Bank & Trust Corp. vs. Court of Appeals, 193 SCRA 158 [1991]) The mortgagor may not be the principal debtor (Article 2085, 2nd par.).
b.) The right or lien of an innocent mortgagee for value upon the mortgaged property must be respected and protected, even if the mortgagor obtained his title through fraud. The remedy of the persons prejudiced is to bring an action for damages against the person who caused the fraud and if the latter is insolvent, an action against the Treasurer of the Philippines may be filed for the recovery of damages against the Assurance Fund (Philippine National Bank vs. Court of Appeals, 187 SCRA 735 [1990])
KINDS 1) Voluntary 2) Legal
3) Equitable – One which, although lacking the proper formalities of a mortgage, shows the intention of the parties to make the property as a security for a debt. - Provisions governing equitable mortgage: Arts. 1365, 1450, 1454, 1602, 1603, 1604 and 1607.
As mortgage is an accessory contract, its consideration is the same as of the principal contract. Therefore it will be valid if the principal obligation is valid and cannot be avoided on the ground of lack of consideration.
Filipinas Marble Corporation v. IAC
A mortgage is a mere accessory contract and, thus, its validity would depend on the validity of the loan secured by it.
Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the immediate parties. It states: "Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties. OBJECTS OF REAL MORTGAGE:
1. immovables (Art. 415)
2. alienable real rights in accordance with the laws, imposed upon immovables * future property cannot be object of mortgage
People’s Bank and Tust Co. v. Dahican Lumber Co.
A stipulation including in the mortgage lien after acquired properties is common and logical in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used — thus becoming subject to the inevitable wear and tear — but with the understanding 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 securities.
Under Articles 334 and 1877 of the old Civil Code substantially reproduced in Articles 415 and 2127 respectively of the new Civil Code, the properties in question being machinery, receptacles, instruments or replacements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of the said industry or works, are classified as immovable properties, therefore not covered by the Chattel Mortgage Law.
Unpaid sellers who were the suppliers or vendors of the after acquired properties and not the financiers, like the defendants herein can claim a right superior to the lien constituted on said properties by virtue of the deeds of mortgage under foreclosure.
Although an extension of time was given to the debtor, considering that when this complaint was filed the debtor was insolvent, it follows that the debtor thereby lost the benefit of the period unless he gives a guaranty or security for the debt (Art. 1198, New Civil Code). Whereas in this case the guaranty given was plainly inadequate, then the foreclosure was proper because the collection of the notes were not premature.
ESSENTIAL REQUISITES (SOFVAP)
1) Constituted to secure the fulfillment of a principal obligation6. 2) Mortgagor must be the absolute owner of the thing mortgaged.
3) The persons constituting the mortgage have free disposal of the property; in the absence thereof, they should be legally authorized for the purpose.
4) Cannot exist without a valid obligation.
5) When the principal obligation becomes due, the thing in which the mortgage consists may be alienated for payment to the creditor.
6) Must appear in a public document duly recorded in the Registry of Property, to be validly constituted.
- In a legal mortgage, the persons in whose favor the law establishes a mortgage have the right to demand the execution and recording of a document formalizing the mortgage.
Tan v. Valdehueza,
Under Article 1875 of the Civil Code of 1889 registration was a necessary requisite for the validity of a mortgage even as between the parties, but under Article 2125 of the New Civil Code, this is no longer so. "If the instrument is not recorded the mortgage is nevertheless binding between the parties.
Where the supposed vendor a retro remained in possession of the land and paid the realty tax thereon, the contract which purports to be a pacto de retro transaction is presumed to be equitable mortgage under Art. 1602 of the New Civil Code, whether registered or not, where no third parties are involved.
Lanuza v. De Leon
Between an unrecorded sale of a prior date and a recorded mortgage of a later date, the former is preferred to the latter for the reason that if the original owner had parted with his ownership of thing sold then he no longer had the ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the mortgage under Act No. 3344 would, in such case, be of no moment since it is understood to be without prejudice to the better right of third parties. (Rivera vs. Moran, 48 Phil. 836 [1926]. Nor would it avail the mortgagee for the execution of the conveyance in a public instrument earlier was equivalent to the delivery of the thing sold to the vendee. (Civil Code, Article 1948; see also Lichauco vs. Berenguer, 39 Phil., 643 [1919]; Bautista vs. Sioson, 39 Phil., 615 [1919]). The stipulation in deed denominated by the parties as a "Deed of Sale With Right to Repurchase" to the effect that if the vendor fails to pay the amount agreed upon within the stipulated period, his right to repurchase the property shall be forfeited and the ownership
6
MOJICA v CA: 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 4 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 (as established earlier in Lim Julian v. Lutero).
over the same would automatically pass to the vendee without need of court intervention, is contrary to the nature of a true pacto de retro sale, under which a vendee acquires ownership of the thing sold immediately upon execution of the sale, subject only to the vendor's right of redemption. (See e.g., Guerrero vs. Yñigo, 96 Phil., 37 [1954]; Floro vs. Granada, 83 Phil., 486 (1949). Indeed, the stipulation which enables the mortgagee to acquire ownership of the mortgaged property without need of foreclosure proceedings establishes a pactum commissorium, and, being contrary to the provisions of Article 2080 of the Civil Code, is a nullity. Its insertion in the contract is an avowal of an intention to mortgage rather than to sell. (Alcantara vs. Alinea, 8 Phil., 111 [1907]).
Between the unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage, and the registered mortgage of De Leon, the latter must be preferred. Preference of mortgage credits is determined by the priority of registration of the mortgages, following the maxim "Prior tempore potior jure".
State Investment House, Inc. v. CA
As a general rule, where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. This rule, however, admits of an exception as where the purchaser or mortgagee, has knowledge of a defect or lack of title in his vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. In this case, petitioner was well aware that it was dealing with SOLID, a business entity engaged in the business of selling subdivision lots. In fact, the OAALA found that "at the time the lot was mortgaged, respondent State Investment House, Inc., [now petitioner] had been aware of the lot's location and that said lot formed part of Capital Park/Homes Subdivision." In Sunshine Finance and Investment Corp. v. Intermediate Appellate Court, the Court, noting petitioner therein to be a financing corporation, deviated from the general rule that a purchaser or mortgagee of a land is not required to look further than what appears on the face of the Torrens Title. The above-enunciated rule should apply in this case as petitioner admits of being a financing institution. We take judicial notice of the uniform practice of financing institutions to investigate, examine and assess the real property offered as security for any loan application especially where, as in this case, the subject property is a subdivision lot located at Quezon City, M.M. It is a settled rule that a purchaser or mortgagee cannot close its eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. Petitioner's constructive knowledge of the defect in the title of the subject property, or lack of such knowledge due to its negligence, takes the place of registration of the rights of respondents-spouses. Respondent court thus correctly ruled that petitioner was not a purchaser or mortgagee in good faith; hence petitioner can not solely rely on what merely appears on the face of the Torrens Title.
Taningco v. Register of Deeds
The interest of the wife in a parcel of land owned by the spouses ceases to be inchoate and becomes actual and vested with respect to her undivided one-half share after the dissolution of the conjugal partnership, as by death of the husband.
The mortgage by the wife, after the death of her husband, of her rights, interest and participation in an undivided one-half share of the conjugal property, is legal and valid, and
should, therefore, be allowed to be registered, registration being an essential requirement in order that the mortgage may be validly constituted, Article 2125, Civil Code. The registration will in no way affect the rights of the deceased husband's creditors, if any, or of his heirs, for their interest is limited to the husband's half of the estate not covered by the mortgage. As far as the debts, if any, of the conjugal partnership are concerned, their payment is provided for by law before the one-half share of the wife-mortgagor is finally determined, and therefore would not be affected by the mortgage, Articles 182 and 185, Civil Code.
EFFECT OF INVALIDITY OF MORTGAGE ON THE PRINCIPAL OBLIGATION
1) Principal obligation remains valid.
2) Mortgage deed remains evidence of a personal obligation. EFFECTS OF MORTGAGE
1) Creates real rights, a lien inseparable from the property mortgaged, enforceable against the whole world.
The only right of a mortgagee in case of non-payment of a debt secured by real mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness (Guanzon vs. Argel, 33 SCRA 474 [1970])
By mortgaging a piece of property, a debtor merely subjects it to a lien but ownership thereof is not parted with.( Adlawan vs. Torres 233 SCRA 645)
2) Creates merely an encumbrance.
The mortgagor’s default does not operate to vest in the mortgagee the ownership of the encumbered property. His failure to redeem the property does not automatically vest ownership of the property to the mortgagee which would grant the latter the right to appropriate the property or dispose of it for such effect is against public policy as enunciated by Article 2088. (Reyes vs. Sierra, 93 SCRA 472 [1979]).
DBP v. CA, 2000
A consideration of the cases shows that a decree of registration cut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the land — not to the right of ownership thereof — which was not annotated on the certificate of title issued thereon. Indeed, registration has never been a mode of acquiring ownership over immovable property. In the case of Reyes v. Court of Appeals, we ruled that the fact that a party was able to secure a title in his favor did not operate to vest ownership upon her of the property. Here, neither Jose Alvarez nor the spouses Beduya ever exercised any right of ownership over the land. The fact of registration in their favor never vested in them the ownership of the land in dispute. "If a person obtains a title under the Torrens system, which includes by mistake or oversight land which can no longer be registered under the system, he does not, by virtue of the said certificate alone, become the owner of the lands illegally included."
Private respondent has been in actual, open, peaceful and continuous possession of the property since 1950. Together with his actual possession of the land, several tax declarations issued in his name constitute strong evidence of ownership of the land occupied by him.
It was established that private respondent, having been in possession of the land since 1950, was the owner of the property when it was registered by Jose Alvarez in 1969, his possession tacked to that of his predecessor-in-interest, Ulpiano Mumar, which dates
back to 1917. Clearly, more than 30 years had elapsed before a decree of registration was issued in favor of Jose Alvarez. This uninterrupted adverse possession of the land for more than 30 years could only ripen into ownership of the land through acquisitive prescription which is a mode of acquiring ownership and other real rights over immovable property. Prescription requires public, peaceful, uninterrupted and adverse possession of the property in the concept of an owner for ten (10) years, in case the possession is in good faith and with a just title. Such prescription is called ordinary prescription, as distinguished from extraordinary prescription which requires possession for 30 years in case possession is without just title or is not in good faith.
Generally, an action for reconveyance based on an implied or constructive trust, such as the instant case, prescribes in 10 years from the date of issuance of decree of registration. However, this rule does not apply when the plaintiff is in actual possession of the land.
Section 38 of the Land Registration Act provides that a certificate of title is conclusive and binding upon the whole world. Consequently, a buyer need not look beyond the certificate of title in order to determine who is the actual owner of the land. However, this is subject to the right of a person deprived of land through fraud to bring an action for reconveyance, provided that it does not prejudice the rights of an innocent purchaser for value and in good faith. "It is a condition sine qua non for an action for reconveyance to prosper that the property should not have passed to the hands of an innocent purchaser for value." The same rule applies to mortgagees, like petitioner. The evidence before us, however, indicates that petitioner is not a mortgagee in good faith. To be sure, an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor's title. Nonetheless, especially in the case of a banking institution, a mortgagee must exercise due diligence before entering into said contract. Judicial notice is taken of the standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof. Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands. Petitioner here was already aware that a person other than the registered owner was in actual possession of the land when it bought the same at the foreclosure sale. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value. "It is a well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor."
As to the question of estoppel, we do not find petitioner to be estopped from questioning private respondent's title. "Estoppel in pais arises when one, by his acts, representations or admission, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts." In the case at bar, nothing in record indicates that petitioner impliedly acquiesced to the validity of private respondent's title when it found out that the latter was occupying a portion of the land covered by TCT No. 10101.
Lagrosa v. CA
The "Deed of Real Estate Mortgage" executed by Julio Arizapa is null and void, the property mortgaged by Julio Arizapa being then owned by the City of Manila under Transfer Certificate of Title No. 91120. For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof as required by Article 2085 of the Civil Code of the Philippines. Since the mortgage to Presentacion Quimbo of the lot is null and void, the
assignment by Presentacion Quimbo of her rights as mortagee to Lagrosa is likewise void. Even if the mortgage is valid as insisted by herein petitioner, it is well-settled that a mere mortgagee has no right to eject the occupants of the property mortgaged. This is so, because a mortgage passes no title to the mortgagee. Indeed, by mortgaging a piece of property, a debtor merely subjects it to lien but ownership thereof is not parted with. Thus, a mortgage is regarded as nothing more than a mere lien, encumbrance, or security for a debt, and passes no title or estate to the mortgagee and gives him no right or claim to the possession of the property. The agreement between the City of Manila and Julio Arizapa was in the nature of a "contract to sell," the price for the lot being payable on installment for a period of twenty (20) years which could yet prevent, such as by the non-fulfillment of the condition, the obligation to convey title from acquiring any obligatory force. Hence, there is no "right" as awardee to speak of, and there is no alienable interest in the property to deal with. By Lagrosa's own admission, he is merely an assignee of the rights of the mortgagee of the lot and that, consequently, the respondent Court of Appeals correctly ruled that the only right of action of Lagrosa as such assignee of the mortgagee, where the mortgagor is already dead, is that provided for in Section 7 of Rule 86 and Section 5 of Rule 87 of the Rules of Court. Thus, the mortgagee does not acquire title to the mortgaged real estate unless and until he purchases the same at public auction and the property is not redeemed within the period provided for by the Rules of Court.
It is a well known doctrine that the issue as to whether title was procured by falsification or fraud as advanced by petitioner can only be raised in an action expressly instituted for the purpose. Torrens title can be attacked only for fraud, within one year after the date of the issuance of the decree of registration. Such attack must be direct, and not by a collateral proceeding. The title represented by the certificate cannot be changed, altered, modified, enlarged, or diminished in a collateral proceeding. Thus, the arguments of petitioner Lagrosa in the ejectment suit are misplaced.
Casabuena v. CA
At the bottom of this controversy is the undisputed fact that Ciriaco Urdaneta was indebted to Benin, to secure which debt the spouses ceded their rights over the land through a deed of assignment. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause transfers his credit and its accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor. Stated simply, it is the process of transferring the right of the assignor to the assignee, who would then be allowed to proceed against the debtor. The assignment involves no transfer of ownership but merely effects the transfer of rights which the assignor has at the time, to the assignee. Benin having been deemed subrogated to the rights and obligations of the spouses, she was bound by exactly the same conditions to which the latter were bound. This being so, she and the Casabuenas were bound to respect the prohibition against selling the property within the five-year period imposed by the City government.
The act of assignment could not have operated to efface liens or restrictions burdening the right assigned, because an assignee cannot acquire a greater right than that pertaining to the assignor. At most, an assignee can only acquire rights duplicating those which his assignor is entitled by law to exercise. In the case at bar, the Casabuenas merely stepped into Benin's shoes, who was not so much an owner as a mere assignee of the rights of her debtors. Not having acquired any right over the land in question, it follows that Benin conveyed nothing to defendants with respect to the property.
While it is true that the duplex is owned by Benin, the Casabuenas mistakenly believed that the deed included cession of rights of ownership over the land as well. The encumbrance of the property may be deemed as an exercise of their right of ownership over
the property considering that, under the law, only owners of certain properties may mortgage the same. By mortgaging a piece of property, a debtor merely subjects it to a lien but ownership thereof is not parted with. As a result, notwithstanding the encumbrance of the Bulacan lot through a deed of assignment in favor of Benin, the spouses Urdaneta remain its owners, to the exclusion of petitioner.
EXTENT OF MORTGAGE
General Rule: A mortgage constituted on immovable property is not limited to the
property itself but also extends to all its accessions, improvements, growing fruits and rents or income (see Article 2127) as well as to the proceeds of insurance should the property be destroyed of the expropriation value of the property should it be expropriated.
Exception: contrary stipulation
Cu Unjieng & Hijos v. Mabalacat Sugar Co.,
The mortgage constituted on a sugar central includes not only the land on which it is built but also the buildings, machinery and accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the mortgage debtor, installed after the constitution thereof. (Bischoff vs. Pomar and Compañia General de Tabacos, 12 Phil., 690.)
The notice announcing the sale at public auction of all the properties of a sugar central extends to the machinery and accessories acquired and installed in its mill after the constitution of the mortgage.
The court, that has ordered the placing of the mortgaged properties in the hands of a receiver in a foreclosure suit, has jurisdiction to order their sale at public auction even before the termination of the receivership.
The fact that the price at which the mortgaged properties were sold at public auction is inadequate, is not in itself sufficient to justify the annulment of the sale.
AFTER-ACQUIRED CLAUSE
Luzon Lumber & Hardware Co., v. Quiambao
Under our jurisprudence, the term or phrase refection credits (refaccionarios) used or employed in article 1923 of the old Civil Code refers to and includes not only materials used for repair or reconstruction, but those used for new construction as well.
The lien of one furnishing building materials used in a building or construction, whether old or new, comes under article 1923 of the old Civil Code, and not under article 1922 of the same Code. Since refection credit is provided for and included in the old Civil Code of 1889, said lien (refection credit) is not a right granted for the first time under article 2242 of the new Civil Code (Republic Act 386) so as to come under the contemplation of article 2253 in the sense that the provisions of the new Civil Code should govern it although the acts or events which gave rise thereto may have occurred under the old Civil Code. The deed of mortgage having been recorded in 1948 and the building materials having been furnished in 1948 and 1949, that is to say, before the promulgation of the new Civil Code in 1950, the preference of credits or liens has to be governed by the old Civil Code.
