G.R. No.

168736, April 19, 2006

SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO, petitioner vs. SPOUSES RENATO CUYCO and
FILIPINA CUYCO, respondents

Facts:

Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from
respondents, spouses Renato and Filipina Cuyco, payable within one year at 18% interest per annum, and secured by a
Real Estate Mortgage. Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount
of P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3)
P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993. [6]

Petitioners made payments amounting to P291,700.00, [7] but failed to settle their outstanding loan
obligations. Respondents filed a case against petitioner, they alleged that petitioners loans were secured by the real
estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest
compounded monthly; and that petitioners refusal to settle the same entitles the respondents to foreclose the real estate
mortgage.

The RTC rendered judgment [12] in favor of the respondents. Petitioners appealed to the CA reiterating their previous
claim that only the amount of P1,500,000.00 was secured by the real estate mortgage.
CA held that by express intention of the parties, the real estate mortgage secured the original P1,500,000.00
loan and the subsequent loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and September 5, 1992,
respectively. As regards the loans obtained on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of
P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate tribunal held that the parties never intended the
same to be secured by the real estate mortgage.

Issue:
WON the mortgage contract contains blanket mortgage clause.
Held:
No. While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within
the terms of the mortgage contract. 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.
There is no stipulation that the mortgaged realty shall also secure future loans and advancements. Even if the
parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained on July 1, 1992,
and P500,00.00 obtained on September 5, 1992 to be secured by the same real estate mortgage, as shown in the
acknowledgement receipts, it is not sufficient in law to bind the realty for it was not made substantially in the form
prescribed by law.

Mobil Oil Philippines, Inc. v. Diocares

[See doctrine underlined below]

In February 1965, Mobil Oil Philippines, Inc. (Mobil Oil) extended a PhP 45 000 loan to Ruth Diocares and Lope
Diocares (Diocares) in a condition that Diocares would buy on cash basis from Mobil Oil a minimum of 50 000 liters of
petroleum per month.
Payment of the loan would be in monthly installments of PhP 950 per month for a period of five years.
As security, Diocares executed a mortgage on two parcels of land.
In case of non-payment of any installment or/and non-performance of the condition (to buy petroleum),
Mobil Oil had the right to foreclose.
Diocares defaulted when the third installment was due.
Only PhP 1900 was paid, leaving a balance of PhP 43 000.
Diocares also failed to buy the minimum amount of petroleum per month.
Mobil Oil filed a complaint and prayed that they be paid PhP 43 000 with interest or, in default of payment, they be
allowed to sell the mortgaged properties.
Defense: There was no refusal of payment. They only sought for an extension of time.
LC: The loan agreement created a personal obligation but it did not establish a real estate mortgage because the
mortgage was not registered. Hence, foreclosure cannot be ordered by the LC.

Issue/Held: W/N the mortgage contract, although unregistered, is binding between the same parties who created it. Yes.

Ratio:
 1. Article 21251 is clear and explicit. Even if the instrument were not recorded, the mortgage is nevertheless
binding between the parties. As between them, the mere fact that there is as yet no compliance with the
requirement that it be recorded cannot be a bar to foreclosure.
2. To hold otherwise would defeat the clear codal provision that the mortgage subsists despite lack of registration
insofar as the parties thereto are concerned, and that the mortgagor is still liable thereon. Furthermore, while the
law says that registration is indispensable in order that the mortgage be validly constituted, yet, what is
indispensable may be dispensed with.

Dispositive: GRANTED.

BONNEVIE v CA

MORTGAGE: Effects as to the property mortgaged: Effect of sale of Mortgaged property

Petitioner: Raoul and Honesto Bonnevie

Respondent: CA and Philippine Bank of Commerce

Facts:

Spouses Lozano were the owners of the property which they mortgaged on December 6, 1966, to secure the
payment of the loan in the principal amount of P75,000.00 they were about to obtain from defendant-appellee Philippine
Bank of Commerce. On December 8, 1966, executed in favor of plaintiff-appellant Bonnevie the Deed of Sale with
Mortgage in consideration of the sum of P100, 000.00. On December 6, 1966, when the mortgage was executed by the
Lozano spouses in favor of Philippine Bank of Commerce, the loan of P75,000.00 was not yet received them, as it was on
December 12, 1966 when they and their co-maker Alfonso Lim signed the promissory note for that amount. From April 28,
1967 to July 12, 1968, Bonnevie made payments to Phil. Bank of Commerce on the mortgage. On May 4, 1968, H.
Bonnevie assigned all his rights under the Deed of Sale with Assumption of Mortgage to his brother Raoul Bonnevie. On
June 10, 1968 Phil. Bank of Commerce applied for the foreclosure of the mortgage, and notice of sale was published in the
Luzon Weekly Courier. Auction sale was conducted and the property was sold to bank. Offers from Bonnevie to repurchase
the property failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title of the property.

Petitioner Honesto Bonnevie filed this complaint against Philippine Bank of Commerce and sought the annulment
of the Deed of Mortgage executed in favor of the Philippine Bank of Commerce by the spouses Lozano as well as the
extrajudicial foreclosure made. It alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the
mortgage was executed by one who was not the owner of the mortgaged property and that the property in question was
foreclosed pursuant to Act No. 3135 as amended without however complying with the condition imposed for a valid
foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank
should have accepted petitioner's offer to redeem the property under the principle of equity said justice.

Bank of Commerce denied most of the allegations in the complaint and raised the following affirmative defenses: (a) that
the defendant has not given its consent, much less the requisite written consent, to the sale of the mortgaged property to
plaintiff and the assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure
were sent to Jose Lozano at his address; (c) that it was notified for the first time about the alleged sale after it had
foreclosed the Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose Lozano can be
released from his bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose Lozano
and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid
despite countless reminders and demands; of that the property in question remained registered in the name of Jose M.
Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff; (g) that it
is an established banking practice that payments against accounts need not be personally made by the debtor himself; and
(h) that it is not true that the mortgage, at the time of its execution and registration, was without consideration as alleged
because the execution and registration of the securing mortgage, the signing and delivery of the promissory note and the
disbursement of the proceeds of the loan are mere implementation of the basic consensual contract of loan.

1 Article 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.
After petitioner Honesto had rested his case, petitioner Raoul SV Bonnevie filed a motion for intervention premised on the
Deed of Assignment executed by petitioner Honesto in favor of petitioner Raoul covering the rights and interests of
petitioner Honesto over the subject property.

Issues:

Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and legally
executed.

Whether the extrajudicial foreclosure of the said mortgage was validly and legally effected.

Whether petitioners had a right to redeem the foreclosed property.

Granting that petitioners had such a right, whether respondent was justified in refusing their offers to repurchase the
property.

Ruling:

In attacking the validity of the deed of mortgage, Bonnevie contended that when it was executed on December 6, 1966,
there was yet no principal obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses that in
the absence of a principal obligation, there is want of consideration in the accessory contract, which consequently impairs
its validity and fatally affects its very existence.

This contention is devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed
was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from
the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A contract of loan being
a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed.
The promissory note executed is only an evidence of indebtedness and does not indicate lack of consideration of the
mortgage at the time of its execution.

Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using as
security the same property which the Lozano spouses had already sold to petitioners, rendered the mortgage null and void,

This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of,
mortgage and encumbrance of the mortgaged properties, without the written consent of the mortgagee, as well as the
additional proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage
in the terms and conditions under which it is constituted. These provisions are expressly made part and parcel of the Deed
of Sale with Assumption of Mortgage.

Insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly mortgage the property.
Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws
in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value.
Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor may be and
subjects the fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that petitioners
voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage. They are,
therefore, estopped from impugning its validity whether on the original loan or renewals thereof.

On the question of whether or not the petitioners had a right to redeem the property, they had no right to redeem. No
consent having been secured from respondent Bank to the sale with assumption of mortgage by petitioners, Bonnevie were
not validly substituted as debtors. In fact, their rights were never recorded and hence, respondent Bank is charged with
the obligation to recognize the right of redemption only of the Lozano spouses. But even granting that as purchaser or
assignee of the property, as the case may be, the petitioners had acquired a right to redeem the property, petitioners failed
to exercise said right within the period granted by law. Thru certificate of sale in favor of appellee was registered on
September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not until September 29,
1969 that petitioner Honesto Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September
29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.

Hechanova v. Adil

[GR No. L-49940, Sept. 25, 1986]

FACTS:

Petitioners seek the annulment of orders issued by CFI Iloilo. A TRO was issues by said Court.

The case is for the annulment of a deed of sale executed by defendant Jose Y. Servando in favor of his co-defendants, the
petitioners herein, covering three parcels of land situated in Iloilo City. Claiming that the said parcels of land were
mortgaged to him in 1970 by the vendor, who is his cousin, to secure a loan of P20,000.00, the plaintiff Pio Servando
impugned the validity of the sale as being fraudulent, and prayed that it be declared null and void and the transfer
certificates of title issued to the vendees be cancelled, or alternatively, if the sale is not annulled, to order the defendant
Jose Servando to pay the amount of P20,000.00, plus interests, and to order defendants to pay damages.

The defendants moved to dismiss the complaint on the grounds that it did not state a cause of action, the alleged
mortgage being invalid and unenforceable since it was mere private document and was not recorded in the Registry of
Deeds; and that the plaintiff was not the real party in interest and, as a mere mortgagee, had no standing to question the
validity of the sale. The motions was denied on the ground that the action is actually one for collection.

ISSUE: WON there was a valid mortgage

RULING:

It is clear from the records of this case that the plaintiff has no cause of action. Plaintiff has no standing to question the
validity of the deed of sale executed by the deceased defendant as Jose Servando in favor his co-defendants Hechanova
and Masa. No valid mortgage has been constituted in plaintiffs 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 the Civil Code. Even assuming that the property was validly mortgaged to the plaintiff, his recourse was to
foreclose the mortgage, not to seek the annulment of the sale.

Paderes vs CA
Date: July 15, 2005
Petitioners: Spouses Rodrigo and Sonie Paderes
Respondents: CA, Hon. Carlota Valenzuela

Ponente: Carpio Morales

Facts: Manila International Construction Corporation executed a REM over 21 parcels of land including the improvements
thereon in favor of Banco Filipino Savings and Mortgage Bank in order to secure a loan of P1,885,000. The mortgage was
registered. The 21 mortgaged properties included two lots in Paranaque. MICC sold a house a lotto the Paderes spouses.
Later, MICC sold another house and lot the Bergado spouses. Neither sale was registered, however.
For failure of MICC to settle its obligations, Banco Filipino filed a petition for the extrajudicial foreclosure of MICCs
mortgage. At the auction sale Banco Filipino was declared the highest bidder and a certificate of sale was issued in its
favor. Since there was no redemption within the reglementary period. Carlota Valenzuela, the liquidator of Banco Filipino
filed a petition for the issuance of a writ of possession of the foreclosed properties with the RTC. The petition was granted.
A notice to vacate was served on the spouses. However, instead of vacating, petitioners filed before the CA. The CA
dismissed the petitions for lack of merit and upheld the validity of the writ of possession.

Issue:WON the spouses (buyers in good faith) have a superior right over Banco Filipino

Held: No
Ratio: In extra-judicial foreclosures of real estate mortgages, the issuance of a writ of possession, which is an order
commanding the sheriff to place a person in possession of the foreclosed property, is governed by Section 7 of Act No.
3135.
That petitioners purchased their properties from MICC in good faith is of no moment. The purchases took place
after MICCs mortgage to Banco Filipino had been registered in accordance with Article 2125 CC and the provisions of P.D.
1529. As such, under Articles 1312 and 2126 CC, a real right or lien in favor of Banco Filipino had already been
established, subsisting over the properties until the discharge of the principal obligation, whoever the possessor(s) of the
land might be.
As transferees of mortgagor MICC, petitioners merely stepped into its shoes and are necessarily bound to
acknowledge and respect the mortgage it had earlier executed in favor of Banco Filipino.

Issue: WON the spouses have the right to redeem the property

Held: No

Ratio: The debtor in extra-judicial foreclosures under Act No. 3135, or his successor-in-interest, has, one year from the
date of registration of the Certificate of Sale with the Registry of Deeds, a right to redeem the foreclosed mortgage,
hence, petitioners, as MICCs successors-in-interest, had one year from the registration of the Certificate of Sale on July
29, 1985 or until July 29, 1986 for the purpose.
Petitioners, however, failed to do so. Ownership of the subject properties was thus consolidated in favor of Banco
Filipino, and TCT Nos. 112352 and 112353 were issued in its name.
F. David Enterprises v. IBAA: It is settled that the buyer in a foreclosure sale becomes the absolute owner of the
property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is
entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in
his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the
land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3135 as
amended. No such bond is required after the redemption period if the property is not redeemed. Possession of the land
then becomes an absolute right of the purchaser as confirmed owner. Upon proper application and proof of title, the
issuance of the writ of possession becomes a ministerial duty of the court.

Issue: WON a binding agreement for the repurchase of the subject properties was reached with Banco Filipino

Held: No

Ratio: Under Article 1318 CC, there are three essential requisites which must concur in order to give rise to a binding
contract: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3)
cause of the obligation which is established.
A reading of the correspondence reveals the absence of both a definite offer and an absolute acceptance of any
definite offer by any of the parties.
The letters dated October 17, 1996 and November 4, 1996, signed by petitioners counsel, while ostensibly
proposing to redeem the foreclosed properties and requesting Banco Filipino to suggest a price for their repurchase, made
it clear that any proposal by the bank would be subject to further action on the part of petitioners. The letter dated October
25, 1996 signed by Luz Dacasin, Assistant Vice-President of Banco Filipino, merely invited petitioners to engage in further
negotiations and does not contain a recognition of petitioners claimed right of redemption or a definite offer to sell the
subject properties back to them.
Petitioners emphasize that in item no. 3 of their letter dated November 8, 1996 they committed to subject the
properties (house and lot) to a real-estate mortgage with the bank so that the amount to be loaned will be used as
payment of the properties to be redeemed. It is clear from item no. 1 of the same letter, however, that petitioners did not
accept Banco Filipinos valuation of the properties at P7,500.00 per square meter and intended to have the amount
[renegotiated].
Moreover, while purporting to be a memorandum of the matters taken up in the conference between petitioners
and Banco Filipino Vice-President Dacasin, petitioners letter of November 8, 1996 does not contain the concurrence of Ms.
Dacasin or any other authorized agent of Banco Filipino. Where the alleged contract document was signed by only one
party and the record shows that the other party did not execute or sign the same, there is no perfected contract.

Issue: WON the houses should have been excluded from the auction sale

Held: No

Ratio: The provision of Article 448 CC which pertain to those who, in good faith, mistakenly build, plant or sow on the land
of another, has no application to the case at bar.
Here, the record clearly shows that petitioners purchased their respective houses from MICC, as evidenced by the
Addendum to Deed of Sale dated October 1, 1983 and the Deed of Absolute Sale dated January 9, 1984. Being
improvements on the subject properties constructed by mortgagor MICC, there is no question that they were also covered
by MICCs real estate mortgage following the terms of its contract with Banco Filipino and Article 2127 of the Civil Code
(mortgage extends to the improvements).

Issue: WON the writ of possession can still be enforced after more than 8 years from promulgation

Held: Yes
Ratio: In Rodil vs. Benedicto, this Court categorically held that the right of the applicant or a subsequent purchaser to
request for the issuance of a writ of possession of the land never prescribes: The better rule, however, is that enunciated
in the case of Manlapas and Tolentino vs. Lorente, which has not yet been abandoned, that the right of the applicant or a
subsequent purchaser to ask for the issuance of a writ of possession of the land never prescribes. . .
In a later case [Sta. Ana v. Menla], the Court also ruled that the provision in the Rules of Court to the effect that
judgment may be enforced within five years by motion, and after five years but within ten years by an action (Section 6,
Rule 39) refers to civil actions and is not applicable to special proceedings, such as land registration cases.
The established doctrine that the issuance of a writ of possession is a ministerial function whereby the issuing
court exercises neither discretion nor judgment bears reiterating. The writ issues as a matter of course upon the filing of
the proper motion and, if filed before the lapse of the redemption period, the approval of the corresponding bond.
Petitioners, however, are not without remedy. As reflected in the challenged CA decision, under Section 8 of Act
No. 3135, petitioners, as successors-in-interest of MICC, have 30 days from the time Banco Filipino is given possession of
the subject properties to question the validity of the auction sale under any of the two grounds therein stated by filing a
petition to set aside the same and cancel the writ of possession.

EN BANC
[G.R. No. 4373. February 2, 1909.]

SAMUEL BISCHOFF, plaintiff-appellant, vs . JUAN D. POMAR and THE

COMPAIA GENERAL DE TABACOS DE FILIPINAS, defendants-appellees.

Samuel Bischoff filed a complaint alleging that he is the owner of a steam sugar mill fitted with a portable 8-horse-power
boiler with its attachments, a complete tramway with rails and other fittings for a distance of not less than 3 km, 15 small
cars, all of which were at the Hacienda San Jose, of San Carlos, Occidental Negros. Bischoff purchased said goods from
Romana Guazon. Bischoff complains that the defendant company continue to refuse to deliver the said property and that
such prejudiced him resulting to loss and damages.

Guazon obtained a loan from a Lazaro Mota y Ayo. The grand total of said loan was P53, 042.53. To secure such loan,
Romana Ganzon mortgaged to Mota, the sugar plantation called San Jose, situated in the sitio of Sibungcogon, barrio of
San Carlos, in the town of Calatrava, Occidental Negros. Then, Lazaro Mota Y Ayo unreservedly transferred said credit, free
of all incumbrance, together with all of his rights to Compania General de Tabacos. The defendant company was able to
obtain from CFI the appointment of Juan Pomar as receiver of the property of Romana Guazon. Plaintiff Bischoff knew of
said mortgages prior to making the alleged purchase of the goods mentioned in his complaint.

The court rendered judgment, holding that the steam sugar mill and 8-horsepower portable boiler and fittings, the
tramway, rails and cars upon the Hacienda of San Jose, should be considered as included in the mortgage executed by
Romana Ganzon in favor of Lazaro Mota, which mortgage was transferred to the Compaia General de Tabacos and ratified
in favor of the company by the debtor. Bischoff appealed from said decision and moved for new trial but such motion was
overruled.

Issue: Supposing that the steam sugar mill and portable boiler, and the tramway with 15 small wagons, rails, and other
fittings, mounted at the Hacienda San Jose and in use thereon, were improvements upon said hacienda, are they to be
considered for this sole reason as necessarily included in the mortgage of the said hacienda, even though not specifically
described in the instruments as included therein?

Held: Even though no mention had been made of said machinery and tramway in the mortgage instrument, the
mortgage of the property whereon they are located is understood by law to extend to them and they must be
considered as included therein, as well as all other improvements, unless there was an express stipulation between the
parties that they should be excluded.

Such exclusion, however, certainly does not appear in the record; on the contrary, they are manifestly included in the
mortgage. It has already been stated that the machinery in question was already mounted on said property and was in use
thereon when the mortgage given to secure the debt of Romana Ganzon to the original creditor, Lazaro Mota, was created;
but even if this were not so, article 111 of the Mortgage Law, hereinbefore cited, provides that the following shall be
considered as mortgaged with the estate, provided they belong to the owner of said estate, although they be not
mentioned in the contract:

"1. Chattels permanently located in a building, either useful or ornamental, or for the service of some industry, even
though they were placed there after the creation of the mortgage."

It should be noted that the said machinery and tramway were exclusively owned by Romana Ganzon, the owner of the
hacienda, and at the time when the mortgage was made they had not yet been sold a retro to the plaintiff Bischoff; this
sale was effected long after the property was mortgaged.

Given the rights of dominion possessed by Romana Ganzon over the articles in question it is not possible to deny that she
had the right to dispose of them, as she did, by sale under pacto de retro to the plaintiff, but the alienation thereof does
not release them from the encumbrance to which they are subjected until redeemed from the mortgage that weighs upon
them, since the right of the creditor limits that of the owner of the thing mortgaged, and the purchaser, assuming that he
was able to effect a valid purchase, is necessarily bound to acknowledge and respect the encumbrance to which is
subjected the purchased thing and which is at the disposal of the said creditor in order that he, under the terms of the
contract, may recover the amount of his credit therefrom.

If it be a true and incontrovertible fact that at the time the plaintiff Bischoff acquired under pacto de retro the machinery
and the tramway in question, they were already affected by and included in the mortgage of the Hacienda San Jose, the
placing of the said hacienda, together with all of the property existing thereon in the hands of a receiver at the instance of
the creditor, the Compaia General de Tabacos, has not occasioned any damage to the plaintiff, inasmuch as the defendant
limited itself to the exercise of a perfect right protected by law, and it is the duty of Bischoff to respect the encumbrance
that burdens the property acquired by him under these conditions, and therefore, he cannot have acquired any right to
indemnity for loss and damages, for the reason that he purchased goods that were already liable to the credit of the
company that was the creditor of Romana Ganzon.

Judgment appealed from is affirmed.

Servicewide Specialists, Inc. V. CA

Pactum de non alienado

Facts

Atty. Jesus and Elizabeth Ponce bought on installment a Holden Torana vehicle from C.R. Tecson Enterprises. They
executed a promissory note and a chattel mortgage on the vehicle in favor of the C.R. Tecson Enterprises to secure
payment of the note. On the same date, C.R. Tecson Enterprises, in turn, executed a deed of assignment of said
promissory note and chattel mortgage in favor of Filinvest Credit Corporation with the conformity of respondent spouses.
The latter were aware of the endorsement of the note and the mortgage to Filinvest as they in fact availed of its financing
services to pay for the car.

In 1976, respondent spouses transferred and delivered the vehicle to Conrado R. Tecson by way of sale with assumption of
mortgage. Subsequently, in 1978, Filinvest assigned all its rights and interest over the same promissory note and
chattel mortgage to petitioner Servicewide Specialists Inc. without notice to respondent spouses. Due to the failure of
respondent spouses to pay the installments under the promissory note, petitioner was constrained to file before the
Regional Trial Court of Manila on May 22, 1978 a complaint for replevin with damages against them.

RTC: Spouses jointly and solidarily liable to petitioner, however, the third party defendant Conrado Tecson was ordered to
reimburse the respondent spouses for the sum that they would pay to petitioner.

CA: Reversed and set aside the judgment of the court a quo on the principal ground that respondent spouses were not
notified of the assignment of the promissory note and chattel mortgage to petitioner.

Issue(s)

(1) Whether the debtor-mortgagor who sold the property to another entitled to notice of the assignment of credit
made by the creditor to another party.

(2) Whether respondent spouses needed to notify or secure the consent of petitioner's predecessor to the alienation of
the vehicle.

Ruling

(1) Only notice to the debtor of the assignment of credit is required. His consent is not required.
In the case at bar, what is relevant is not the assignment of credit between petitioner and its assignor, but the knowledge
or consent of the creditor's assignee to the debtor-mortgagor's sale of the property to another.

When the credit was assigned to petitioner, only notice to but not the consent of the debtor-mortgagor was necessary to
bind the latter. Applying Article 1627 of the Civil Code, the assignment made to petitioner includes the accessory rights
such as the mortgage. Article 2141, on the other hand, states that the provisions concerning a contract of pledge shall be
applicable to a chattel mortgage, such as the one at bar, insofar as there is no conflict with Act No. 1508, the Chattel
Mortgage Law. As provided in Article 2096 in relation to Article 2141 of the Civil Code, a thing pledged may be alienated by
the pledgor or owner "with the consent of the pledgee." This provision is in accordance with Act No. 1508 which provides
that "a mortgagor of personal property shall not sell or pledge such property, or any part thereof, mortgaged
by him without the consent of the mortgagee in writing on the back of the mortgage and on the margin of the
record thereof in the office where such mortgage is recorded."

In any case, applying by analogy Article 2128 of the Civil Code to a chattel mortgage, it appears that a mortgage credit
may be alienated or assigned to a third person. Since the assignee of the credit steps into the shoes of the creditor-
mortgagee to whom the chattel was mortgaged, it follows that the assignee's consent is necessary in order to bind him of
the alienation of the mortgaged thing by the debtor-mortgagor. This is tantamount to a novation. As the new assignee,
petitioner's consent is necessary before respondent spouses' alienation of the vehicle can be considered as binding against
third persons. Petitioner is considered a third person with respect to the sale with mortgage between respondent spouses
and third party defendant Conrado Tecson.

In this case, however, since the alienation by the respondent spouses of the vehicle occurred prior to the assignment of
credit to petitioner, it follows that the former were not bound to obtain the consent of the latter as it was not yet an
assignee of the credit at the time of the alienation of the mortgaged vehicle.

(2) Mere notice to the creditor is not enough, his consent is always necessary

The sale with assumption of mortgage made by respondent spouses is tantamount to a substitution of debtors. In such
case, mere notice to the creditor is not enough, his consent is always necessary as provided in Article 1293 of the Civil
Code. Without such consent by the creditor, the alienation made by respondent spouses is not binding on the former. On
the other hand, Articles 1625, 1626 and 1627 of the Civil Code on assignment of credits do not require the debtor's
consent for the validity thereof and so as to render him liable to the assignee. The law speaks not of consent but of notice
to the debtor, the purpose of which is to inform the latter that from the date of assignment he should make
payment to the assignee and not to the original creditor. Notice is thus for the protection of the assignee because
before said date, payment to the original creditor is valid.

When Tecson Enterprises assigned the promissory note and the chattel mortgage to Filinvest, it was made with respondent
spouses' tacit approval. When Filinvest in turn, as assignee, assigned it further to petitioner, the latter should have notified
the respondent spouses of the assignment in order to bind them. This, they failed to do.

One thing, however, that militates against the posture of respondent spouses is that although they are not bound to obtain
the consent of the petitioner before alienating the property, they should have obtained the consent of Filinvest since they
were already aware of the assignment to the latter. Therefore, for failure of respondent spouses to obtain the consent of
Filinvest thereto, the sale of the vehicle to Conrado R. Tecson was not binding on the former. When the credit was assigned
by Filinvest to petitioner, respondent spouses stood on record as the debtor-mortgagor.