RULE 68 Compiled

8/19/2019 RULE 68 Compiled

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ACT NO. 3135- applies to extrajudicial foreclosure

ACT NO. 3135

ACT NO. 3135 - AN ACT TO REGULATE THE ALE O! "RO"ERT# UN$ER"EC%AL "O&ER %NERTE$ %N OR ANNE'E$ TO REAL-ETATE (ORTGAGE

Section 1. When a sale is made under a special power inserted in or attached to anyreal-estate mortgage hereafter made as security for the payment of money or thefulllment of any other obligation, the provisions of the following election shallgovern as to the manner in which the sale and redemption shall be eected,whether or not provision for the same is made in the power.

Sec. 2. Said sale cannot be made legally outside of the province in which theproperty sold is situated and in case the place within said province in which thesale is to be made is sub!ect to stipulation, such sale shall be made in said place orin the municipal building of the municipality in which the property or part thereof issituated.

Sec. ". #otice shall be given by posting notices of the sale for not less than twentydays in at least three public places of the municipality or city where the property issituated, and if such property is worth more than four hundred pesos, such noticeshall also be published once a wee$ for at least three consecutive wee$s in anewspaper of general circulation in the municipality or city.

Sec. %. &he sale shall be made at public auction, between the hours or nine in themorning and four in the afternoon and shall be under the direction of the sheri of the province, the !ustice or au'iliary !ustice of the peace of the municipality in whichsuch sale has to be made, or a notary public of said municipality, who shall beentitled to collect a fee of ve pesos each day of actual wor$ performed, in additionto his e'penses.

Sec. (. )t any sale, the creditor, trustee, or other persons authori*ed to act for thecreditor, may participate in the bidding and purchase under the same conditions asany other bidder, unless the contrary has been e'pressly provided in the mortgageor trust deed under which the sale is made.

Sec. +. n all cases in which an e'tra!udicial sale is made under the special powerhereinbefore referred to, the debtor, his successors in interest or any !udicialcreditor or !udgment creditor of said debtor, or any person having a lien on theproperty subseuent to the mortgage or deed of trust under which the property issold, may redeem the same at any time within the term of one year from and afterthe date of the sale and such redemption shall be governed by the provisions of sections four hundred and si'ty-four to four hundred and si'ty-si', inclusive, of the


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ode of ivil /rocedure, in so far as these are not inconsistent with the provisions of this )ct.

Sec. 0. n any sale made under the provisions of this )ct, the purchaser may petitionthe ourt of irst nstance of the province or place where the property or any partthereof is situated, to give him possession thereof during the redemption period,

furnishing bond in an amount euivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was madewithout violating the mortgage or without complying with the reuirements of this)ct. Such petition shall be made under oath and led in form of an e' parte motionin the registration or cadastral proceedings if the property is registered, or in specialproceedings in the case of property registered under the ortgage 3aw or undersection one hundred and ninety-four of the )dministrative ode, or of any other realproperty encumbered with a mortgage duly registered in the o4ce of any register of deeds in accordance with any e'isting law, and in each case the cler$ of the courtshall, upon the ling of such petition, collect the fees specied in paragraph elevenof section one hundred and fourteen of )ct #umbered our hundred and ninety-si',as amended by )ct #umbered &wenty-eight hundred and si'ty-si', and the court

shall, upon approval of the bond, order that a writ of possession issue, addressed tothe sheri of the province in which the property is situated, who shall e'ecute saidorder immediately.

Sec. 5. &he debtor may, in the proceedings in which possession was reuested, butnot later than thirty days after the purchaser was given possession, petition that thesale be set aside and the writ of possession cancelled, specifying the damagessuered by him, because the mortgage was not violated or the sale was not madein accordance with the provisions hereof, and the court shall ta$e cogni*ance of thispetition in accordance with the summary procedure provided for in section onehundred and twelve of )ct #umbered our hundred and ninety-si' and if it nds thecomplaint of the debtor !ustied, it shall dispose in his favor of all or part of the

bond furnished by the person who obtained possession. 6ither of the parties mayappeal from the order of the !udge in accordance with section fourteen of )ct#umbered our hundred and ninety-si' but the order of possession shall continue ineect during the pendency of the appeal.

Sec. 7. When the property is redeemed after the purchaser has been givenpossession, the redeemer shall be entitled to deduct from the price of redemptionany rentals that said purchaser may have collected in case the property or any partthereof was rented if the purchaser occupied the property as his own dwelling, itbeing town property, or used it gainfully, it being rural property, the redeemer maydeduct from the price the interest of one per centum per month provided for insection four hundred and si'ty-ve of the ode of ivil /rocedure.

Sec. 18. &his )ct shall ta$e eect on its approval.

). "H%L%""%NE *AN+ O! CO((UN%CAT%ON ,. (AR# ANN O. #EUNG9.:. #o. 107+71 ;ecember %, 281"/6&&3//#6 ?)#@


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n order to secure a loan of /1,+(8,888.88 ary )nn 6=;=

A. #E. &hee petitionerEs : of the ) decision was led out of time. #evertheless,in accordance with the liberality that pervades the :ules of ourt, and in theinterest of !ustice under the peculiar circumstances of this case, provided, there is


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CaD the e'istence of special or compelling circumstances, CbD the merits of the case,CcD a cause not entirely attributable to the fault or negligence of the party favoredby the suspension of the rules, CdD a lac$ of any showing that the review sought ismerely frivolous and dilatory, and CeD the other party will not be un!ustly pre!udicedthereby. :ecords show that the petitioner immediately engaged the services of anew lawyer to replace its former counsel and petitioned the ) to e'tend the period

of ling an : due to lac$ of material time to review the case. &here is no showingthat the withdrawal of its counsel was a contrived reason or an orchestrated act todelay the proceedings

*. #E. &he purchaser can demand possession of the property even during theredemption period for as long as he les an ex parte motion under oath and post abond in accordance with Section 0 of )ct #o. "1"(, as amended. &he purchaser,who has a right to possession after the e'piration of the redemption period,becomes the absolute owner of the property when no redemption is made. t is notdisputed that the respondent failed to e'ercise her right of redemption within oneyear from the time of the registration of the sale. &here is also no uestion that thepropertyEs title had already been transferred to the petitioner. )s the actual ownerof the property, it is not only necessary, but also !ust, to allow the petitioner to ta$epossession of the property it owns.

C.NO. n setting aside the uestioned :& orders granting the petitioner a writ of possession, the ) relied on the ourtEs ruling in Sulit v. Court of Appeals where theS held that the failure of the mortgagee to return to the mortgagor the surplusproceeds of the foreclosure sale carves out an e'ception to the general rule that awrit of possession should issue as a matter of course. &he general rule that mereinadeuacy of price is not su4cient to set aside a foreclosure sale is based on thetheory that the lesser the price the easier it will be for the owner to eect theredemption. &he same thing cannot be said where the amount of the bid is ine'cess of the total mortgage debt.

&he reason is that in case the mortgagor decides to e'ercise his right of redemption,Section "8 of :ule "7 provides that the redemption price should be euivalent tothe amount of the purchase price, plus one GpercentH monthly interest up to thetime of the redemption, together with the amount of any assessments or ta'eswhich the purchaser may have paid thereon after purchase, and interest on suchlast-named amount at the same rate

)pplying this provision to the present case would be highly iniuitous if the amountreuired for redemption is based on /0,888,888.88, because that would meane'acting payment at a price un!ustiably higher than the real amount of the

mortgage obligation. We need not elucidate on the obvious. Simply put, such aconstruction will undeniably be pre!udicial to the substantive rights of privaterespondent and it could even eectively prevent her from e'ercising the right of redemption.I27

&he said ruling cannot be applied in the present case there being dierences of facts.- the one year redemption period in Sulit has not yet e'pired when thepurchaser petitioned the trial court for the issuance of a writ of possession

http://www.lawphil.net/judjuris/juri2013/dec2013/gr_179691_2013.html#fnt29http://www.lawphil.net/judjuris/juri2013/dec2013/gr_179691_2013.html#fnt29


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;. #E. &he petitioner contends that there was no e'cess or surplus that needs tobe returned to the respondent because her other outstanding obligations and thoseof her attorney-in-fact were paid out of the proceeds. &he relevant provision, Section% of :ule +5 of the :ules of ivil /rocedure, mandates that=

Section %. Disposition of proceeds of sale. J &he amount reali*ed from the

foreclosure sale of the mortgaged property shall, after deducting the costs of thesale, be paid to the person foreclosing the mortgage, and when there shall be anybalance or residue, after paying o the mortgage debt due, the same shall be paidto !unior encumbrancers in the order of their priority, to be ascertained by the court,or if there be no such encumbrancers or there be a balance or residue afterpayment to them, then to the mortgagor or his duly authori*ed agent, or to theperson entitled to it.Gemphases and underscores oursH

&hus, in the absence of any evidence showing that the mortgage also covers theother obligations of the mortgagor, the proceeds from the sale should not beapplied to them. n the present case, while the petitioner claims that it was notobliged to pay any surplus because the balance from the proceeds was applied tothe respondentEs other obligations and to those of her attorney-in-fact, it failed,however, to show any supporting evidence showing that the mortgage e'tended tothose obligations. &he petitioner, as mortgageeFpurchaser cannot !ust simply applythe proceeds of the sale in its favor and deduct from the balance the respondentEsoutstanding obligations not secured by the mortgage. Anderstood from thisperspective, no reason e'ists to depart from the )Es ruling that the balance ore'cess, after deducting the mortgage debt of /1,7(8,888.88 plus the stipulatedinterest and the e'penses of the foreclosure sale, must be returned to therespondent.

3.4 ulit . Court of Aeals9.:. #o.= 1172%0;ate= ebruary 10, 1770

/etitioner= esar Sulit:espondent= ourt of )ppeals and luminada ayco

acts= luminada ayco e'ecuted a :eal 6state ortgage over 3ot 2+"8 infavor of esar Sulit, to secure a loan of /% illion. Apon aycoEs failure topay said loan within the stipulated period, Sulit resorted to e'tra!udicial

foreclosure of the mortgage. >ence, in a public auction, the lot was sold tothe mortgagee, Sulit, who submitted a winning bid of /0 illion. )s stated inthe erticate of Sale e'ecuted by the notary public, the mortgaged propertywas sold at public auction to satisfy the mortgage indebtedness of /% illion.)s a result, Sulit, upon petition was issued a writ of possession by the :&.ayco led a otion to have the auction sale of the mortgaged property setaside and to defer the issuance of the writ of possession as she uestionedthe su4ciency of the amount of bond. n the same otion, she prayed as an


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alternative relief that Sulit be directed to pay the sum of /" illion whichrepresents the balance of his winning bid of /0 illion less the mortgageindebtedness of /% illion. &his otion was opposed by Sulit who contendedthat the issuance of a writ of possession upon his ling of a bond was aministerial duty on the part of respondent Kudge. &he latter denied aycoEs

motion. >ence, ayco led a petition for certiorari with preliminary in!unctionandFor temporary restraining order before respondent ourt of )ppeals,which immediately issued a status uo order restraining the respondent !udge therein from implementing his order and the writ of possession issuedpursuant thereto.

ssue= Whether or not the mortgagee or purchaser in an e'tra!udicialforeclosure sale is entitled to the issuance of a writ of possession over themortgaged property despite his failure to pay the surplus proceeds of thesale to the mortgagor or the person entitled thereto.

:uling= #o. n forced sales low prices are generally oered and the mereinadeuacy of the price obtained at the sheriLs sale, unless shoc$ing to theconscience, has been held insu4cient to set aside a sale. &his is because nodisadvantage is caused to the mortgagor.


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)pplying this provision to the present case would be highly iniuitous if theamount reuired for redemption is based on /0,888.888.88, because thatwould mean e'acting payment at a price un!ustiably higher than the realamount of the mortgage obligation. Where the redemptioner chooses toe'ercise his right of redemption, it is the policy of the law to aid rather than

to defeat his right. t stands to reason, therefore, that redemption should beloo$ed upon with favor and where no in!ury will follow, a liberal constructionwill be given to our redemption laws, specically on the e'ercise of the rightto redeem.

6.4 SPOUSES EDRALIN vs PHILIPPINE VETERANS BANK

G.R. No. 168523

DATE: March 9, 2011

DOCTRINE: During the period of redemption, the mortgagee is entitled to a writ of possession

upon depositing the approed !ond" #hen the redemption period e$pires without the mortgagore$ercising his right of redemption, the mortgagor is deemed to hae lost all interest oer the

foreclosed propert%, and the purchaser ac&uires a!solute ownership of the propert%"

PETITIONERS: 'pouses ()*++D- and +.)/+ )D*/+

RESPONDENT: /+) )4)*+' +

FACTS: -n (e!ruar% 5, 1976, eterans an granted petitioner spouses (ernando and ngelina)dralin )dralins a loan in the amount of 270,000"00" s securit% thereof, petitioners e$ecuted

a *eal )state Mortgage *)M6 in faor of eterans an oer a real propert% situated in the

Municipalit% of ara;a&ue and registered in the name of petitioner (ernando )dralin which was

dul% annotated"

4he )dralins failed to pa% their o!ligation to eterans an so the latter filed a etition for)$tra-fficio

'heriff of *i?al" t was sold in a pu!lic auction and eterans an was the highest !idder and a

=ertificate of 'ale was issued and registered with the *egistr% of Deeds of the roince of *i?al

and annotated at the !ac of its 4=4" )dralin failed redeem the propert% during the one %ear period so the !an ac&uired a!solute ownership on @anuar% 19, 199A" 4he )dralinBs 4=4 was

cancelled and a new one under the name of eterans an replaced it"

4hus, on Ma% 2A, 1996, eterans an filed an )$>arte etition for the ssuance of a #rit of

ossession !ut was dismissed for eterans anCs failure to prosecute" -n @ul% 29, 2003,

eterans an again filed an )$>arte etition for ssuance of #rit of ossession" 4he )dralinsmoed to dismiss the petition on the ground that the dismissal of the case due to res


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will iolate the contractual agreement of the parties" (urthermore, the trial court held that,

assuming the contract allowed for the issuance of a writ of possession, eterans anCs right to

see possession had alread% prescri!ed" #ithout citing authorit% and ade&uate e$planation, thecourt held that eterans an had onl% 10 %ears from (e!ruar% 2A, 1983 to see possession of

the propert%"

4his prompted eterans an to file a etition for Mandamus with ra%er for ssuance of a

reliminar% Mandator% npa%ment of the principal o!ligation within the stipulated period"E

4he second element is missing to characteri?e the Deed of 'ale as a form of pactum

commissorium" eterans an did not, upon the petitionersC default, automaticall% ac&uire or

appropriate the mortgaged propert% for itself" -n the contrar%, the eterans an resorted to

e$tra


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n the case at !ar, with the consolidated title, the !an !ecomes entitled to a writ of possession

and the trial court has the ministerial dut% to issue such writ of possession" 4hus, Ethe remed% of

mandamus lies to compel the performance of FthisG ministerial dut%"E

(inal @udgment: =Bs decision ((*M)D"

+"" /-4 -( ''H)' #)*) 4=/)D )*)" onl% got for *ule 68 !ut it also tacled

Mandamus of *ule 65 which didnBt discuss"

Rule 78 Case 5

S/


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of &itle over the sub!ect property in the names of respondents. :espondentsled with the trial court a motion for a writ of possession, contending that theconrmation of the sale Ieectively cut o petitionersE euity ofredemption.I /etitioners on the other hand, led a motion for reconsiderationof the order conrming the sale of the property to respondents.

&he trial court, acting upon both motions, issued an order C1D grantingrespondentsE prayer for a writ of possession and C2D denying petitionersEmotion for reconsideration. &he trial court ruled that petitioners have no rightto redeem the property since the case is for !udicial foreclosure of mortgageunder :ule +5 of the 1770 :ules of ivil /rocedure, as amended. >ence,:espondents, as purchasers of the property, are entitled to its possession asa matter of right.

/etitioners contend that their loan with acaspac is unsecured, hence, itspayment entails an e'ecution of !udgment for money under Section 7 in

relation to Section 2(, :ule "7 of the 1770 :ules of ivil /rocedure, asamended, allowing the !udgment debtor one C1D year from the date ofregistration of the certicate of sale within which to redeem the foreclosedproperty. :espondents, upon the other hand, insist that petitioners areactually uestioning the decision of the trial court dated Kune 1", 1770 whichhas long become nal and e'ecutory and that the latter have no right toredeem a mortgaged property which has been !udicially foreclosed.

ssue= Whether or not there is a right of redemption in !udicial foreclosure ofproperty.

>eld= #one. /etitionersE contention lac$s merit. &he decision of the trialcourt, which is nal and e'ecutory, declared the transaction betweenpetitioners and acaspac an euitable mortgage. Since the partiesEtransaction is an euitable mortgage and that the trial court ordered itsforeclosure, e'ecution of !udgment is governed by Sections 2 and ", :ule +5of the 1770 :ules of ivil /rocedure. n >uerta )lba :esort, nc. v. ourt of)ppeals, we held that the right of redemption is not recogni*ed in a !udicialforeclosure.

I&he right of redemption in relation to a mortgage-understood in the sense of a prerogative to re-acuire mortgaged property after registration of the

foreclosure sale-e'ists only in the case of the e'tra!udicial foreclosure of themortgage. #o such right is recogni*ed in a !udicial foreclosure e'cept onlywhere the mortgagee is the /hilippine #ational ban$ or a ban$ or a ban$inginstitution.

IWhere a mortgage is foreclosed e'tra!udicially, )ct "1"( grants to themortgagor the right of redemption within one C1D year from the registrationof the sheriEs certicate of foreclosure sale.


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IWhere the foreclosure is !udicially eected, however, no euivalent right ofredemption e'ists. &he law declares that a !udicial foreclosure sale, Nwhenconrmed by an order of the court, . . . shall operate to divest the rights of allthe parties to the action and to vest their rights in the purchaser, sub!ect to

such rights of redemption as may be allowed by law.E Such rightse'ceptionally Nallowed by lawE Ci.e., even after the conrmation by an orderof the courtD are those granted by the charter of the /hilippine #ational ?an$C)ct #os. 20%0 and 27"5D, and the 9eneral ?an$ing )ct C:.). ""0D. &heselaws confer on the mortgagor, his successors in interest or any !udgmentcreditor of the mortgagor, the right to redeem the property sold onforeclosureJafter conrmation by the court of the foreclosure saleJwhichright may be e'ercised within a period of one C1D year, counted from the dateof registration of the certicate of sale in the :egistry of /roperty.

I?ut, to repeat, no such right of redemption e'ists in case of !udicial

foreclosure of a mortgage if the mortgagee is not the /#? or a ban$ orban$ing institution. n such a case, the foreclosure sale, Nwhen conrmed byan order of the court, . . . shall operate to divest the rights of all the partiesto the action and to vest their rights in the purchaser.E &here then e'ists onlywhat is $nown as the euity of redemption. &his is simply the right of thedefendant mortgagor to e'tinguish the mortgage and retain ownership of theproperty by paying the secured debt within the 78-day period after the !udgment becomes nal, in accordance with :ule +5, or even after theforeclosure sale but prior to its conrmation.

learly, as a general rule, there is no right of redemption in a !udicial

foreclosure of mortgage. &he only e'emption is when the mortgagee is the/hilippine #ational ?an$ or a ban$ or a ban$ing institution. Since themortgagee in this case is not one of those mentioned, no right of redemptione'ists in favor of petitioners. &hey merely have an euity of redemption,which, to reiterate, is simply their right, as mortgagor, to e'tinguish themortgage and retain ownership of the property by paying the secured debtprior to the conrmation of the foreclosure sale. >owever, instead ofe'ercising this euity of redemption, petitioners chose to delay theproceedings by ling several manifestations with the trial court. &hus, theyonly have themselves to blame for the conseuent loss of their property.

+.D CAE T%TLE9 @orea 6'change ?an$ v. il$or ?usiness ntegrated, nc.

GR NO.9 9.:. #o. 1"5272$ATE9 )pril 18, 2882


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$OCTR%NE9 entire ruling

"ET%T%ONER9 +OREA E'CHANGE *AN+

RE"ON$ENT9 !%L+OR *U%NE %NTEGRATE$: %NC.: +%( EUNG ;OE:

a/d LEE HAN ANG

!ACT9:espondent il$or ?usiness ntegrated, nc. Cil$orD, borrowed ASO1%8,888from petitioner @orea 6'change ?an$, payable on Kuly 7, 1770. an Sang also e'ecuted

ontinuing Suretyships binding themselves !ointly and severally withrespondent il$or to pay for the latterLs obligations to petitioner.

n addition, il$or e'ecuted nine trust receipts in favor of petitioner. >owever,il$or failed to turn over to petitioner the proceeds from the sale of thegoods, or the goods themselves as reuired by the trust receipts in caseil$or could not sell them.

il$or also negotiated to petitioner the proceeds of seventeen letters of creditissued by the :epublic ?an$ of #ew Bor$ and the ?anue 3eumi rance, S.).to pay for goods which il$or sold to Segerman nternational, nc. and

;avyco, S.). When petitioner tried to collect the proceeds of the letters of credit by presenting the bills of e'change drawn to collect the proceeds, theywere dishonored because of discrepancies.

)s respondents failed to ma$e good on their obligations, petitioner led acivil case in the :egional &rial ourt. n its complaint, petitioner prayed CaD itbe paid by respondents under its twenty-seven causes of action CbD theproperty mortgaged be foreclosed and sold at public auction in caserespondents failed to pay petitioner within ninety days from entry of !udgment and CcD other reliefs !ust and euitable be granted.

RTC/etitioner moved for summary !udgment. &he trial court rendered its ordergranting petitionerLs motion. t rendered !udgment for the plainti andagainst the defendants, ordering said defendants !ointly and severally to payplainti.

&he trial court then rendered !udgment in favor of petitioner, granting itsprayers under all its twenty-seven causes of action. t, however, failed to


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order that the property mortgaged by respondent il$or be foreclosed andsold at public auction in the event that il$or fails to pay its obligations topetitioner.

/etitioner led a motion for partial reconsideration of the trial courtLs order,

praying that the aforesaid relief of foreclosure and sale at public auction begranted.

n an order, the trial court denied petitionerLs motion, ruling as follows=/lainti, in opting to le a civil action for the collection of defendantEsobligations, has abandoned its mortgage lien on the property sub!ectof the real estate mortgage.

>ence this petition.

%UE9

Whether or not petitionerLs complaint before the trial court was an action forforeclosure of a real estate mortgage, or an action for collection of a sum ofmoney.

HEL$9/etitionerLs allegations in its complaint, and its prayer that the mortgagedproperty be foreclosed and sold at public auction, indicate that petitionerLsaction was one for foreclosure of real estate mortgage. We have consistentlyruled that what determines the nature of an action, as well as which court orbody has !urisdiction over it, are the allegations of the complaint and thecharacter of the relief sought. n addition, we nd no indication whatsoever

that petitioner had waived its rights under the real estate mortgage e'ecutedin its favor. &hus, the trial court erred in concluding that petitioner hadabandoned its mortgage lien on il$orLs property, and that what it had ledwas an action for collection of a sum of money.

/etitionerLs action being one for foreclosure of real estate mortgage, it wasincumbent upon the trial court to order that the mortgaged property beforeclosed and sold at public auction in the event that respondent il$or failsto pay its outstanding obligations. &his is pursuant to Section 2 of :ule +5 of the 1770 :ules of ivil /rocedure, which provides=

S6. 2. Judgment on foreclosure for payment or sale. - f upon the trial in such action the court shall nd the factsset forth in the complaint to be true, it shall ascertain theamount due to the plainti upon the mortgage debt orobligation, including interest and other charges asapproved by the court, and costs, and shall render udgment for the sum so found due and order that thesame !e paid to the court or to the udgment o!ligee


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"ithin a period of not less than ninety #$%& days nor morethan one hundred t"enty #'(%& days from entry of udgment) and that in default of such payment the property shall !e sold at pu!lic auction to satisfy the udgment. Ctalics supplied.D

)ccordingly, the dispositive portion of the decision of the trial court datedarch 12, 1777, must be modied to comply with the provisions of Section 2of :ule +5 of the 1770 :ules of ivil /rocedure. &his modication is sub!ect toany appeal led by respondents of said decision.

0.D Loou


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6vidently, 3ooyu$o and Ay prevailed in that action.


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process. &he :& thus set aside its ;ecision and all orders issued subseuent andrelated thereto.

&he motion to intervene led by the Spouses 9utang is granted and the decision onay 17, 1755 is reconsidered set aside together with all orders subseuent andrelated thereto.


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for foreclosure of mortgage, and in allowing the intervention of the Spouses 9utangand 3ooyu$o et al. in the proceedings before the trial court.

%ssue9 WF# the motion for intervention led by the Spouses 9utang and3ooyu$o et al. in ivil ase #o. 52-70+8 proper considering that the case wasalready nal and e'ecutory

Held9 #o. n *ahanan Development Corp. v. Court of Appeals this ourt allowedintervention almost at the end of the proceedings. )ccordingly, there should be nouibbling, much less hesitation or circumvention, on the part of subordinate andinferior courts to abide and conform to the rule enunciated by the Supreme ourt. tmust be noted, however, that in both these cases, the intervenorswere i/dise/sa0le arties. &his is not so in the case at bar.

ectio/ 1: Rule 78 of the :ules of ourt reuires all persons having orclaiming an interest in the premises subordinate in right to that of the holder of themortgage be made defendants in the action for foreclosure. &he reuirement for

!oinder of the person claiming an interest subordinate to the mortgage sought to beforeclosed, however, is not mandatory in character but merely directory, in thesense that failure to comply therewith will not invalidate the foreclosureproceedings.

) subordinate lien holder is a proper, even a necessary, but /ot anindispensable, party to a foreclosure proceeding. )ppropriate relief could be grantedby the court to the mortgagee in the foreclosure proceeding, without aecting therights of the subordinate lien holders. &he eect of the failure on the part of themortgagee to ma$e the subordinate lien holder a defendant is that the decreeentered in the foreclosure proceeding would not deprive the subordinate lien holderof his right of redemption. ) decree of foreclosure in a suit to which the holders of a

second lien are not parties leaves the euity of redemption in favor of such lienholders unforeclosed and unaected.

Subordinate lien holders li$e the Spouses 9utang and 3ooyu$o et al. acuireonly a lien upon the euity of redemption vested in the mortgagor, and their rightsare strictly subordinate to the superior lien of the mortgagee. We, therefore, holdthat the appellate court did not commit any error in ruling that there was no over-levy on the disputed properties. What was actually attached by respondents wasonsolidated ines right or euity of redemption, an incorporeal or intangible right,the value of which can neither be uantied nor euated with the actual value of the properties upon which it may be e'ercised.

)ccordingly, an e'ecution creditor who levies his e'ecution upon property that the !udgment debtor has mortgaged to another can sell at most only the euity of redemption belonging to the mortgagor. )s it is the euity of redemption that thesubordinate lien holders had acuired by the levy on e'ecution and that was sold inthe public auction, this euity, not the property itself, was what the purchasers, whoincidentally are the subordinate lien holders themselves, bought at the e'ecutionsale.


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&he failure of the mortgagee to !oin the subordinate lien holders as defendantsin the foreclosure suit, therefore, did not have the eect of nullifying the foreclosureproceeding, but $ept alive the euity of redemption acuired by the purchasers intheir respective e'ecution sales.

ectio/ ): Rule 78 provides that

' ' f upon the trial ' ' the court shall nd the facts set forth in the complaint to betrue, it shall ascertain the amount due to the plainti upon the mortgage debt orobligation, including interest and costs, and shall render !udgment to be paid intocourt within a period of not less than ninety #$%& days from the date of the serviceof such order , and that in default of such payment the property be sold to reali*ethe mortgage debt and costs.

&his is the mortgagors e+uity #not right& of redemption which, as above stated, maybe e'ercised by him even beyond the 78-day period from the date of service of theorder, and even after the foreclosure sale itself, provided it be before the order of

conrmation of the sale. )fter such order of conrmation, no redemption can beeected any longer.

t is this same euity of redemption that is conferred by law on the mortgagorssuccessors-in-interest, or third persons acuiring right over the mortgaged propertysubseuent, and therefore subordinate to the mortgagees lien Ge.g., by secondmortgage or subseuent attachment or !udgmentH. f these subseuent or !uniorlien-holders be not !oined in the foreclosure action, the !udgment in the mortgagorsfavor is ineective as to them, of course. n that case, they retain what is $nown asthe unforeclosed e+uity of redemption) and a separate foreclosure proceedingshould be brought to reuire them to redeem from the rst mortgagee, or the partyacuiring title to the mortgaged property at the foreclosure sale, within 78 days,

Gthe period 'ed in Section 2, :ule +5 for the mortgagor himself to redeemH, underpenalty of losing that prerogative to redeem. ' ' '.

Such euity of redemption does not constitute a bar to the registration of theproperty in the name of the mortgagee. :egistration may be granted in the name of the mortgagee but sub!ect to the subordinate lien holders euity of redemption,which should be e'ercised within ninety C78D days from the date the decisionbecomes nal. &his registration is merely a /ecessar co/seBue/ce of thee'ecution of the nal deed of sale in the foreclosure proceedings. onseuently,there is no merit in 3ooyu$o et al.s contention that the anila :&, which was notacting as a land !urisdiction court, had no authority to order the cancellation of &&#o. 2%2. or the same reason, neither does the submission of the 9utangs that the

foreclosure proceedings was a collateral attac$ on their && deserve any credence.

)ccordingly, the petition for review C9.:. #o. 18201+D of the mortgagee 9A,who was the rst to register its encumbrance, must be granted. onversely, thepetition for certiorari, prohibition and mandamus C9.:. #o. 182+7+D led by 3ooyu$oet al. must be dismissed.


19/19

&he :egister of ;eeds is ordered to cancel && #o. 18180 in the names of Kose3ooyu$o and Kohn Ay and to issue a new one in the name of 9A nsuranceorporation, sub!ect to the euity of redemption of Kose 3ooyu$o and Kohn Ay, and)ntonia 9utang, respectively. &he euity of redemption of Kose 3ooyu$o and Kohn Ayshould be e'ercised within ninety C78D days from the date this decision becomesnal.

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RULE 68 Compiled