G.R. No. 205752 - IN RE: Bulayo

Case Summary (G.R. No. 205752)

Applicable Law

The Court applied the constitutional protection against impairment of contracts under the constitution in force at the time of decision (the 1973 Philippine Constitution) together with established civil law principles on the nature and effects of mortgages as reflected in prior jurisprudence and Article 2126 of the Civil Code.

Relevant Dates and Procedural Posture

Mortgage executed March 19, 1979; extrajudicial foreclosure proceedings initiated August 28, 1979; notice of sale published and auction set for September 28, 1979; respondents obtained ex parte injunction September 27, 1979; amended complaint filed October 31, 1979; trial court ordered cancellation of mortgage lien conditioned on plaintiffs’ posting of an P80,000 surety bond on November 20, 1980; surety bond posted January 28, 1981; trial court approved bond and ordered surrender of TCT and cancellation of mortgage lien on February 24, 1981; Supreme Court issued temporary restraining order March 18, 1981 and later resolved the petition.

Factual Background

Ganzon initiated extrajudicial foreclosure of the mortgage on Lot No. 1901 to secure a P40,000 promissory note. The Tajanlangits had previously acquired Lot No. 1900 from Ganzon by a deed of absolute sale containing a warranty that occupants would be removed within 120 days. The Tajanlangits alleged they withheld payment of P40,000 (the asserted balance of the purchase price) because Ganzon failed to remove occupants as warranted. The Tajanlangits maintained the mortgage on Lot No. 1901 was intended to secure that balance; Ganzon denied that the mortgage related to the purchase of Lot No. 1900 and contended the mortgage and sale were separate transactions.

Parties’ Contentions

Respondents (Tajanlangits) sought to enjoin the foreclosure and, before trial, moved for release of the real estate mortgage and for substitution by bond or cash; they tendered an P80,000 surety bond (double the mortgage consideration) to have the Register of Deeds cancel the mortgage lien. Petitioners (Ganzon and the sheriff) opposed substitution, insisting the mortgage was an independent transaction and that foreclosure proceedings complied with the mortgage terms.

Trial Court Orders at Issue

The Court of First Instance, on November 20, 1980, ordered that the Register of Deeds cancel the mortgage lien upon respondents’ posting of an P80,000 bond, reasoning the respondents were willing and able to pay and that Ganzon had breached his warranty in the prior sale. On February 24, 1981 the trial court approved the posted surety bond and directed Ganzon to surrender the owners’ copy of TCT No. T‑50324 so the mortgage annotation could be cancelled.

Issue Presented to the Supreme Court

Whether a trial court may, before trial on the merits and over the mortgagee’s objection, order cancellation of a mortgage lien annotated on a Torrens title and substitute for that lien a court‑approved surety bond securing the same obligation.

Supreme Court’s Legal Analysis

The Court emphasized established principles on the nature and effects of a mortgage: a mortgage is accessory to the principal obligation and derives its consideration from the principal contract; it is a right in rem that directly and immediately subjects the property to the secured obligation, enforceable against the property regardless of changes in ownership. Citing Article 2126 and controlling jurisprudence, the Court reiterated that a recorded mortgage is a lien on the property that follows the property until discharged, and subsequent purchasers and transferees must respect t

Case Syllabus (G.R. No. 205752)

Caption, Citation, and Decision

Reported at 208 Phil. 630, First Division, G.R. No. 56450, decided July 25, 1983.
Decision authored by Justice Gutierrez, Jr.
Petitioners: Rodolfo T. Ganzon and Gregorio L. Lira (in his capacity as ex-officio provincial sheriff of Iloilo).
Respondents: The Honorable Sancho Y. Inserto (Presiding Judge, Branch I, Court of First Instance of Iloilo), Randolph C. Tajanlangit and Esteban C. Tajanlangit.
Relief sought: Petition for prohibition/annulment of trial court orders that cancelled a mortgage lien on a Torrens title and ordered substitution of the mortgage by a surety bond.

Facts: Transactions, Documents, and Property Descriptions

On March 19, 1979, a Deed of Real Estate Mortgage was executed (Annex "A", Petition) by Randolph Tajanlangit and Esteban Tajanlangit as mortgagors in favor of Rodolfo Ganzon as mortgagee, to secure a promissory note for P40,000.00.
The promissory note recited payment of P40,000.00 in two installments: P20,000.00 on or before May 25, 1979, and P20,000.00 on or before August 25, 1979; the note provided that it shall not draw interest (Annex "A", Rollo, p. 15).
The mortgage covered a parcel described as Lot No. 1901-E-61-B-1-F of subdivision plan Psd-274802, District of Molo, Iloilo City, and was covered by Transfer Certificate of Title No. T-50324.
Separately, on August 25, 1978, Rodolfo Ganzon executed a deed of absolute sale in favor of Esteban Tajanlangit covering Lot No. 1900 of the Cadastral Survey of Iloilo, District of Molo, Iloilo City, covered by Transfer Certificate of Title No. T-39579, with an area of 24,442 square meters, more or less.
The deed of absolute sale included a contractual proviso/warranty by the vendor (Ganzon) to ensure that all occupants of the sold lot would vacate within 120 days from execution of the sale document.

Foreclosure Proceedings, Notice, and Sale Scheduling

On August 28, 1979, petitioner Rodolfo Ganzon initiated extra-judicial foreclosure proceedings on the real estate mortgage.
Gregorio Lira, as ex-officio provincial sheriff of Iloilo, served personal notice of the foreclosure proceedings on the private respondents and caused publication in a newspaper of general circulation of a Notice of Extra-Judicial Sale.
The Notice scheduled a public auction of the mortgaged property for 10:00 a.m. on September 28, 1979, at the sheriff’s office at the Provincial Capitol, Iloilo City.

Litigation Initiated by Mortgagors; Claims and Relief Sought

On September 27, 1979, the private respondents (Randolph and Esteban Tajanlangit) filed a civil action for specific performance, damages, and prohibition with a prayer for preliminary injunction against petitioners in the Court of First Instance, docketed as CFI Case No. 13053.
The private respondents sought a declaration that the extrajudicial foreclosure and all related proceedings were null and void, and they sought a writ of preliminary injunction to enjoin the petitioners from proceeding with the foreclosure and public auction.
The trial court, acting on an urgent ex parte motion, issued an order enjoining the provincial sheriff from proceeding with the scheduled auction on September 28, 1979.

Amended Complaint: Core Allegations by the Private Respondents

The amended complaint (filed October 31, 1979) alleged, inter alia:
- (1) That Ganzon executed the deed of absolute sale of Lot No. 1900 in favor of Esteban Tajanlangit on August 25, 1978 (TCT No. T-39579).
- (2) That the deed of real estate mortgage (the subject of the extra-judicial proceedings) was executed by the Tajanlangits to secure payment of P40,000.00 which constituted part of the purchase price of Lot No. 1900.
- (3) That the deed of sale contained a warranty by Ganzon to cause occupants to vacate the premises within 120 days.
- (4) That Ganzon breached this warranty because occupants remained on the lot.
- (5) That the extra-judicial foreclosure was illegal because Ganzon breached the warranty and because the mortgage allegedly did not contain a stipulation authorizing extrajudicial foreclosure.

Petitioners’ Answer and Position

In their answer filed March 28, 1980, petitioners admitted the existence and veracity of the deed of absolute sale covering Lot No. 1900 but denied that the real estate mortgage on Lot No. 1901 (subject of the foreclosure) was executed to secure payment of the balance of the purchase price of Lot No. 1900.
Petitioners maintained that the real estate mortgage was an entirely different transaction separate from the sale of Lot No. 1900 and that the extrajudicial foreclosure proceedings would be in accordance with the terms and conditions of the mortgage.

Pre-trial Posture and Issues

At pre-trial the parties admitted the existence and due execution of the documents (sale and mortgage); the issues framed in the pre-trial order included “whether or not the documents express the true intention of the parties, and whether or not they complied with the provisions of the document” (Rollo, p. 78).
Before trial on the merits, the private respondents filed a “Motion For Release Of Real Estate And For The Clerk Of Court To Accept Bond Or Cash In Lieu Thereof”; petitioners opposed the motion.

Trial Court Orders: November 20, 1980 and February 24, 1981

In an order dated November 20, 1980, the trial court granted the respondents’ motion
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