PARADIGM DEVELOPMENT vs BPI The codal provision is clear and explicit.

Even if the instrument

were not recorded, “the mortgage is nevertheless binding
G.R. No. 191174, June 7, 2007
between the parties.”

Hence, even assuming that the parties indeed agreed to

register only one of the two REMs, the subsequent registration
FACTS: of both REMs did not affect an already validly executed REM if
there was no other basis for the declaration of its nullity. That
Sengkon Trading (Sengkon), a sole proprietorship, obtained a the REMs were intended merely as “partial security” does not
loan from Far East Bank and Trust Company (FEBTC) under a make PDCP’s argument more plausible because as aptly
credit facility. FEBTC again granted Sengkon another credit observed by the CA, the PDCP’s act of surrendering all the
facility. Two real estate mortgage (REM) contracts were titles to the properties to FEBTC clearly establishes PDCP’ s
executed by PDCP’s President to partially secure Sengkon’s intent to mortgage all of the four properties in favor of FEBTC
obligations under this Credit Line. to secure Sengkon’s obligation under the Credit Line.
Sengkon defaulted in the payment of its loan obligations. PDCP’s Amended Complaint is essentially premised on the
FEBTC demanded payment from PDCP. Negotiations were put supposed fraud employed on it by FEBTC consisting of the
on hold because BPI acquired FEBTC and assumed the rights latter’s assurances that the REMs it already signed would not
and obligations of the latter. be registered.
Upon verification with the Registry of Deeds, PDCP discovered In Solidbank Corporation v. Mindanao Ferroalloy Corporation,
that FEBTC extra-judicially foreclosed the first and second the Court discussed the nature of fraud that would annul or
mortgage without notice to it as mortgagor and sold the avoid a contract, thus:
mortgaged properties to FEBTC as the lone bidder. Thereafter,
the corresponding Certificate of Sale was registered. PDCP Fraud refers to all kinds of deception – whether through
filed a Complaint for Annulment of Mortgage, Foreclosure, insidious machination, manipulation, concealment or
Certificate of Sale and Damages. PDCP alleged that FEBTC misrepresentation- that would lead an ordinarily prudent
assured it that the mortgaged properties will only secure the person into error after taking the circumstances into account. In
Credit Line sub-facility of the Omnibus Line. With this contracts, a fraud known as dolo causante or causal fraud is
understanding, PDCP President allegedly agreed to sign on basically a deception used by one party prior to or
two separate dates a pro-forma and blank REM. PDCP, simultaneous with the contract, in order to secure the consent
however, claimed that it had no intent to be bound under the of the other. Needless to say, the deceit employed must be
second REM, which was not intended to be a separate serious. In contradistinction, only some particular or accident of
contract, but only a means to reduce registration expenses. the obligation is referred to by incidental fraud or dolo
According to PDCP, when FEBTC registered both REMs, even incidente, or that which is not serious in character and without
if the intent was only to register one, the validity of both REMs which the other party would have entered into the contract
was vitiated by lack of consent. PDCP claims that said intent is anyway.
supported by the fact that the REMs were constituted merely
as “partial security” for Sengkon’s obligations and therefore Under Article 1344 of the Civil Code, the fraud must be serious
there was really no intent to be bound under both – but only in to annul or avoid a contract and render it voidable. This fraud
one – REM. or deception must be so material that had it not been present,
the defrauded party would not have entered into the contract.
The RTC rendered its Decision nullifying the REMs and the
foreclosure proceedings. The CA reversed the RTC’s ruling. In the present case, even if FEBTC represented that it will not
register one of the REMs, PDCP cannot disown the REMs it
ISSUES: executed after FEBTC reneged on its alleged promise. As
earlier stated, with or without the registration of the REMs, as
(1) Whether or not the validity of both REMs was vitiated by between the parties thereto, the same is valid and PDCP is
lack of consent. already bound thereby. The signature of PDCP’s President
(2) Whether or not the foreclosure proceedings are valid. - NO coupled with its act of surrendering the titles to the four
properties to FEBTC is proof that no fraud existed in the
RULING: execution of the contract. Arguably at most, FEBTC’s act of
registering the mortgage only amounted to dolo incidente
(1) Whether or not the validity of both REMs was vitiated which is not the kind of fraud that avoids a contract.
by lack of consent. – NO.
(2) Whether or not the foreclosure proceedings are valid. -
To begin with, the registration of the REM contract is not NO
essential to its validity under Article 2085. In relation thereto,
Article 2125 of the Civil Code reads: FEBTC’s failure to comply with its contractual obligation to
send notice to PDCP of the foreclosure sale is fatal to the
Article 2125. In addition to the requisites stated in Article 2085, validity of the foreclosure proceedings. In Metropolitan Bank v.
it is indispensable, in order that a mortgage may be validly Wong, the Court ruled that while as a rule, personal notice to
constituted, that the document in which it appears be recorded the mortgagor is not required, such notice may be subject of a
in the Registry of Property. If the instrument is not recorded, contractual stipulation, the breach of which is sufficient to
the mortgage is nevertheless binding between the parties. nullify the foreclosure sale.
Precisely, the purpose of the foregoing stipulation is to apprise
respondent of any action which petitioner might take on the
subject property, thus according him the opportunity to
safeguard his rights.

Thus, we restate: the general rule is that personal notice to the

mortgagor in extrajudicial foreclosure proceedings is not
necessary and posting and publication will suffice. Sec. 3 of
Act 3135 governing extra-judicial foreclosure of [REMs], as
amended by Act 4118, requires only posting of the notice of
sale in three public places and the publication of that notice in
a newspaper of general circulation. The exception is when the
parties stipulate that personal notice is additionally required to
be given the mortgagor. Failure to abide by the general rule, or
its exception, renders the foreclosure proceedings null and
void.