MANUEL D. MEDIDA, DEPUTY SHERIFF OF THE PROVINCE OF CEBU, CITY SAVINGS BANK (FORMERLY CEBU CITY SAVINGS AND LOAN ASSOCIATION, INC.) AND TEOTIMO ABELLANA, PETITIONERS, VS. COURT …

The core issue in this case is whether or not a mortgagor, whose
property has been extrajudically foreclosed and sold at the corresponding
foreclosure sale, may validly execute a mortgage contract over the same
property in favor of a third party during the period of redemption.

The present appeal by certiorari assails the decision^[1]
of respondent Court of Appeals in CA-G.R. CV No. 12678 where it answered the
question posed by the foregoing issue in the negative and modified the decision^[2]
of the then Court of First Instance of Cebu in Civil Case No. R-18616 wherein
the validity of said subsequent mortgage was assumed and the case was otherwise disposed of on
other grounds.

The facts which gave rise to the institution of the aforesaid
civil case in the trial court, as found by respondent Court of Appeals, are as
follows:

“On October 10, 1974 plaintiff spouses, alarmed of losing
their right of redemption over lot 4731 of the Cebu City Cadastre and embraced
under TCT No. 14272 from Mr. Juan Gandioncho, purchaser of the aforesaid lot at
the foreclosure sale of the previous mortgage in favor of Cebu City Development Bank, went to Teotimo Abellana,
president of defendant Association, to obtain a loan of P30,000.00. Prior thereto or on October 3, 1974, their
son Teofredo Dolino filed a similar loan application for Twenty-Five Thousand
(P25,000.00) Pesos with lot No. 4731 offered as security for the Thirty
Thousand (P30,000.00) Pesos loan from defendant association. Subsequently, they executed a promissory
note in favor of defendant association. Both documents indicated that the principal obligation is for Thirty
Thousand (P30,000.00) Pesos payable in one year with interest at twelve (12%)
percent per annum.

“When the loan became due and demandable without plaintiff
paying the same, defendant association caused the extrajudicial foreclosure of
the mortgage on March 16, 1976. After
the posting and publication requirements were complied with, the land was sold
at public auction on April 19, 1976 to defendant association being the highest
bidder. The certificate of sale was
issued on April 20, 1976 and registered on May 10, 1976 with the Register of
Deeds of Cebu.

“On May 24, 1971 (sic, 1977), no redemption having been
effected by plaintiff, TCT No. 14272 was cancelled and in lieu thereof TCT No.
68041 was issued in the name of defendant association.”^[3]

x        x          x

On October 18, 1979, private respondents filed the aforestated
Civil Case No. R-18616 in the court a quo for the
annulment of the sale at public auction conducted on April 19, 1976, as well as
the corresponding certificate of sale issued pursuant thereto.

In their complaint, private respondents, as plaintiffs therein,
assailed the validity of the extrajudicial foreclosure sale of their property,
claiming that the same was held in violation of Act No. 3135, as amended, and
prayed, inter alia, for the cancellation of Transfer Certificate
of Title No. 68041 issued in favor of therein defendant City Savings and Loan
Association, Inc., now known as City Savings Bank and one of the petitioners
herein.

In its answer, the defendant association therein denied the
material allegations of the complaint and averred, among others, that the
present private respondent spouses may still avail of their right of redemption
over the land in question.

On January 12, 1983, after trial on the merits, the court below
rendered judgment upholding the validity of the loan and the real estate
mortgage, but annulling the extrajudicial foreclosure sale inasmuch as the same
failed to comply with the notice requirements in Act No. 3135, as amended,
under the following dispositive part:

“WHEREFORE, the foregoing premises considered and upon the
view taken by the Court of this case, judgment is hereby rendered, as follows:

1.  Declaring ineffective the extrajudicial
foreclosure of the mortgage over Lot No. 4731 of the Cadastral Survey of Cebu;

2. Ordering the
cancellation of Transfer Certificate of Title No. 68041 of the Registry of
Deeds of the City of Cebu in the name of defendant Cebu City Savings and Loan
Association, Inc. and the corresponding issuance of a new transfer certificate
to contain all the annotations made in TCT No. 14272 of the plaintiffs Pascuala
Sabellano, married to Andres Dolino;

3. Ordering the
plaintiffs aforenamed to pay the defendant Cebu City Savings and Loan Association,
Inc. the unpaid balance of the loan, plus interest; and reimbursing said
defendant the value of any necessary and useful expenditures on the property
after deducting any income derived by said defendant from the property.

For this purpose, defendant
Association is given 15 days from receipt hereof within which to submit its
statement of the amount due it from the plaintiffs Dolino, with notice to
them. The payment to be made by the
plaintiffs shall be within ninety (90) days from their receipt of the order
approving the amount due the defendant Cebu City Savings and Loan Association,
Inc.

No award of damages or
costs to either party.

SO ORDERED.”^[4]

Not satisfied therewith, herein private respondents interposed a
partial appeal to respondent court with respect to the second and third
paragraphs of the aforequoted decretal portion, contending that the lower court
erred in (1) declaring that the mortgage executed by the therein plaintiff
spouses Dolino is valid; (2) permitting therein Cebu City Savings and Loan
Association, Inc. to collect interest after the same foreclosure proceedings
and auction sale which are null and void from the beginning; (3) not ordering
the forfeiture of the capital or balance of the loan with usurious interest;
and (4) not sentencing therein defendant to pay damages and attorney’s fees to
plaintiffs.^[5]

On September 28, 1990, respondent Court of Appeals promulgated
its decision modifying the decision of the lower court, with this adjudication:

“WHEREFORE, PREMISES CONSIDERED, the decision appealed from is
hereby MODIFIED declaring as void and ineffective the real estate mortgage
executed by plaintiffs in favor of defendant association. With this modification, the decision is
AFFIRMED in other respects.”^[6]

Herein petitioners then filed a motion for reconsider­ation which
was denied by respondent court in its resolution dated March 5, 1991, hence the
present petition which, in synthesis, postulates that respondent court erred in
declaring the real estate mortgage void, and also impugns the judgment of the
trial court declaring ineffective the extrajudicial foreclosure of said
mortgage and ordering the cancellation of Transfer Certificate of Title No.
68041 issued in favor of the predecessor of petitioner bank.^[7]

The first   submission assailing
the judgment of respondent Court of Appeals is meritorious.

Said respondent court declared the real estate mortgage in
question null and void for the reason that the mortgagor spouses, at the time
when the said mortgage was executed, were no longer the owners of the lot,
having supposedly lost the same when the lot was sold to a purchaser in the foreclosure sale
under the prior mortgage. This holding
cannot be sustained.

Preliminarily, the issue of ownership of the mortgaged property
was never alleged in the complaint nor was the same raised during the trial,
hence that issue should not have been taken cognizance of by the Court of
Appeals. An issue which was neither
averred in the complaint nor ventilated during the trial in the court below
cannot be raised for the first time on appeal as it would be offensive to the
basic rule of fair play, justice and due process.^[8]

Nonetheless, since respondent Court took cognizance thereof and,
in fact, anchored its modificatory judgment on its ratiocination of that issue,
we are inclined to liberalize the rule so that we can in turn pass upon the
correctness of its conclusion. We may
consider such procedure as analogous to the rule that an unassigned error
closely related to an error properly assigned, or upon which the determination
of the question properly assigned is dependent, may be considered by an
appellate court.^[9]
We adopt this approach since, after all, both lower courts agreed upon the
invalidity of the extrajudicial foreclosure but differed only on the matter of
the validity of the real estate mortgage upon which the extrajudicial
foreclosure was based.

In arriving at its conclusion, respondent court placed full
reliance on what obviously is an obiter dictum laid down in the
course of the disquisition in Dizon vs. Gaborro, et
al. which we shall analyze.^[10] For,
as explicitly stated therein by the Court, “(t)he basic issue to be
resolved in this case is whether the ‘Deed of Sale with Assumption of Mortgage’
and the ‘Option to Purchase Real Estate,’ two instruments executed by and
between petitioner Jose P. Dizon and Alfredo G. Gaborro (defendant below) on
the same day, October 6, 1959, constitute in truth and in fact an absolute sale
of the three parcels of land therein described or merely an equitable mortgage
or conveyance thereof by way of security for reimbursement or repayment by
petitioner Jose P. Dizon of any and all sums which may have been paid to the
Development Bank of the Philippines and the Philippine National Bank by Alfredo
G. Gaborro x x x.” Said documents were executed by the parties and the
payments were made by Gaborro for the debt of Dizon to said banks after the
Development Bank of the Philippines had foreclosed the mortgage executed by
Dizon and during the period of redemption after the foreclosure sale of the
mortgaged property to said creditor bank.

The trial court held that the true agreement between the parties
therein was that Gaborro would assume and pay the indebtedness of Dizon to the
banks and, in consideration thereof, Gaborro was given the possession and
enjoyment of the properties in question until Dizon shall have reimbursed him
for the amount paid to the creditor banks. Accordingly, the trial court ordered the reformation of the documents to
the extent indicated and such particular relief was affirmed by the Court of
Appeals. This Court held that the
agreement between the parties is one of those innominate contracts under
Article 1307 of the Civil Code whereby the parties agreed “to give and to
do” certain rights and obligations, but partaking of the nature of
antichresis.

Hence, on appeal to this Court, the judgment of the Court of Appeals in that case was
affirmed but with the following pronouncements:

“The two instruments sought to be reformed in this case appear to stipulate rights and obligations
between the parties thereto pertaining to and involving parcels of land that
had already been foreclosed and sold extrajudicially,
and purchased by the mortgage creditor, a third party. It becomes, therefore, necessary, to determine
the legality of said rights and obligations arising from the foreclosure and
sale proceedings not only between the two contracting parties to the
instruments executed between them but also in so far as the agreement affects
the rights of the third party, the purchaser Bank.

x        x          x

“Under the Revised Rules of Court, Rule 39, Section 33, the
judgment debtor remains in possession of the property foreclosed and sold,
during the period of redemption. If the
judgment debtor is in possession of the property sold, he is entitled to retain
it, and receive the fruits, the purchaser not being entitled to such
possession. (Riosa vs. Verzosa, 26
Phil. 86; Velasco vs. Rosenberg’s Inc., 32 Phil. 72; Pabico vs. Pauco, 43 Phil.
572; Power vs. PNB, 54 Phil. 54; Gorospe vs.
Gochangco, L-12735, Oct. 30, 1959).

x        x          x

“Upon foreclosure and sale, the purchaser is entitled to a
certificate of sale executed by the sheriff. (Section 27, Revised Rules of Court). After the termination of the period of redemption and no redemption
having been made, the purchaser is entitled
to a deed of conveyance and to
the possession of the properties. (Section 35, Revised Rules of Court). The weight of authority is to the effect that the purchaser of land sold
at public auction under a writ of execution has only an inchoate right
to the property, subject to be defeated and terminated within the period of 12
months from the date of sale, by
a redemption on the part of the owner. Therefore, the judgment debtor in possession of the property is entitled to remain therein during
the period for redemption. (Riosa vs.
Verzosa, 26 Phil. 86, 89; Gonzales vs. Calimbas, 51 Phil. 355).

“In the case before Us, after the extrajudicial foreclosure and
sale of his properties, petitioner Dizon retained the right to redeem the
lands, the possession, use and enjoyment of the same during the period of
redemption. And these are the only
rights that Dizon could legally transfer, cede and convey unto
respondent Gaborro under the instrument captioned Deed of Sale with Assumption
of Mortgage (Exh. A-Stipulation), likewise the same rights that said respondent
could acquire in consideration of the latter’s promise to pay and assume the
loan of petitioner Dizon with DBP and PNB.

“Such an instrument cannot be
legally considered a real and unconditional sale of the parcels of land,
firstly, because there was absolutely no money consideration therefor, as
admittedly stipulated, the sum of P131,831.91 mentioned in the document as the
consideration ‘receipt of which was acknowledged’ was not actually paid; and,
secondly, because the properties had already been previously sold by the
sheriff at the foreclosure sale, thereby divesting the petitioner of his full
right as owner thereof to dispose and sell the lands.” (Emphasis ours.)

It was apparently the second reason stated by the Court in said
case which was relied upon by respondent court in the present case on which to
premise its conclusion. Yet, as
demonstrated by the relevant excerpts above quoted, not only was that obiter
therein unnecessary since evidently no sale was concluded, but even inaccurate,
if not inconsistent, when considered in the context of the discussion in its
entirety. If, as admitted, the
purchaser at the foreclosure sale merely acquired an inchoate right to the
property which could ripen into ownership only upon the lapse of the redemption
period without his credit having been discharged, it is illogical to hold that
during that same period of twelve months the mortgagor was “divested”
of his ownership, since the absurd result would be that the land will
consequently be without an owner although it remains registered in the name of the mortgagor.

That is why the discussion in said case carefully and
felicitously states that what is divested from the mortgagor is only his
“full right as owner thereof to dispose (of) and sell the lands,” in
effect, merely clarifying that the mortgagor does not have the unconditional
power to absolutely sell the
land since the same is encumbered
by a lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the lapse of the
period of redemption. Even on that
score, it may plausibly be argued that what is delimited is not the mortgagor’s
jus disponendi, as an attribute of
ownership, but merely the rights conferred by such act of disposal which may
correspondingly be restricted.

At any rate, even the foregoing considerations and arguments
would have no application in the
case at bar and need not here be resolved since what is presently involved is a
mortgage, not a sale, to petitioner bank. Such mortgage does not involve a transfer, cession or conveyance of the
property but only constitutes a lien thereon. There is no obstacle to the legal creation
of such a lien even after the auction sale
of the property but during the redemption period, since no distinction
is made between a mortgage constituted over the property before or after the
auction sale thereof.

Thus, a redemptioner is defined as a creditor having a lien by
attachment, judgment or mortgage on the property sold, or on some part thereof, subsequent
to the judgment under which the property was sold.^[11]
Of course, while in extrajudicial foreclosure the sale contemplated is not
under a judgment but the proceeding pursuant to which the mortgaged property
was sold a subsequent mortgage could nevertheless be legally constituted
thereafter with the subsequent mortgagee becoming and acquiring the rights of a
redemptioner, aside from his right against the mortgagor.

In either case, what bears attention is that since the mortgagor
remains as the absolute owner of the property during the redemption period and
has the free disposal of his property, there would be compliance with the requisites
of Article 2085 of the Civil Code for the constitution of another mortgage on
the property. To hold otherwise swould
create the inequitable situation wherein the mortgagor would be deprived of the
opportunity, which may be his last recourse, to raise funds wherewith to timely
redeem his property through another mortgage thereon.

Coming back to the present controversy, it is undisputed that the
real estate mortgage in favor of petitioner bank was executed by respondent
spouses during the period of redemption. We reiterate that during said period it cannot be said that the
mortgagor is no longer the owner of the foreclosed property since the rule up
to now is that the right of a purchaser at a foreclosure sale is merely
inchoate until after the period of redemption has expired without the right
being exercised.^[12]
The title to land sold under mortgage foreclosure remains in the mortgagor or
his grantee until the expiration of the redemption period and conveyance by the
master’s deed.^[13]
To repeat, the rule has always been that it is only upon the expiration of the
redemption period, without the judgment debtor having made use of his right of
redemption, that the ownership of the land sold becomes consolidated in the
purchaser.^[14]

Parenthetically, therefore, what actually is effected where
redemption is seasonably exercised by the judgment or mortgage debtor is not
the recovery of ownership of his land, which ownership he never lost, but the
elimination from his title thereto of the lien created by the levy on
attachment or judgment or the registration of a mortgage thereon. The American rule is similarly to the effect
that the redemption of property sold under a foreclosure sale defeats the
inchoate right of the purchaser and restores the property to the same condition
as if no sale had been attempted. Further, it does not give to the mortgagor a new title, but merely
restores to him the title freed of the encumbrance of the lien foreclosed.^[15]

We cannot rule on the plaint of petitioners that the trial court erred
in declaring ineffective the extrajudicial foreclosure and the sale of the
property to petitioner bank. The court
below spelled out at length in its decision the facts which it considered as
violative of the provisions of Act No. 3135, as amended, by reason of which it
nullified the extrajudicial foreclosure proceeding and its effects. Such findings and ruling of the trial court
are already final and binding on petitioners and can no longer be modified,
petitioners having failed to appeal therefrom.

An appellee who has not himself appealed cannot obtain from the
appellate court any affirmative relief other than the ones granted in the
decision of the court below.^[16] He
cannot impugn the correctness of a judgment not appealed from by him. He cannot assign such errors as are designed to have the judgment
modified. All that said appellee can do
is to make a counter-assignment
of errors or to argue on issues raised at
the trial only for the purpose of sustaining the judgment in his favor,
even on grounds not included in the decision of the court a quo nor raised in the appellant’s assignment of errors
or arguments.^[17]

WHEREFORE, the decision of respondent Court of
Appeals, insofar as it modifies
the judgment of the trial court, is REVERSED and SET ASIDE. The judgment of said trial court in Civil
Case No. R-18616, dated January 12, 1983, is hereby REINSTATED.

SO ORDERED.

Melencio-Herrera,
(Chairman), Paras, Padilla, and Nocon,
JJ., concur.

^[1]
Justice Manuel C. Herrera, ponente; Justices Eduardo R. Bengson and Jainal
D. Rasul, concurring.

^[2]
Per Judge Valeriano P. Tomol,  Jr.,
presiding over Branch I.

^[3]
Rollo, 61.

^[4]
Ibid., 57-58.

^[5]
Ibid., 63.

^[6]
Ibid., 65.

^[7]
Ibid., 4-6.

^[8]
Vencilao, et al. vs. Vano, et al., 182 SCRA 491 (1990); Gevero, et al., vs.
Intermediate Appellate Court, et al., 189 SCRA 201 (1990).

^[9]
Philippine Commercial and Industrial Bank vs. Court of Appeals, et al.,
159 SCRA 24 (1988); Roman Catholic Archbishop of Manila, et al. vs. Court of Appeals, et
al., 198 SCRA 300 (1991).

^[10]
83 SCRA 688 (1978).

^[11]
Sec. 29 (b), Rule 39, Rules of Court.

^[12]
De Castro vs. Intermediate Appellate Court, et al., 165 SCRA 654 (1988).

^[13]
Kling vs. Ghilarducci, 3 Ill. 2d 454, 121 NE2d 752, 46 ALR 2d 1189.

^[14]
Mateo vs. Court of Appeals, et al., 99 Phil. 1042 (1956).

^[15]
55 Am. Jur. 2d, Mortgages 781.

^[16]
Alba vs. Santander, et al., 160 SCRA 8 (1988).

^[17]
Aparri vs. Court of Appeals, et al., 13 SCRA 611 (1965); Carbonel vs.
Court of Appeals, et al., 147 SCRA 565 (1987); Dizon, Jr. vs. National
Labor Relations Commission, et al., 181 SCRA 472 (1990).