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January 29, 2011

Mr. Andrew Paul SmithGeneral ManagerMONTREAL BANK

Salcedo Village, Makati City

RE: Opinion on the validity of the mortgaged subdivision

Dear Mr. Smith:

You have requested our advice regarding the validity of the mortgagedWillyville Subdivision in Pasig made by the Villarica Corporation. This letter isfurnished by us in correspondence to your request.

In preparing for this Opinion Letter, we have reviewed the following

documents:

1. The copiesy of the official receipts, from January 1993 up to final payment,given to spouses Roman and Natalie Flores for a parcel of land from VillaricaCorporation in Willyville Subdivision in Pasig, payable by installment for 15years.

2. The copy of the loan furnished by Villarica Corporation from Montreal Bankon August 1998, , payable in 10 years.

3. The copy of the mortgage contract between Villarica Corporation andMontreal Bank involving concerning Willyville Subdivision in Pasig.

The analysis contained in this Opinion Letter is based solely on the limitedfacts and documents described herein. It is subject to a number ofqualifications, exceptions, definitions, limitations on coverage, and otherlimitations. The law covered by the opinions expressed herein is limited to theNew Civil Code and Mortgage Law s of the Philippines.

This Opinion Letter provided to you as our client, is for your sole benefit, and

is transmitted in confidence to you. Aside from your own benefit, nNo oneotherindividual or artificial person than you may use or rely on this OpinionLetter without prior written consent from our Law officeof San Beda College,except in response to a court order.


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FACTS:

We understand that on January 1993, spouses Roman and Natalie Flores

bought a parcel of land from Villarica Corporation in Willyville Subdivision inPasig. It is payable by installment for 15 years. Subsequently, VillaricaCorporation mortgaged the subdivision to Montreal Bank on August 1998 for aloan payable in 10 years.

However, Villarica Corporation failedwas not able to pay the loan when itmatured in 2008. Consequently Naturally, Montreal Bank soughtwanted toforeclose the property. ButOn the other hand, the spouses demand that thetitle of the property be transferred to them since they have already paid theannual installments.

ISSUES:

1. The validity ofWON the sale of the parcel of land between the spousesFlores and Villarica Corporation. was valid

2. The validity of WON the mortgage of the subdivision by Villarica Corp. toMontreal Bank. was valid

3. The right of ownership of the Who has a better right to the subjectproperty.? To whom should the title of the land be delivered, to the spousesFlores or Montreal Bank?

OPINIONS:

1. The sale of the parcel of land between the spouses Flores and VillaricaCorporation was valid. The receipts issued by Villarica Corporation can be

considered as an evidence of the said sale of land. That the existence of suchreceipts proved that the spouses paid their installment fees to VillaricaCorporation. According to paragraph 2, Article 1176 of the New Civil Code ofthe Philippines, the receipt of a later installment of a debt without reservationas to prior installments, shall likewise raise the presumption that suchinstallments have been paid. Thus, the receipts produced by VillaricaCorporation showed that the spouses purchased the land and complied withtheir stipulations.

It is further stated in Section 25 of Presidential Decree No. 957, Regulatingthe Sale of Subdivision Lots and Condominiums, that the owner or developer

shall deliver the title of the lot or unit to the buyer upon full payment of the lotor unit. No fee, except those required for the registration of the deed of sale


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in the Registry of Deeds, shall be collected for the issuance of such title.

2. The mortgage of the subdivision by Villarica Corporation to Montreal Bankwas not validinvalid. In contracts of mortgage, it is essential that themortgagor be the absolute owner of the thing mortgaged and that he should

have the free disposal of their property, and in the absence thereof, that he belegally authorized for the purpose to do so. It is stated in Article 2085 of theCivil Code of the Philippines, paragraph 3 that the persons constituting thepledge or mortgage have the free disposal of their property and in theabsence thereof, that they be legally authorized for the purpose. Evidently,Villarica Corporation is the owner of the subject property but it does not havethe absolute freedom to dispose such because some parcel of the land wasalready purchased by the spouses. Furthermore, the right of the spouses wasprejudiced because the property was mortgaged without their knowledge.Citing Article 2089 of the Civil Code, a pledge or mortgage is indivisible. Thus,the subdivision can not be mortgaged since the ownership of the property was

distributed to several persons and one of whom were the spouses.

Also, as provided for in Section 18 of Presidential Decree 957, it states that nomortgage on any unit or lot shall be made by the owner or developer withoutprior written approval of the Authority. Such approval shall not be grantedunless it is shown that the proceeds of the mortgage loan shall be used for thedevelopment of the condominium or subdivision project and effectivemeasures have been provided to ensure such utilization. Hence, if thecontract of mortgage is not facilitated in accordance of the above mentioned,the contract is rendered void.

3. Since there wereas receipts produced by the spouses proving theirownership of the parcel of land, it is undeniably true that the spouses have theright over the said property. On one hand, Article 1496 of the Civil Codestates that the ownership of the thing sold is acquired by the vendee from themoment it is delivered to him. The parcel of land is placed in control andpossession of the spouses. However, there was no land title secured by them.On the other hand, your bank secured a copy of the loan and mortgagecontract executed between Villarica Corporation and your bank. Thesedocuments proved that there was an agreement between your bank andVillarica Corporation. Thus as a mortgagee, you have the

The mortgagee, Montreal Bank, has the right to require the mortgagor,Villarica Corporation, to execute the deed of mortgage so that it may beregistered, and if the document is defective and cannot be registered he canrequire the mortgagor to make another deed of mortgage and make thenecessary correction of the original deed.

The person in whose favor the law creates a mortgage shall have no rightother than to demand the execution and registration of the document to whichthe mortgage is constituted.

In view of the foregoing analysis, please be informed that Montreal Bank,

therefore, cannot foreclose the entire property. The previous sale of a parcelof land was valid and binding and cannot be subjected to a mortgage contract.


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Sincerely,

_______________

Ms. Kayrel Padilla

_______________

Ms. Chairee Tiangsing

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