G.R. No. 76733 June 30, 1989
EASTMAN CHEMICAL INDUSTRIES, INC., petitioner, vs. HONORABLE COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and THE PROVINCIAL SHERIFF OF RIZAL, respondents.

FACTS

Eastman Chemical Industries, Inc. (EASTMAN) obtained a loan from the Bank of the Philippine Islands (BPI), secured by a real estate mortgage on three parcels of land. The mortgage contract contained a “dragnet” or “blanket” clause, stipulating that the mortgage would also secure future obligations of EASTMAN to BPI. Separately, EASTMAN executed a Continuing Guaranty, binding itself solidarily with Peroxide Philippines Corporation for a loan (the Peroxide Account). When EASTMAN defaulted on its own loan (the Eastman Account), BPI initiated extrajudicial foreclosure proceedings. A sheriff’s sale was scheduled. After negotiations, the parties agreed to reset the sale to January 31, 1983, provided EASTMAN paid the reconciled amount by January 28, 1983. EASTMAN failed to pay by that date. On January 31, its counsel tendered a personal check at the auction, which BPI and the sheriff refused. BPI was the winning bidder.
Subsequently, BPI submitted a statement of account to the sheriff that consolidated EASTMAN’s obligations, adding the P31.2 million solidary liability under the Peroxide Account to the foreclosed Eastman Account debt. This inflated the total debt against which the bid price was credited, leaving a huge deficiency. The Court of Appeals upheld the validity of the foreclosure sale, including the application of the proceeds to the Peroxide Account obligation, and ruled that EASTMAN’s right of redemption was only 30 days.

ISSUE

The primary issues were: (1) Whether the extrajudicial foreclosure could validly satisfy EASTMAN’s solidary obligation under the Peroxide Account, given the dragnet clause in the mortgage; and (2) What is the correct period of redemption for the foreclosed properties.

RULING

The Supreme Court modified the Court of Appeals’ decision. On the first issue, the Court ruled that the extrajudicial foreclosure was invalid insofar as it sought to satisfy the Peroxide Account obligation. The dragnet clause in the mortgage contract could not be construed to secure the solidary guaranty on a separate principal obligation of a different entity (Peroxide Philippines Corporation). A mortgage is an accessory contract; it secures a principal obligation. Here, the principal obligation for the Peroxide Account was the loan to Peroxide, not to EASTMAN. EASTMAN’s liability thereon arose from an independent contract of guaranty. The mortgage, executed specifically for EASTMAN’s own loan, could not be extended to secure an obligation where EASTMAN was merely a guarantor for another’s debt, absent clear, categorical, and specific language to that effect in the mortgage deed. The foreclosure was thus valid only for the Eastman Account.
On the second issue, the Court held that the redemption period is one year from the date of registration of the certificate of sale with the Register of Deeds, not from the date of the auction sale. This period is fixed by Act No. 3135 , as amended. The Court of Appeals’ imposition of a 30-day period had no legal basis. The one-year statutory period remained available to EASTMAN, commencing upon the registration of the sheriff’s certificate of sale.