SECOND DIVISION SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA, Petitioners, versus EQUITABLE PCI BANK, INC., Respondent.

G.R. No. 177886 November 27, 2008 CARPIO MORALES, J.: Via a contract denominated as CREDIT LINE AND REAL [1] ESTATE MORTGAGE AGREEMENT FOR PROPERTY LINE (Credit Line Agreement) executed on March 31, 1997, Leo-Mers Commercial, Inc., as the Client, and its officers spouses Leopoldo and Mercedita Viola (petitioners) obtained a loan through a credit line facility in the maximum amount of P4,700,000.00 from the Philippine Commercial International Bank (PCI Bank), which was later merged with Equitable Bank and became known as Equitable PCI Bank, Inc. (respondent). The Credit Line Agreement stipulated that the loan would bear interest at the prevailing PCIBank lending rate per annum on the principal obligation and a penalty fee of three percent (3%) per month on the outstanding amount. To secure the payment of the loan, petitioners executed also [2] on March 31, 1997 a Real Estate Mortgage in favor of PCIBank over their two parcels of land covered by Transfer Certificates of Title No. N113861 (consisting of 300 square meters, more or less ) and N-129036 (consisting of 446 square meters, more or less) of the Registry of Deeds of Marikina. Petitioners availed of the full amount of the loan. Subsequently, they made partial payments which totaledP3,669,210.67. By respondents claim, petitioner had since November 24, 2000 made no further payments and despite demand, they failed to pay their outstanding obligation which, as of September 30, 2002, totaled P14,024,623.22, broken down as follows: (a) Principal obligation P4,783,254.69

at 15% interest

P1,345,290.38

(c) Penalty at 3% per month from 03/31/98 to 02/23/02 P7,896,078.15 _____________________ [3] P14,024,623.22 (Unde rscoring supplied) Respondent thus extrajudicially foreclosed the mortgage before the Office of the Clerk of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court (RTC) of Marikina City. The mortgaged properties were sold on April 10, 2003 for P4,284,000.00 at public auction to [4] respondent, after which a Certificate of Sale dated April 21, 2003 was issued. More than five months later or on October 8, 2003, petitioners filed a [5] complaint for annulment of foreclosure sale, accounting and damages before the Marikina RTC, docketed as Civil Case No. 2003-905-MK and raffled to Branch 192. Petitioners alleged, inter alia, that they had made substantial payments of P3,669,210.67 receipts of which were issued without respondent specifying whether the payment was for interest, penalty or the principal obligation; that based on respondents statement of account, not a single centavo of their payments was applied to the principal obligation; that every time respondent sent them a statement of account and demand letters, they requested for a proper accounting for the purpose of determining their actual obligation, but all their requests were unjustifiably ignored on account of which they were forced to discontinue payment; that the foreclosure proceedings and auction sale were not only irregularly and prematurely held but were null and void because the mortgage debt is only P2,224,073.31 on the principal obligation and P1,455,137.36 on the interest, or a total of only P3,679,210.67 as of April 15, 2003, but the mortgaged properties were sold to satisfy an inflated and erroneous principal obligation of P4,783,254.69, plus 3% penalty fee per month or 33% per year and 15% interest per year, which amounted to P14,024,623.22 as of September 30, 2002; that the parties never agreed and stipulated in the real estate mortgage contract that the 15% interest per annum on the principal loan and the 3% penalty fee per month on the outstanding amount would be covered or secured by the mortgage; that assuming respondent could impose such interest and penalty fee, the same are exorbitant, unreasonable, iniquitous and unconscionable, hence, must be reduced; and that respondent is only allowed to impose the legal rate of interest of 12% per annum on the principal loan [6] absent any stipulation thereon.

(b) Past due interest from 11/24/00 to 09/30/02

In its Answer, respondent denied petitioners assertions, contending, inter alia, that the absence of stipulation in the mortgage contract securing the payment of 15% interest per annum on the principal loan, as well as the 3% penalty fee per month on the outstanding amount, is immaterial since the mortgage contract is a mere accessory contract which must take its bearings from the [7] principal Credit Line Agreement. During the pre-trial conference, the parties defined as sole issue in the case whether the mortgage contract also secured the payment of 15% interest per annum on the principal loan of P4,700,000.00 and the 3% penalty fee per month on the outstanding amount, which interest and [8] penalty fee are stipulated only in the Credit Line Agreement. By Decision of September 14, 2005, the trial court sustained respondents affirmative position on the issue but found the questioned interest and penalty fee excessive and exorbitant. Thus, it equitably reduced the interest on the principal loan from 15% to 12% per annum and the penalty fee per month on the outstanding amount from 3% to 1.5% per month. Accordingly, the court nullified the foreclosure proceedings and the Certificate of Sale subsequently issued, without prejudice to the holding anew of foreclosure proceedings based on the re-computed amount of the indebtedness, if the circumstances so warrant. The dispositive portion of the trial courts Decision reads: WHEREFORE, judgment is hereby rendered as follows: 1) The interest on the principal loan in the amount of Four Million Seven Hundred Thousand (P4,700,000.00) Pesos should be recomputed at 12% per annum; 2) The 3% per month penalty on delinquent account as stipulated by the parties in the Credit Line Contract dated March 31, 1997 is hereby REDUCED to 1.5% per month; 3) The foreclosure sale conducted on April 10, 2003 by the Clerk of Court and Ex-Officio Sheriff of Marikina, to satisfy the plaintiffs mortgage indebtedness, and the Certificate of Sale issued as a consequence of the said proceedings, are declared NULL andVOID, without prejudice to the con
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duct of another foreclosure proceedings on the basis of the recomputed amount of the plaintiffsindebtedness, if the circumstances so warrant. No pronouncement as to costs. SO ORDERED. (Underscoring supplied) [10] Petitioners filed a Motion for Partial Reconsideration, contending that the penalty fee per month on the outstanding amount should have been taken out of the coverage of the mortgage contract as it was not stipulated therein. By Order datedDecember 6, 2005, the trial court denied the motion. On appeal by petitioners, the Court of Appeals, by [11] Decision of February 21, 2007, dismissed the same for lack of merit, holding that the Real Estate Mortgage covers not only the principal amount [of P4,700,000.00] but also the interest and bank charges, which [phrase bank charges] refers to the penalty charges stipulated [12] in the Credit Line Agreement. Petitioners Motion for Reconsideration having been denied by [13] Resolution of May 16, 2007, they filed the present Petition for Review on Certiorari, alleging that THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN DECIDING THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT BY RULING THAT THERE IS NOAMBIGUITY IN CONSTRUING TOGETHER THE CREDIT LINE AND MORTGAGE CONTRACTS WHICH PROVIDED CONFLICTINGPROVISIONS AS TO INTEREST AND [14] PENALTY. The only issue is whether the mortgage contract also secured the penalty fee per month on the outstanding amount as stipulated in the Credit Line Agreement. The Court holds not. A mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the [15] terms of the mortgage.

In the case at bar, the parties executed two separate documents on March 31, 1997 the Credit Line Agreementgranting the Client a loan through a credit facility in the maximum amount of P4,700,000.00, and the Real Estate Mortgage contract securing the payment thereof. Undisputedly, both contracts were prepared by respondent and written in fine print, single space. The Credit Line Agreement contains the following stipulations on interest and delinquency charges: A. CREDIT FACILITY 9. INTEREST ON AVAILMENTS The CLIENT shall pay the BANK interest on each availment against the Credit Facility at the rate of: PREVAILING PCIBANK LENDING RATE for the first interest period as defined in A(10) hereof. x x x. xxxx 15. DELINQUENCY CLIENTs account shall be considered delinquent if the availments exceed the amount of the line and/or in case the Account is debited for unpaid interest and the Available Balance is insufficient to cover the amount debited. In such cases, the Available Balance shall become negative and the CLIENT shall pay the deficiency immediately in addition to collection expenses incurred by the BANK and a penalty fee of three percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment thereon. [16] x x x x. (Underscoring supplied) The Real Estate Mortgage contract states its coverage, thus: That for and in consideration of certain loans, credit and other banking facilities obtained x x x from the Mortgagee, the principal amount of which is PESOS FOUR MILLION SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00) Philippine Currency, and for the purpose of securing the payment thereof, including the interest and bank charges accruing thereon, the costs of collecting the same and of taking possession of and keeping the mortgaged propert[ies], and all other expenses to which the Mortgagee may be put in connection with or as an incident to this mortgage, as well as the faithful compliance with the terms and conditions of this agreement and of the separate instruments under which the credits hereby secured were obtained, the Mortgagor does hereby constitute in favor of the Mortgagee, its successors or assigns, a mortgage on the real property particularly described, and the location of which is set forth, in the list appearing at the back hereof and/or appended hereto, of which the Mortgagor declare that he is the absolute owner and the one in possession

thereof, free and clear of any liens, encumbrances and adverse [17] claims. (Emphasis and underscoring supplied) The immediately-quoted provision of the mortgage contract does not specifically mention that, aside from the principal loan obligation, it also secures the payment of a penalty fee of three percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment thereon, which penalty as the above-quoted portion of the Credit Line Agreement expressly stipulates. Since an action to foreclose must be limited to the amount mentioned [18] in the mortgage and the penalty fee of 3% per month of the outstanding obligation is not mentioned in the mortgage, it must be excluded from the computation of the amount secured by the mortgage. The ruling of the Court of Appeals in its assailed Decision that the phrase including the interest and bank charges in the mortgage contract refers to the penalty charges stipulated in the Credit Line Agreement is unavailing. Penalty fee is entirely different from bank charges. The phrase bank charges is normally understood to refer to compensation for services. A penalty fee is likened to a compensation for damages in case of breach of the obligation. Being penal in nature, such fee must be specific and fixed by the contracting parties, unlike in the present case which slaps a3% penalty fee per month of the outstanding amount of the obligation. Moreover, the penalty fee does not belong to the species of obligation enumerated in the mortgage contract, namely: loans, credit and other banking facilities obtained x x x from the Mortgagee, . . . including the interest and bank charges, . . . the costs of collecting the same and of taking possession of and keeping the mortgaged properties, and all other expenses to which the Mortgagee may be put in connection with or as an incident to this mortgage . . . In Philippine Bank of Communications v. Court of Appeals raised a similar issue, this Court held:
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which

The sole issue in this case is whether, in the foreclosure of a real estate mortgage, the penalties stipulated in two promissory notes

secured by the mortgage may be charged against the mortgagors as part of the sums secured, although the mortgage contract does not mention the said penalties. We immediately discern that the mortgage contract does not at all mention the penalties stipulated in the promissory notes. However, the petitioner insists that the penalties are covered by the following provision of the mortgage contract: This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity, as the case may be, of all promissory notes, letters of credit, trust receipts, bills of exchange, drafts, overdrafts and all other obligations of every kind already incurred or which hereafter may be incurred. The Court is unconvinced, for the cases relied upon by the petitioner are inapplicable. x x x. The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the only participation of the other party was the affixing of his signature or adhesion thereto. Being a contract of adhesion, the mortgage is to be strictly construed against the petitioner, the party which prepared the agreement. A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields no mention of penalty charges. Construing this silence strictly against the petitioner, it can fairly be concluded that the petitioner did not intend to include the penalties on the promissory notes in the secured amount. This explains the finding by the trial court, as affirmed by the Court of Appeals, that penalties and charges are not due for want of stipulation in the mortgage contract. Indeed, a mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. In this case, the mortgage contract provides that it secures notes and other evidences of indebtedness. Under the rule of ejusdem generis, where a description of things of a particular class or kind is accompanied by words of a generic character, the generic words will usually be limited to things of a kindred nature with those particularly enumerated . . . A penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the said contract cannot be

understood to secure the penalty. supplied)

[20]

(Emphasis and underscoring

Respondents contention that the absence in the mortgage contract of a stipulation securing the payment of the 3% penalty fee per month on the outstanding amount is of no consequence, the deed of mortgage being merely an accessory contract that must take its bearings from [21] the principal Credit Line Agreement, fails. Such absence is significant as it creates an ambiguity between the two contracts, which ambiguity must be resolved in favor of petitioners and against respondent who drafted the contracts. Again, as stressed by the Court in Philippine Bank of Communications: There is also sufficient authority to declare that any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. A mortgage and a note secured by it are deemed parts of one transaction and are construed together, thus, an ambiguity is created when the notes provide for the payment of a penalty but the mortgage contract does not. Construing the ambiguity against the petitioner, it follows that no penalty was intended to be covered by the mortgage. The mortgage contract consisted of three pages with no less than seventeen conditions in fine print; it included provisions for interest and attorneys fees similar to those in the promissory notes; and it even provided for the payment of taxes and insurance charges. Plainly, the petitioner can be as specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty in the promissory notes would be secured by the mortgage. This can then only be interpreted to mean that the petitioner had no design of [22] including the penalty in the amount secured. (Emphasis and underscoring supplied) WHEREFORE, the assailed Court of Appeals Decision of February 21, 2007 and Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No. 86412 affirming the trial courts decision are, in light of the foregoing disquisition,AFFIRMED with MODIFICATION in that the penalty fee per month of the outstanding obligation is excluded in the computation of the amount secured by the Real Estate Mortgage executed by petitioners in respondents favor.

THIRD DIVISION EUFEMIA BALATICO VDA. DE AGATEP, Petitioner, versus ROBERTA* L. RODRIGUEZ andNATALIA AGUINALDO VDA. DE LIM, Respondents. G.R. No. 170540 October 28, 2009 PERALTA, J. Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal and setting aside of the [1] Decision of the Court of Appeals (CA) dated September 9, 2005 in CA-G.R. CV No. 83163 which affirmed the May 12, 2004 Decision of the Regional Trial Court (RTC) of Aparri, Cagayan, Branch 8, in Civil Case No. 08-298. Petitioner also assails the CA [2] Resolution dated November 16, 2005 denying her motion for reconsideration. The factual and procedural antecedents of the case are as follows: The present case arose from a dispute involving a parcel of land located at Zinundungan, Lasam, Cagayan with an area of 1,377 square meters and covered by Transfer Certificate of Title (TCT) No. T-10759 [3] of the Register of Deeds of theProvince of Cagayan. The subject property was previously owned by herein respondent Natalia Aguinaldo Vda. de Lim. On July 18, 1975, Lim mortgaged the lot to the Philippine National Bank (PNB), Tuguegarao Branch, to secure a loan of P30,000.00 which she obtained from the said bank. The mortgage contract was duly annotated on TCT No. T-10759. Lim was not able to pay her loan prompting PNB to foreclose the property. On April 13, 1983, the subject parcel of land was sold at public auction [4] to PNB as the highest bidder. Lim failed to redeem the property. After the expiration of the one-year redemption period allowed by law, PNB [5] consolidated its ownership over the disputed land. As a consequence, TCT No. T-10759 in the name of Lim was canceled and a new certificate of title (TCT No. T-65894) was issued in the name of PNB [6] on November 8, 1985. Meanwhile, on August 18, 1976, while the mortgage was still in effect, Lim sold the subject property to herein petitioner's husband, [7] Isaac Agatep (Agatep), for a sum of P18,000.00. However, the sale

was not registered. Neither did Lim deliver the title to petitioner or her husband. Nonetheless, Agatep took possession of the same, fenced it with barbed wire and introduced improvements thereon. Subsequently, Agatep died in 1978. Despite his death, his heirs, including herein petitioner, continued to possess the property. In July 1992, the subject lot was included among PNB's acquired assets for sale. Later on, an invitation to bid was duly published. On April 20, 1993, the disputed parcel of land was sold to herein respondent Roberta L. Rodriguez (Rodriguez), who is the daughter of [8] respondent Lim. Subsequently, TCT No. T-65894, in the name of PNB, was canceled and a new title (TCT No. T-89400) was issued in [9] the name of Rodriguez. On January 27, 1995, herein petitioner filed a Complaint for reconveyance and/or damages with the RTC of Aparri, Cagayan against herein respondents. Later, the complaint was amended to implead PNB as a party[11] defendant. On January 20, 2000, the RTC dismissed the amended complaint for failure of herein petitioner (then plaintiff) to file her Pre[12] Trial Brief. Petitioner filed a motion for reconsideration but the RTC denied it. Thereafter, trial ensued. On May 12, 2004, the RTC rendered judgment in favor of herein [13] respondents. The dispositive portion of the Decision reads as follows: WHEREFORE, the Court hereby renders judgment to wit: 1. Dismiss the instant complaint for reconveyance for lack of merit; 2. Sustain the legality of TCT No. 10559 Roberta Rodriguez; and
[14] [10]

in the name of defendant

3. Award actual damages in favor of plaintiff Eufemia Balatico Vda. de Agatep against defendant Natalia Aguinaldo Vda. de Lim in the amount of Php18,000.00 with legal interest to be computed from the filing of the instant case up to the full completion of its payment. SO DECIDED.
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In awarding damages in favor of herein petitioner, the RTC ruled that Lim enriched herself at the expense of petitioner and her husband by benefiting from the proceeds of the sale but failing to deliver the object of such sale. Hence, on grounds of justice and equity, petitioner should be awarded an adequate compensation for the value of the loss suffered. Herein petitioner filed an appeal with the CA contending that the RTC erred in not considering the merit of the evidence and arguments proven and submitted by petitioner on the issues defined and agreed upon by the parties. Petitioner also averred that the RTC erred in deciding the case on issues different from those defined and agreed upon by the parties during the pre-trial conference and that the trial court further erred in dismissing the amended complaint. On September 9, 2005, the CA rendered its Decision dismissing herein petitioner's appeal for lack of merit and affirming the assailed Decision of the RTC. Petitioner filed a motion for reconsideration, but the CA denied it in its Resolution dated November 16, 2005. Hence, the present petition with the following assignment of errors: IV.1. IN AFFIRMING THE DECISION OF THE TRIAL COURT IN DISMISSING THE AMENDED COMPLAINT AGAINST THE PNB, THE APPELLATE COURT COMMITTED A REVERSIBLE ERROR; IV.2. IN HOLDING THAT NOTWITHSTANDING THE DISMISSAL OF THE AMENDED COMPLAINT AS AGAINST PNB, THE TRIAL COURT IN ITS DECISION NONETHELESS FULLY PASSED UPON THE MERITS OF APPELLANT'S CAUSE OF ACTION AGAINST THE SAID MORTGAGEE BANK, THE APPELLATE COURT COMMITTED A REVERSIBLE ERROR; IV.3. AS A NECESSARY CONSEQUENCE OF THE ERROR IV.2, THE RULING OF THE APPELLATE COURT THAT PNB IS A MORTGAGEE, BUYER AND LATER SELLER IN GOOD FAITH, IS A REVERSIBLE ERROR;

IV.4. THE DECISION, ANNEX A, ERRED IN REJECTING PETITIONER'S ARGUMENTS THAT PNB DID NOT ACQUIRE OWNERSHIP OVER THE PROPERTY IN QUESTION; IV.5. THE DECISION, ANNEX A, ERRED IN RULING THAT PETITIONER'S CONTENTION THAT THE TRIAL COURT DECIDED THE CASE UPON SUCH ISSUES DIFFERENT FROM THOSE AGREED UPON DURING THE PRE-TRIAL CONFERENCE DESERVES SCANT CONSIDERATION; AND IV.6. THE DECISION, ANNEX A, ERRED IN RULING THAT PETITIONER IS NOT ENTITLED TO HER CAUSE OF ACTION OF [16] RECONVEYANCE. In her first assigned error, petitioner contends that Section 6, Rule 18 of the Rules of Court does not require another pre-trial, as well as the filing of another pre-trial brief, when the complaint is amended to implead another defendant. The Court does not agree. In Tiu v. Middleton, the Court, giving emphasis on the importance of a pre-trial, held that: Pre-trial is an answer to the clarion call for the speedy disposition of cases. Although it was discretionary under the 1940 Rules of Court, it was made mandatory under the 1964 Rules and the subsequent amendments in 1997. Hailed as the most important procedural innovation in Anglo-Saxon justice in the nineteenth century, pre-trial seeks to achieve the following: (a) The possibility of an amicable settlement or of a submission to alternative modes of dispute resolution; (b) The simplification of the issues; (c) The necessity or desirability of amendments to the pleadings; (d) The possibility of obtaining stipulations or admissions of facts and of documents to avoid unnecessary proof; (e) The limitation of the number of witnesses; (f) The advisability of a preliminary reference of issues to a commissioner; (g) The propriety of rendering judgment on the pleadings, or summary judgment, or of dismissing the action should a valid ground therefor be found to exist; (h) The advisability or necessity of suspending the proceedings; and
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(i) Such other matters as may aid in the prompt disposition of the [18] action. In consonance with these objectives, Section 6, Rule 18 of the Rules of Court, as amended, provides: SEC. 6. Pre-trial brief. The parties shall file with the court and serve on the adverse party, in such manner as shall ensure their receipt thereof at least three (3) days before the date of the pre-trial, their respective pre-trial briefs which shall contain, among others: (a) A statement of their willingness to enter into amicable settlement or alternative modes of dispute resolution, indicating the desired terms thereof; (b) A summary of admitted facts and proposed stipulation of facts; (c) The issues to be tried or resolved; (d) The documents or exhibits to be presented, stating the purpose thereof; (e) A manifestation of their having availed, or their intention to avail, themselves of discovery procedures or referral to commissioners; and (f) The number and names of the witnesses, and the substance of their respective testimonies. Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-trial.

It must be pointed out, however, that in the cases cited by petitioner to support her argument, the Court found no need for a second pre-trial precisely because there are no additional causes of action alleged and the impleaded defendants merely adopted and repleaded all the pleadings of the original defendants. Petitioner's reliance on the above-cited cases is misplaced because, in the present case, the RTC correctly found that petitioner had a separate cause of action against PNB. A separate cause of action necessarily means additional cause of action. Moreover, the defenses adopted by PNB are completely different from the defenses of Lim and Rodriguez, necessitating a separate determination of the matters enumerated under Section 6, Rule 18 of the Rules of Court insofar as PNB and petitioner are concerned. On these bases, we find no error in the ruling of the CA which sustained the trial court's dismissal of the amended complaint against PNB for failure of petitioner to file her pre-trial brief. Corollarily, Sections 4 and 5 of the same Rule state: Sec. 4. Appearance of parties. It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his behalf fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of documents. Sec. 5. Effect of failure to appear. The failure of the plaintiff to appear when so required pursuant to the next preceding section shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless otherwise ordered by the court. x x x

[21]

The pre-trial brief serves as a guide during the pre-trial conference so as to simplify, abbreviate and expedite the trial if not to dispense with it. It is a devise essential to the speedy disposition of [19] disputes, and parties cannot brush it aside as a mere technicality. In addition, pre-trial rules are not to be belittled or dismissed, because their non-observance may result in prejudice to a partys substantive rights. Like all rules, they should be followed except only for the most persuasive of reasons when they may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his thought[less]ness [20] in not complying with the procedure. Petitioner posits that even if an amended complaint is filed for the purpose of impleading another party as defendant, where no additional cause of action was alleged and the amount of prayer for damages in the original complaint was the same, another pre-trial is not required and a second pre-trial brief need not be filed.

In the present case, the Court observes that in the Order of the [22] RTC dated June 6, 2000, the trial court noted the absence of both the petitioner and her counsel during the scheduled pre-trial conference with respect to the amended complaint impleading PNB. Under the above-quoted Rules, such absence is an additional ground to dismiss the action against PNB. Whether an order of dismissal should be maintained under the circumstances of a particular case or whether it should be set aside [23] depends on the sound discretion of the trial court. Considering the circumstances established on record in the instant case, the Court finds

no cogent reason to set aside the order of the RTC dismissing the complaint of petitioner against PNB. With respect to the second and third assignment of errors, petitioner argues that the CA erred in sustaining the RTC when it passed upon the merits of petitioner's cause of action against PNB notwithstanding the fact that the complaint against the latter was already dismissed. Petitioner contends that a person who was not impleaded in a case could not be bound by the decision rendered therein. Petitioner then proceeds to conclude that the CA erred in sustaining the trial court's finding that PNB was a mortgagee, buyer and seller in good faith. The Court is not persuaded. It is true that the judgment of the trial and appellate courts in the present case could not bind the PNB for the latter is not a party to the case. However, this does not mean that the trial and appellate courts are precluded from making findings which are necessary for a just, complete and proper resolution of the issues raised in the present case. The Court finds no error in the determination by the trial and appellate courts of the question of whether or not PNB was a mortgagee, buyer and, later on, seller in good faith as this would bear upon the ultimate issue of whether petitioner is entitled to reconveyance. Petitioner insists that PNB is not a mortgagee in good faith asserting that, if it only exercised due diligence, it would have found out that petitioner and her husband were already in adverse possession of the subject property as early as two years before the same was sold to them. This claim, however, is contradicted by no less than petitioner's averments in her Brief filed with the CA wherein she stated that [i]mmediately after the sale, the land was delivered to Isaac Agatep x x x Since that time up to the present, Isaac Agatep and after his death, the Appellant have been in continuous, uninterrupted, adverse and [24] public possession of the said parcel of land. The foregoing assertion only shows that petitioner's husband took possession of the subject lot only after the same was sold to him. In any case, the Court finds no error in the findings of both the RTC and the CA that PNB is indeed an innocent mortgagee for value. When the lots were mortgaged to PNB by Lim, the titles thereto were in the latter's name, and they showed neither vice nor infirmity. In accepting the mortgage, PNB was not required to make any further investigation of the titles to the properties being given as security, and

could rely entirely on what was stated in the aforesaid title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relies upon [25] what appears on the face of the certificate of title. In her fourth assigned error, petitioner contends that PNB did not acquire ownership over the disputed lot because the said property was not delivered to it. Petitioner asserts that the execution of a public document does not constitute sufficient delivery to PNB, considering that the subject property is in the adverse possession, under claim of ownership, of petitioner and her predecessor-in-interest. Petitioner further assails the ruling of the CA that PNB, who was the buyer in the foreclosure sale, became the absolute owner of the property purchased when it consolidated its ownership thereof for failure of the mortgagor Lim to redeem the subject property during the period of one year after the registration of the sale. The Court finds petitioner's arguments untenable. The Court's ruling in Manuel R. Dulay Enterprises, Inc. v. Court [26] of Appeals is instructive, to wit: Petitioner's contention that private respondent Torres never acquired ownership over the subject property since the latter was never in actual possession of the subject property nor was the property delivered to him is also without merit. Paragraph 1, Article 1498 of the New Civil Code provides: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to the delivery of the property. Likewise, this Court had held that: It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance

to him of a new transfer certificate of title. The buyer can, in fact, demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3133, as amended. No such bond is required after the redemption period if the property is not redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner. Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale is deemed equivalent [27] to delivery.

petitioner and her husband simply stepped into the shoes of Lim, who, prior to selling the subject property to them, mortgaged the same to PNB. As Lim's successors-in-interest, their possession could not be said to be adverse to that of Lim. Thus, they are also bound to recognize and respect the mortgage entered into by the latter. Their possession of the disputed lot could not, therefore, be considered as a legal impediment which could prevent PNB from acquiring ownership and possession thereof. It bears to reiterate the undisputed fact, in the instant case, that Lim mortgaged the subject property to PNB prior to selling the same to petitioner's husband. Settled is the rule that a mortgage is an accessory contract intended to secure the performance of the principal obligation. One of its characteristics is that it is inseparable from the property. It adheres to the property regardless of who its owner may subsequently [30] be. This is true even in the case of a real estate mortgage because, pursuant to Article 2126 of the Civil Code, the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. It is inseparable from the property mortgaged as it is a rightin rem - a lien on the property whoever its owner may be. It subsists notwithstanding a change in ownership; in short, the personality of the owner is disregarded. Thus, all subsequent purchasers must respect the mortgage whether the transfer to them be with or without the consent of the mortgagee, for such mortgage until [31] discharged follows the property. Petitioner avers that she and her husband were not aware of the mortgage contract which was executed between PNB and Lim prior to the sale of the subject property by the latter to her husband. The fact remains, however, that the mortgage was registered and annotated on the certificate of title covering the subject property. It is settled that registration in the public registry is notice to the [32] whole world. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds of the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or [33] entering. Under the rule of notice, it is presumed that the purchaser has examined every instrument of record affecting the title. Such presumption may not be rebutted. He is charged with notice of every

This ruling was reiterated in Spouses Sabio v. The International [28] Corporate Bank, Inc. wherein it was held that: Notwithstanding the presence of illegal occupants on the subject property, transfer of ownership by symbolic delivery under Article 1498 can still be effected through the execution of the deed of conveyance. As we held in Power Commercial and Industrial Corp. v. Court of Appeals [274 SCRA 597, 610], the key word is control, not possession, of the subject property. Considering that the deed of conveyance proposed by respondents did not stipulate or infer that petitioners could not exercise control over said property, delivery can be effected through the mere execution of said deed. x x x It is sufficient that there are no legal impediments to prevent petitioners from gaining physical possession of the subject property. As stated above, prior physical delivery or possession is not legally required and the execution of the deed of sale or conveyance is deemed equivalent to delivery. This deed operates as a formal or symbolic delivery of the property sold and authorizes the buyer or transferee to use the document as proof of ownership. Nothing more is [29] required.

Thus, the execution of the Deed of Sale in favor of PNB, after the expiration of the redemption period, is deemed equivalent to delivery. As to petitioner's contention that the execution of a public document in favor of PNB did not constitute sufficient delivery to it because the property involved is in the actual and adverse possession of petitioner and her husband, it must be noted that petitioner and her husband's possession of the disputed lot is derived from their right as buyers of the subject parcel of land. As buyers or transferees,

fact shown by the record and is presumed to know every fact shown by the record and to know every fact which an examination of the record would have disclosed. This presumption cannot be overcome by any claim of innocence or good faith. Otherwise, the very purpose and object of the law requiring a record would be destroyed. Such presumption cannot be defeated by proof of want of knowledge of what the record contains any more than one may be permitted to show that he was ignorant of the provisions of the law. The rule that all persons must take notice of the facts which the public record contains is a rule of law. The rule must be absolute; any variation would lead to endless [34] confusion and useless litigation. In the present case, since the mortgage contract was registered, petitioner may not claim lack of knowledge thereof as a valid defense. The subsequent sale of the property to petitioner's husband cannot defeat the rights of PNB as the mortgagee and, subsequently, the purchaser at the auction sale whose rights were derived from a prior mortgage validly registered. In her fifth assignment of error, petitioner contends that the trial court deviated from the issues identified in the Pre-Trial Order and that the case was decided on issues different from those agreed upon during the pre-trial. Settled is the rule that a pre-trial order is not meant to be a detailed catalogue of each and every issue that is to be or may be taken up during the trial. Issues that are impliedly included therein or may be inferable therefrom by necessary implication are as much integral parts of the pre-trial order as those that are expressly [35] stipulated. In the case before us, a cursory reading of the issues enumerated in the Pre-Trial Order of the RTC would readily show that the complete and proper resolution of these issues would necessarily include all other matters pertinent to determining whether herein petitioner is the lawful owner of the subject property and is, therefore, entitled to reconveyance. It would be illogical not to touch on the question of whether the mortgage contract between Lim and PNB is binding on petitioner and her husband or whether PNB lawfully foreclosed and acquired ownership of the subject property because a resolution of these issues is determinative of whether there are no impediments in petitioner and her husband's acquisition of ownership of the disputed lot. Coming to the last assigned error, the Court agrees with the disquisition of the CA that an action for reconveyance is one that seeks to transfer property, wrongfully registered by another, to its rightful and [36] legal owner. From the foregoing discussions, the Court finds no sufficient reason to depart from the findings of the RTC and the CA that, based on the evidence on record, there was no wrongful

registration of the property, first in the name of PNB as the purchaser when the property was auctioned and, subsequently, in the name of respondent Rodriguez who bought the subject property when the same was offered for sale by PNB. Hence, the CA did not commit error in affirming the RTC's dismissal of herein petitioner's complaint for reconveyance. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals, datedSeptember 9, 2005 and November 16, 2005, respectively, in CA-G.R. CV No. 83163 are AFFIRMED.

FIRST DIVISION G.R. No. 167238 March 25, 2009 DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v e r s u s SPOUSES JESUS and ANACORITA DOYON, Respondents CORONA, J.: This petition seeks to the set aside the November 23, 2004 [2] [3] decision and February 18, 2005 resolution of the Court of Appeals (CA) in CA-G.R. CV No. 74660. In the early 1990s, respondent spouses Jesus and Anacorita Doyon [4] obtained several loans amounting to P10 million from petitioner Development Bank of the Philippines (DBP). As security for the loans, respondents mortgaged their real estate properties as well as the motor vehicles of JD Bus Lines. Due to their inability to fully pay their obligations upon [5] maturity, respondents requested petitioner to restructure their past [6] due loans. Petitioner agreed. Hence, respondents signed three [7] promissory notes on June 29, 1994. Nonetheless, respondents still failed to pay the quarterly installments on the promissory notes. Thus, petitioner demanded the payment of the [8] total value of their loans from respondents. Respondents, however, ignored petitioner and adamantly refused to pay their loans.
[1]

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Consequently, petitioner filed an application for extrajudicial foreclosure of real estate mortgages in the Regional Trial Court (RTC) of Ormoc City in 1995. To forestall the foreclosure proceedings, respondents immediately filed an action for their nullification in the RTC of Ormoc City, Branch 35 claiming that they had already paid the principal amount of their loans (or P10 million) to petitioner. This was docketed as Civil Case No. 3314-O. For three years, Civil Case No. 3314-O was not acted upon by the RTC. In 1998, petitioner withdrew the application for extrajudicial foreclosure and thereafter moved for the dismissal of Civil Case No. 3314-O. The [9] RTC granted the motion in an order dated March 2, 1998. It held: In todays hearing, which is for the reception of evidence for [petitioner], [it] informed the Court about its withdrawal of the [application] for extrajudicial foreclosure of real estate made subject of the present case. In view of the withdrawal, [petitioner] moved for the dismissal of the case considering that the action would be rendered moot and academic. When [respondents were] made to comment, they interposed no objection to the motion to dismiss. By agreement therefore between the parties, this case is considered DISMISSED with prejudice. Weeks later, petitioner demanded from respondents the payment of their outstanding obligations which had by then ballooned to more than P20 million. Again, respondents ignored petitioner. Petitioner filed an application for extrajudicial foreclosure of respondents real and chattel mortgages with the DBP special sheriff in [10] Makati and subsequently took constructive possession of the [11] foreclosed properties. It posted guards at the perimeter of respondents property in Barangay Cabulihan, Ormoc City (Cabulihan property) where the foreclosed motor vehicles of JD Bus Lines were [12] parked. Subsequently, the DBP special sheriff issued notices of sale [13] at public auction of the foreclosed properties. Meanwhile, respondents filed a complaint for damages against petitioner and the DBP special sheriff in the RTC of Ormoc City, Branch 35. According to respondents, by withdrawing the application for extrajudicial foreclosure and moving for the dismissal of Civil Case No.
[14]

3314-O, petitioner led them to believe that it would no longer seek the satisfaction of its claims. Petitioner therefore acted contrary to Article [15] 19 of the Civil Code when it foreclosed on the real and chattel mortgages anew. Furthermore, respondents claimed that the provision in the mortgage [16] contracts allowing petitioner as mortgagee to take constructive possession of the mortgaged properties upon respondents default was void. The provision allegedly constituted a pactum [17] commissorium since it permitted petitioner to appropriate the mortgaged properties. Lastly, respondents assailed the validity of the public auctions conducted by the DBP special sheriff. The September 9, 1998 notices of sale stated that the foreclosed real properties would be sold at public auction on September 16, 1998 at 10:00 a.m. or soon [18] thereafter while the foreclosed motor vehicles would be sold on [19] September 16, 1998 at 2:00 p.m. or soon thereafter. Section 4 of [20] Act 3135, however, requires that public auctions must take place from 9 a.m. until 4 p.m. or, allegedly, for seven continuous hours. Petitioner, in its answer, pointed out that despite the restructuring, respondents refused to pay the amortizations on the June 29, 2004 promissory notes. Moreover, the filing of Civil Case No. 3314-O and the delay in its resolution prevented petitioner from collecting on the said notes from respondents. It withdrew the application in the RTC and moved for the dismissal of Civil Case No. 3314-O only for the purpose of availing of a more efficient legal remedy, that is, foreclosure through [21] a special sheriff, as authorized by its charter. In a decision dated January 25, 2002, the RTC found that, by withdrawing its application for extrajudicial foreclosure and moving for the dismissal of Civil Case No. 3314-O, petitioner led respondents to believe that their loans had been extinguished. Thus, petitioner acted in bad faith when it foreclosed on the real and chattel mortgages anew. The dispositive portion of the decision read: WHEREFORE, after due consideration of all the foregoing, judgment is hereby rendered in favor of [respondents] and against [petitioner], ordering as follows: 1. [petitioner] to immediately stop the presence of its security guards in the compound or premises of the plaintiffs at Barangay Cabulihan, Ormoc City, and to vacate them from said premises;
[22]

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2. [petitioner] to pay actual damages to [respondents] in the total amount of P16,000 per day for the four buses, or a total ofP480,000 per month for these buses starting from April 27, 1998 until the time the buses shall have been allowed to leave the compound of [respondents] or until [petitioner] shall vacate the said premises, and P200,000 as compensatory damages for the injury to [respondents'] business standing; 3. [petitioner] to pay P1,000,000 as exemplary damages;

What is due to a person is determined by the circumstances of each [25] particular case. Article 19 of the Civil Code provides: Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due and observe honesty and good faith. For an action for damages under this provision to prosper, the complainant must prove that: (a) defendant has a legal right or duty; (b) he exercised his right or performed his duty with bad faith and (c) complainant was prejudiced or injured as a result of the said exercise or performance by defendant. On the first requisite, we find that petitioner had the legal right to foreclose on the real and chattel mortgages. Since respondents neither assailed the due execution of the June 29, 1994 promissory notes nor presented proof of payment thereof, their obligation remained outstanding. Upon default, by prior mutual agreement, petitioner had the right to foreclose on the real and chattel mortgages securing their loans. The June 29, 1994 promissory notes uniformly stated that failure to pay an installment (or interest) on the due date was an event of [26] default. Respondents were therefore in default when they failed to pay the quarterly amortizations on the designated due dates. When the principal obligation becomes due and the debtor fails to [27] perform his obligation, the creditor may foreclose on the mortgage for the purpose of alienating the (mortgaged) property to satisfy his [28] credit. Regarding the second requisite, bad faith imports a dishonest purpose or some moral obliquity or conscious doing of a wrong that partakes of [29] the nature of fraud. We note that the RTC of Ormoc City (Judge Fortunito L. Madrona) sat on Civil Case No. 3314-O for three long years. This inordinate delay prejudiced petitioner. Inasmuch as petitioner was in the business of lending out money it borrowed from the public, sound banking practice called for the exercise of a more efficient legal remedy against a

4. [petitioner and the DBP special sheriff] jointly and severally to pay the plaintiffs the sum of P2,000,000 as moral damages, the sum of P50,000 as attorney's fees, the sum of P10,000 as litigation expenses and costs of the suit. Aggrieved, petitioner appealed to the CA.
[23]

In a decision dated November 23, 2004, the CA affirmed the RTC decision with modification of the liability for damages. Because the DBP special sheriff merely performed his ministerial duty (when he foreclosed on the real and chattel mortgages and issued notices of sale in public auction of the foreclosed properties), petitioner alone was liable. Petitioner moved for reconsideration but it was denied. Hence, this petition. Petitioner basically asserts that it did not act in bad faith when it foreclosed on respondents real and chattel mortgages anew. Because respondents loans were past due, it had the right to satisfy its credit by foreclosing on the mortgages. We grant the petition. This Court is not a trier of facts and, as a rule, it only entertains questions of law in a petition for review on certiorari. This rule, however, admits of exceptions such as when the assailed decision is [24] based on a misapprehension of facts. In this instance, the RTC and the CA both found that petitioner acted with bad faith when it foreclosed on the real and chattel mortgages. We disagree.

12

defaulting debtor like respondent. Thus, petitioner could not be faulted for resorting to foreclosure through a special sheriff. Such procedure was, after all, the more efficient method of enforcing [31] petitioners rights as mortgagee under its charter. Moreover, the March 2, 1998 order of the RTC (quoted above) merely stated that the withdrawal of the application for extrajudicial foreclosure in the RTC rendered Civil Case No. 3314-O moot and academic. Nothing in the said order stated, or even hinted, that respondents obligation to petitioner had in fact been extinguished. Thus, there was nothing on the part of petitioner even remotely showing that it led respondents to believe that it had waived its claims. Lastly, inasmuch as petitioner demanded payment from them right after the dismissal of Civil Case No. 3314-O, respondents could not have reasonably presumed that the bank had waived its claims against them. Furthermore, the fact that a demand for payment was made negated bad faith on the part of petitioner. Despite giving respondents the opportunity to pay their long overdue obligations and avoid foreclosure, respondents still refused to pay. Since respondents did not have a cause of action against petitioner, the RTC and CA erred in granting damages to them. A stipulation allowing the mortgagee to take actual or constructive possession of a mortgaged property upon foreclosure is [32] valid. In Agricultural and Industrial Bank v. Tambunting, we explained: A stipulation authorizing the mortgagee, for the purpose stated therein specified, to take possession of the mortgaged premises upon the foreclosure of a mortgage is not repugnant [to either Article 2088 or Article 2137]. On the contrary, such a stipulation is in consonance or analogous to the provisions of Article [2132], et seq. of the Civil Code regarding antichresis and the provision of the Rules of Court regarding the appointment of a receiver as a convenient and feasible means of [33] preserving and administering the property in litigation. The real estate and chattel mortgage contracts uniformly provided that petitioner could take possession of the foreclosed properties upon the failure of respondents to pay even one amortization. Thus, respondents refusal to pay their obligations gave rise to petitioners right to take constructive possession of the foreclosed motor vehicles.
[34]

[30]

In Philippine National Bank v. Cabatingan, we held that a sale at public auction held at any time between 9:00 a.m. and 4:00 p.m. of a particular day, regardless of duration, was valid. Since the sale at public auction of the foreclosed real properties and chattels was conducted between 10:00 a.m. and 11:00 a.m. and between 2:00 p.m. and 3:30 p.m., respectively, the auctions were valid. WHEREFORE, the petition is hereby GRANTED. The November 23, 2004 decision and February 18, 2005 resolution of the Court of Appeals in CA-G.R. CV 74660 affirming the January 25, 2002 decision of the Regional Trial Court of Ormoc City, Branch 35 in Civil Case No. 3592-0 are SET ASIDE. New judgment is hereby entered dismissing Civil Case No. 3592-0 for lack of cause of action. No pronouncement as to costs. SECOND DIVISION G.R. No. 152071

[35]

May 8, 2009

PRODUCERS BANK OF THE PHILIPPINES, Petitioner, vs. EXCELSA INDUSTRIES, INC., Respondent. TINGA, J.: This is a petition for review on certiorari under Rule 43 of the 1997 2 3 Rules of Civil Procedure, assailing the decision and resolution of the Court of Appeals in CA-G.R. CV No. 59931. The Court of Appeals 4 decision reversed the decision of the Regional Trial Court (RTC), Branch 73, Antipolo, Rizal, upholding the extrajudicial foreclosure of the mortgage on respondents properties, while the resolution denied 5 petitioners motion for reconsideration. As borne by the records of the case, the following factual antecedents appear: Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly charcoal briquettes, as an alternative fuel source. Sometime in January 1987, respondent applied for a packing credit line or a credit export advance with petitioner Producers Bank of the Philippines, a banking institution duly organized and existing under 6 Philippines laws. The application was supported by Letter of Credit No. M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of credit through its correspondent bank,
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the Bank of the Philippine Islands, in the amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World Development Corporation was the original beneficiary of the letter of credit. On 05 December 1986, for value received, T.L. World transferred to respondent all its rights and obligations under the said letter of credit. Petitioner approved respondents application for a packing credit line in the amount of P300,000.00, of which about P96,000.00 in principal remained 7 outstanding. Respondent executed the corresponding promissory 8 notes evidencing the indebtedness. Prior to the application for the packing credit line, respondent had obtained a loan from petitioner in the form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the packing credit line. The loan was secured by a real estate mortgage dated 05 December 1986 over respondents properties covered by Transfer Certificates of Titles (TCT) No. N-68661, N-68662, N-68663, N-68664, N-68665 and N-68666, all issued by the Register of Deeds of 9 Marikina. Significantly, the real estate mortgage contained the following clause: For and in consideration of those certain loans, overdraft and/or other credit accommodations on this date obtained from the MORTGAGEE, and to secure the payment of the same, the principal of all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine Currency, as well as those that the MORTGAGEE may hereafter extend to the MORTGAGOR, including interest and expenses or any other obligation owing to the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the parcel(s) of land which is/are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR declares 10 that he/it is the absolute owner, free from all liens and encumbrances. On 17 March 1987, respondent presented for negotiation to petitioner drafts drawn under the letter of credit and the corresponding export documents in consideration for its drawings in the amounts of US$5,739.76 and US$4,585.79. Petitioner purchased the drafts and export documents by paying respondent the peso equivalent of the drawings. The purchase was subject to the conditions laid down in two separate undertakings by respondent dated 17 March 1987 and 10 11 April 1987.

On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondents export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. 12 returned to petitioner the export documents. Upon learning about the Korean importers non-payment, respondent sent petitioner a letter dated 27 July 1987, informing the latter that respondent had brought the matter before the Korea Trade Court and that it was ready to liquidate its past due account with petitioner. Respondent sent another letter dated 08 September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export documents on 13 account of the non-acceptance by the importer. Petitioner demanded from respondent the payment of the peso equivalent of the export documents, plus interest and other charges, and also of the other due and unpaid loans. Due to respondents failure to heed the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over respondents properties. Per petitioners computation, aside from charges for attorneys fees and sheriffs fees, respondent had a total due and demandable obligation of P573,225.60, including interest, in six different accounts, namely: 1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06 2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97 3) BDS-001-87 = 61,777.78 4) BDS-030/86 A = 123,555.55 5) BDS-PC-002-/87 = 55,822.91 6) BDS-005/87 = 61,323.33 14 P573,225.60 The total approved bid price, which included the attorneys fees and sheriff fees, was pegged at P752,074.63. At the public auction held on 05 January 1988, the Sheriff of Antipolo, Rizal issued a Certificate of 15 Sale in favor of petitioner as the highest bidder. The certificate of sale 16 was registered on 24 March 1988. On 12 June 1989, petitioner executed an affidavit of consolidation over the foreclosed properties after respondent failed to redeem the same. As a result, the Register of Deeds of Marikina issued new certificates of 17 title in the name of petitioner. On 17 November 1989, respondent instituted an action for the annulment of the extrajudicial foreclosure with prayer for preliminary

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injunction and damages against petitioner and the Register of Deeds of Marikina. Docketed as Civil Case No. 1587-A, the complaint was raffled to Branch 73 of the RTC of Antipolo, Rizal. The complaint prayed, among others, that the defendants be enjoined from causing the transfer of ownership over the foreclosed properties from respondent to 18 petitioner. On 05 April 1990, petitioner filed a petition for the issuance of a writ of possession, docketed as LR Case No. 90-787, before the same branch of the RTC of Antipolo, Rizal. The RTC ordered the consolidation of 19 Civil Case No, 1587-A and LR Case No. 90-787. On 18 December 1997, the RTC rendered a decision upholding the validity of the extrajudicial foreclosure and ordering the issuance of a writ of possession in favor of petitioner, to wit: WHEREFORE, in Case No. 1587-A, the court hereby rules that the foreclosure of mortgage for the old and new obligations of the plaintiff Excelsa Industries Corp., which has remained unpaid up to the time of foreclosure by defendant Producers Bank of the Philippines was valid, legal and in order; In Case No. 787-A, the court hereby orders for the issuance of a writ of possession in favor of Producers Bank of the Philippines after the properties of Excelsa Industries Corp., which were foreclosed and consolidated in the name of Producers Bank of the Philippines under TCT No. 169031, 169032, 169033, 169034 and 169035 of the Register of Deeds of Marikina. 20 SO ORDERED. The RTC held that petitioner, whose obligation consisted only of receiving, and not of collecting, the export proceeds for the purpose of converting into Philippine currency and remitting the same to respondent, cannot be considered as respondents agent. The RTC also held that petitioner cannot be presumed to have received the export proceeds, considering that respondent executed undertakings warranting that the drafts and accompanying documents were genuine and accurately represented the facts stated therein and would be 21 accepted and paid in accordance with their tenor. Furthermore, the RTC concluded that petitioner had no obligation to return the export documents and respondent could not expect their return prior to the payment of the export advances because the drafts and export documents were the evidence that respondent received 22 export advances from petitioner. The RTC also found that by its admission, respondent had other loan obligations obtained from petitioner which were due and demandable;

hence, petitioner correctly exercised its right to foreclose the real estate mortgage, which provided that the same secured the payment of not only the loans already obtained but also the export 23 advances. 1avvphi1 Lastly, the RTC found respondent guilty of laches in questioning the foreclosure sale considering that petitioner made several demands for payment of respondents outstanding loans as early as July 1987 and that respondent acknowledged the failure to pay its loans and 24 advances. The RTC denied respondents motion for reconsideration. Thus, respondent elevated the matter to the Court of Appeals, reiterating its claim that petitioner was not only a collection agent but was considered a purchaser of the export On 30 May 2001, the Court of Appeals rendered the assailed decision, reversing the RTCs decision, thus: WHEREFORE, the appeal is hereby GRANTED. The decision of the trial court dated December 18, 1997 is REVERSED and SET ASIDE. Accordingly, the foreclosure of mortgage on the properties of appellant is declared as INVALID. The issuance of the writ of possession in favor of appellee is ANNULLED. The following damages are hereby awarded in favor of appellant: (a) Moral damages in the amount of P100,000.00; (b) Exemplary damages in the amount of P100,000.00; and (c) Costs. 26 SO ORDERED. The Court of Appeals held that respondent should not be faulted for the dishonor of the drafts and export documents because the obligation to collect the export proceeds from Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the testimony of petitioners manager for the foreign currency department to the effect that petitioner was respondents agent, being the only entity authorized under Central Bank Circular No. 491 to collect directly from the importer the export proceeds on respondents behalf and converting the same to Philippine currency for remittance to respondent. The appellate court found that respondent was not authorized and even powerless to collect from the importer and it appeared that respondent was left at the mercy of petitioner, which kept the export documents during the time that respondent attempted to collect payment from the Korean importer.
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The Court of Appeals disregarded the RTCs finding that the export documents were the only evidence of respondents export advances and that petitioner was justified in refusing to return them. It opined that granting petitioner had no obligation to return the export documents, the former should have helped respondent in the collection efforts instead of augmenting respondents dilemma. Furthermore, the Court of Appeals found petitioners negligence as the cause of the refusal by the Korean buyer to pay the export proceeds based on the following: first, petitioner had a hand in preparing and scrutinizing the export documents wherein the discrepancies were found; and, second, petitioner failed to advise respondent about the warning from Kwang Ju Bank, Ltd. that the export documents would be returned if no explanation regarding the discrepancies would be made. The Court of Appeals invalidated the extrajudicial foreclosure of the real estate mortgage on the ground that the posting and publication of the notice of extrajudicial foreclosure proceedings did not comply with 27 the personal notice requirement under paragraph 12 of the real estate mortgage executed between petitioner and respondent. The Court of Appeals also overturned the RTCs finding that respondent was guilty of estoppel by laches in questioning the extrajudicial foreclosure sale. Petitioners motion for reconsideration was denied in a Resolution dated 29 January 2002. Hence, the instant petition, arguing that the Court of Appeals erred in finding petitioner as respondents agent, which was liable for the discrepancies in the export documents, in invalidating the foreclosure sale and in declaring that respondent was 29 not estopped from questioning the foreclosure sale. The validity of the extrajudicial foreclosure of the mortgage is dependent on the following issues posed by petitioner: (1) the coverage of the "blanket mortgage clause;" (2) petitioners failure to furnish personal notice of the foreclosure to respondent; and (3) petitioners obligation as negotiating bank under the letter of credit. Notably, the errors cited by petitioners are factual in nature. Although the instant case is a petition for review under Rule 45 which, as a general rule, is limited to reviewing errors of law, findings of fact being conclusive as a matter of general principle, however, considering the conflict between the factual findings of the RTC and the Court of Appeals, there is a need to review the factual issues as an exception to 30 the general rule.
28

Much of the discussion has revolved around who should be liable for the dishonor of the draft and export documents. In the two undertakings executed by respondent as a condition for the negotiation of the drafts, respondent held itself liable if the drafts were not accepted. The two undertakings signed by respondent are similarly-worded and contained respondents express warranties, to wit: In consideration of your negotiating the above described draft(s), we hereby warrant that the said draft(s) and accompanying documents thereon are valid, genuine and accurately represent the facts stated therein, and that such draft(s) will be accepted and paid in accordance with its/their tenor. We further undertake and agree, jointly and severally, to defend and hold you free and harmless from any and all actions, claims and demands whatsoever, and to pay on demand all damages actual or compensatory including attorneys fees, costs and other awards or be adjudged to pay, in case of suit, which you may suffer arising from, by reason, or on account of your negotiating the above draft(s) because of the following discrepancies or reasons or any other discrepancy or reason whatever. We hereby undertake to pay on demand the full amount of the above draft(s) or any unpaid balance thereof, the Philippine perso equivalent converted at the prevailing selling rate (or selling rate prevailing at the date you negotiate our draft, whichever is higher) allowed by the Central Bank with interest at the rate prevailing today from the date of negotiation, plus all charges and expenses whatsoever incurred in connection therewith. You shall neither be obliged to contest or dispute any refusal to accept or to pay the whole or any part of the above draft(s), nor proceed in any way against the drawee, the issuing bank or any endorser thereof, before making a demand on us for the payment of the whole or any unpaid balance of the draft(s).(Emphasis 31 supplied) In Velasquez v. Solidbank Corporation, where the drawer therein also executed a separate letter of undertaking in consideration for the banks negotiation of its sight drafts, the Court held that the drawer can still be made liable under the letter of undertaking even if he is discharged due to the banks failure to protest the non-acceptance of the drafts. The Court explained, thus: Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It is independent from his liability under the sight
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draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment. Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant petitioner an advance export payment were it not for the letter of undertaking. The consideration for the letter of undertaking was petitioners promise to pay respondent the value of the sight draft if it 33 was dishonored for any reason by the Bank of Seoul. Thus, notwithstanding petitioners alleged failure to comply with the 34 requirements of notice of dishonor and protest under Sections 89 and 35 152, respectively, of the Negotiable Instruments Law, respondent may not escape its liability under the separate undertakings, where respondent promised to pay on demand the full amount of the drafts. The next question, therefore, is whether the real estate mortgage also served as security for respondents drafts that were not accepted and paid by the Kwang Ju Bank, Ltd. Respondent executed a real estate mortgage containing a "blanket mortgage clause," also known as a "dragnet clause." It has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be 36 gathered. In Union Bank of the Philippines v. Court of Appeals, the nature of a dragnet clause was explained, thus: Is one which is specifically phrased to subsume all debts of past and future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan 38 closing costs, costs of extra legal services, recording fees, et cetera.
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Petitioner, therefore, was not precluded from seeking the foreclosure of the real estate mortgage based on the unpaid drafts drawn by respondent. In any case, respondent had admitted that aside from the unpaid drafts, respondent also had due and demandable loans secured from another account as evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-002-/87 and BDS-005/87. However, the Court of Appeals invalidated the extrajudicial foreclosure of the mortgage on the ground that petitioner had failed to furnish respondent personal notice of the sale contrary to the stipulation in the real estate mortgage. Petitioner, on the other hand, claims that under paragraph 12 of the real estate mortgage, personal notice of the foreclosure sale is not a requirement to the validity of the foreclosure sale. A perusal of the records of the case shows that a notice of sheriffs 40 sale was sent by registered mail to respondent and received in due 41 course. Yet, respondent claims that it did not receive the notice but only learned about it from petitioner. In any event, paragraph 12 of the real estate mortgage requires petitioner merely to furnish respondent with the notice and does not oblige petitioner to ensure that respondent actually receives the notice. On this score, the Court holds that petitioner has performed its obligation under paragraph 12 of the real estate mortgage. As regards the issue of whether respondent may still question the foreclosure sale, the RTC held that the sale was conducted according to the legal procedure, to wit: Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty of laches and cannot at this point in time question the foreclosure of the subject properties. Defendant bank made demands against the plaintiff for the payment of plaintiffs outstanding loans and advances with the defendant as early as July 1997. Plaintiff acknowledged such outstanding loans and advances to the defendant bank and committed to liquidate the same. For failure of the plaintiff to pay its obligations on maturity, defendant bank foreclosed the mortgage on subject properties on January 5, 1988 the certificate of sale was annotated on March 24, 1988 and there being no redemption made by the plaintiff, title to said properties were consolidated in the name of defendant in July 1989. Undeniably, subject foreclosure was done in accordance with the prescribed rules as may be borne out by the exhibits submitted to this Court which are Exhibit "33," a notice of extrajudicial sale executed by
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the Sheriff of Antipolo, Exhibit "34" certificate posting of extrajudicial sale, Exhibit "35" return card evidencing receipt by plaintiff of the notice of extrajudicial sale and Exhibit "21" affidavit of publication. The Court adopts and approves the aforequoted findings by the RTC, the same being fully supported by the evidence on record. WHEREFORE, the instant petition for review on certiorari is GRANTED and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 59931 are REVERSED and SET ASIDE. The decision of the Regional Trial Court Branch 73, Antipolo, Rizal in Civil Case No. 1587A and LR Case No. 90-787 is REINSTATED.

tribunal, office, board, body and/or commission are deemed suspended 6 immediately until further order" from the SEC. In an Order dated 13 September 1999, the SEC directed the creation of a management committee to undertake CMCs rehabilitation and 7 reiterated the suspension of all actions for claims against CMC. On 29 November 2000, upon the management committees 8 recommendation, the SEC issued an Omnibus Order directing the 9 dissolution and liquidation of CMC. The SEC also directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be 10 transferred." Thereafter, respondent Planters Development Bank (Planters Bank), one of CMCs creditors, commenced the extra-judicial foreclosure of CMCs real estate mortgage. Public auctions were scheduled on 30 January 2001 and 6 February 2001. CMC filed a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with the SEC to enjoin the foreclosure of the real estate mortgage. On 29 January 2001, the SEC issued a temporary restraining order to maintain the status quo and 11 ordered the immediate transfer of the case records to the trial court. The case was then transferred to the trial court. In its 25 April 2001 Order, the trial court denied CMCs motion for issuance of a temporary restraining order. The trial court ruled that since the SEC had already terminated and decided on the merits CMCs petition for suspension of payment, the trial court no longer had legal basis to act on CMCs motion. On 28 May 2001, the trial court denied CMCs motion for 12 reconsideration. The trial court ruled that CMCs petition for suspension of payment could not be converted into a petition for dissolution and liquidation because they covered different subject matters and were governed by different rules. The trial court stated that CMCs remedy was to file a new petition for dissolution and liquidation either with the SEC or the trial court. CMC filed a petition for certiorari with the Court of Appeals. CMC alleged that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction when it required CMC to file a new petition for dissolution and liquidation with either the SEC or the trial court when the SEC clearly retained jurisdiction over the case.

FIRST DIVISION G.R. No. 152580 June 26, 2008

CONSUELO METAL CORPORATION, petitioner, vs. PLANTERS DEVELOPMENT BANK and ATTY. JESUSA PRADOMANINGAS, in her capacity as Ex-officio Sheriff of Manila, respondents. CARPIO, J.:

The Case 1 This is a petition for review seeking to reverse the 14 December 2001 2 3 Decision and the 6 March 2002 Resolution of the Court of Appeals in CA-G.R. SP No. 65069. In its 14 December 2001 Decision, the Court of Appeals dismissed petitioner Consuelo Metal Corporations (CMC) 4 petition for certiorari and affirmed the 25 April 2001 Order of the Regional Trial Court, Branch 46, Manila (trial court). In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and remanded the case to the Securities and Exchange Commission (SEC) for further proceedings. The Facts On 1 April 1996, CMC filed before the SEC a petition to be declared in a state of suspension of payment, for rehabilitation, and for the appointment of a rehabilitation receiver or management committee 5 under Section 5(d) of Presidential Decree No. 902-A. On 2 April 1996, the SEC, finding the petition sufficient in form and substance, declared that "all actions for claims against CMC pending before any court,

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On 13 June 2001, Planters Bank extra-judicially foreclosed the real 13 estate mortgage. The Ruling of the Court of Appeals On 14 December 2001, the Court of Appeals dismissed the petition and upheld the 25 April 2001 Order of the trial court. The Court of Appeals held that the trial court correctly denied CMCs motion for the issuance of a temporary restraining order because it was only an ancillary remedy to the petition for suspension of payment which was already terminated. The Court of Appeals added that, under Section 121 of the 14 Corporation Code, the SEC has jurisdiction to hear CMCs petition for dissolution and liquidation. CMC filed a motion for reconsideration. CMC argued that it does not have to file a new petition for dissolution and liquidation with the SEC but that the case should just be remanded to the SEC as a continuation of its jurisdiction over the petition for suspension of payment. CMC also asked that Planters Banks foreclosure of the real estate mortgage be declared void. In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and ordered that the case be remanded to the SEC under Section 121 of the Corporation Code. The Court of Appeals also ruled that since the SEC already ordered CMCs dissolution and liquidation, Planters Banks foreclosure of the real estate mortgage was in order. Planters Bank filed a motion for reconsideration questioning the remand of the case to the SEC. In a resolution dated 19 July 2002, the Court of Appeals denied the motion for reconsideration. Not satisfied with the 6 March 2002 Resolution, CMC filed this petition for review on certiorari. The Issues CMC raises the following issues: 1. Whether the present case falls under Section 121 of the Corporation Code, which refers to the SECs jurisdiction over CMCs dissolution and liquidation, or is only a continuation of the SECs jurisdiction over CMCs petition for suspension of payment; and 2. Whether Planters Banks foreclosure of the real estate mortgage is valid. The Courts Ruling

The petition has no merit. The SEC has jurisdiction to order CMCs dissolution but the trial court has jurisdiction over CMCs liquidation. While CMC agrees with the ruling of the Court of Appeals that the SEC has jurisdiction over CMCs dissolution and liquidation, CMC argues that the Court of Appeals remanded the case to the SEC on the wrong premise that the applicable law is Section 121 of the Corporation Code. CMC maintains that the SEC retained jurisdiction over its dissolution and liquidation because it is only a continuation of the SECs jurisdiction over CMCs original petition for suspension of payment which had not been "finally disposed of as of 30 June 2000." On the other hand, Planters Bank insists that the trial court has jurisdiction over CMCs dissolution and liquidation. Planters Bank argues that dissolution and liquidation are entirely new proceedings for the termination of the existence of the corporation which are incompatible with a petition for suspension of payment which seeks to preserve corporate existence. Republic Act No. 8799 (RA 8799) transferred to the appropriate regional trial courts the SECs jurisdiction defined under Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides: The Commissions jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Emphasis supplied) The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on 2 April 1996 after it found CMCs petition to be sufficient in form and substance. While CMCs petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings before the appropriate trial court. The SEC
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finally disposed of CMCs petition for suspension of payment when it determined that CMC could no longer be successfully rehabilitated. However, the SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a 16 corporation, jurisdiction over the liquidation of the corporation now pertains to the appropriate regional trial courts. This is the reason why the SEC, in its 29 November 2000 Omnibus Order, directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be transferred." This is the correct procedure because the liquidation of a corporation requires the settlement of claims for and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene all the creditors of the corporation, ascertain their claims, and determine their preferences. Foreclosure of real estate mortgage is valid. CMC maintains that the foreclosure is void because it was undertaken without the knowledge and previous consent of the liquidator and other lien holders. CMC adds that the rules on concurrence and preference of credits should apply in foreclosure proceedings. Assuming that Planters Bank can foreclose the mortgage, CMC argues that the foreclosure is still void because it was conducted in violation of Section 15, Rule 39 of the Rules of Court which states that the sale "should not be earlier than nine oclock in the morning and not later than two oclock in the afternoon." On the other hand, Planters Bank argues that it has the right to foreclose the real estate mortgage because of non-payment of the loan obligation. Planters Bank adds that the rules on concurrence and preference of credits and the rules on insolvency are not applicable in this case because CMC has been not been declared insolvent and there are no insolvency proceedings against CMC. In Rizal Commercial Banking Corporation v. Intermediate Appellate 17 Court, we held that if rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the provisions of the Civil Code on concurrence and preference of credits. Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon the preference and prove their 18 credits as ordinary claims. Moreover, Section 2248 of the Civil Code provides:

Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or real right to which the preference refers. In this case, Planters Bank, as a secured creditor, enjoys preference over a specific mortgaged property and has a right to foreclose the mortgage under Section 2248 of the Civil Code. The creditormortgagee has the right to foreclose the mortgage over a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose such mortgage is merely suspended upon the appointment of a management committee or 19 rehabilitation receiver or upon the issuance of a stay order by the trial 20 court. However, the creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of the rehabilitation 21 proceedings or upon the lifting of the stay order. Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the party 22 that seeks to challenge the proceedings. CMCs challenge to the foreclosure proceedings has no merit. The notice of sale clearly specified that the auction sale will be held "at 10:00 oclock in the morning or soon thereafter, but not later than 2:00 oclock in the 23 afternoon." The Sheriffs Minutes of the Sale stated that "the foreclosure sale was actually opened at 10:00 A.M. and commenced at 24 2:30 P.M." There was nothing irregular about the foreclosure proceedings. WHEREFORE, we DENY the petition. We REINSTATE the 29 November 2000 Omnibus Order of the Securities and Exchange Commission directing the Regional Trial Court, Branch 46, Manila to immediately undertake the liquidation of Consuelo Metal Corporation. We AFFIRM the ruling of the Court of Appeals that Planters Development Banks extra-judicial foreclosure of the real estate mortgage is valid.

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