SECOND DIVISION

SPOUSES LEOPOLDO S. G.R. No. 177886

VIOLA and MERCEDITA
VIOLA,

Petitioners, Present:

QUISUMBING, J., Chairperson,

- versus - CARPIO MORALES,

TINGA,

VELASCO, JR., and

BRION, JJ.

EQUITABLE PCI BANK,

INC.,
Promulgated:
Respondent.
November 27, 2008

x--------------------------------------------------x

DECISION

CARPIO MORALES, J.:

Via a contract denominated as CREDIT LINE AND REAL ESTATE

MORTGAGE AGREEMENT FOR PROPERTY LINE1[1] (Credit Line
Agreement) executed on March 31, 1997, Leo-Mers Commercial, Inc., as the

1[1] Annex A, Petition; rollo, pp. 28-41.

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 on March 31,
1997 a Real Estate Mortgage2[2] in favor of PCIBank over their two parcels of
land covered by Transfer Certificates of Title No. N-113861 (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 totaled P3,669,210.67. 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

2[2] Annex B, id. at 42-45.

 (b) Past due interest from

11/24/00 to 09/30/02

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

_____________________

P14,024,623.223[3] (Underscoring
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 respondent, after which a Certificate of Sale
dated April 21, 20034[4] was issued.

More than five months later or on October 8, 2003, petitioners filed a

complaint5[5] 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

3[3] RTC Decision dated September 14, 2005, id. at.108-110.

4[4] Annex F, id. at. 51.

5[5] Annex G, id. at 52-57.

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 absent any stipulation thereon.6[6]

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 principal Credit
Line Agreement.7[7]

6[6] Id. at 53-55.

7[7] Respondents Answer with Counterclaims, id. at 58, 61-62.

 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 penalty fee are stipulated only in the
Credit Line Agreement.8[8]

By Decision9[9] 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;

8[8] Order dated June 16, 2005, id. at 107.

9[9] Annex N, id. at 108-115.

 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 and VOID, without prejudice to the conduct of
another foreclosure proceedings on the basis of the re-computed amount of the
plaintiffs indebtedness, if the circumstances so warrant.
No pronouncement as to costs.

SO ORDERED. (Underscoring supplied)

Petitioners filed a Motion for Partial Reconsideration,10[10] 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
dated December 6, 2005, the trial court denied the motion.

On appeal by petitioners, the Court of Appeals, by Decision11[11] 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 in the Credit Line Agreement.12[12]

Petitioners Motion for Reconsideration having been denied by

Resolution13[13] of May 16, 2007, they filed the present Petition for Review on
Certiorari, alleging that

10[10] Annex O, id. at 116-126.

11[11] Penned by Associate Justice Renato C. Dacudao and concurred in by Associate Justices
Hakim S. Abdulwahid and Arturo G. Tayag; rollo, pp. 182-189.

12[12] Rollo, p. 188.

13[13] Annex AA, Petition, id. at 202.

 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 NO AMBIGUITY IN CONSTRUING TOGETHER
THE CREDIT LINE AND MORTGAGE CONTRACTS WHICH PROVIDED
CONFLICTING PROVISIONS AS TO INTEREST AND PENALTY.14[14]

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 terms of the
mortgage.15[15]

In the case at bar, the parties executed two separate documents on March 31,
1997 the Credit Line Agreement granting 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

14[14] Petition, id. at 7, 13.

15[15] Philippine Bank of Communications v. Court of Appeals, 323 Phil. 297, 312-313 (1996).
 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.

x x x x.16[16] (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 claims.17[17]
(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.

16[16] CA records (Folder I), pp. 7, 9-10.

17[17] Rollo, p. 42.

 Since an action to foreclose must be limited to the amount mentioned in the
mortgage18[18] 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 a 3% 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 Appeals19[19] which

raised a similar issue, this Court held:

18[18] Supra note 15 at 312.

19[19] Supra note 15.

 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.

xxxx

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.

xxxx

The Court is unconvinced, for the cases relied upon by the petitioner are
inapplicable. x x x.

xxxx

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.20[20] (Emphasis and underscoring supplied)

20[20] Id. at 301, 310-313.

 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 the principal Credit Line
Agreement,21[21] fails. Such absence is significant as it

21[21] Vide note 7.

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 including the penalty in the amount secured.22[22] (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.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

22[22] Id. at 314.

 THIRD DIVISION

JOSE T. ABAD, G.R. No. 157002

Petitioner,

Present:
Panganiban, J.,

Chairman,

- versus - Sandoval-Gutierrez,
Corona,*
Carpio Morales, and
Garcia, JJ

Spouses CEASAR Promulgated:

and VIVIAN GUIMBA,

Respondents. July 29, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:
O
nly questions of law may be brought before and ruled upon by

the Supreme Court in petitions for review under Rule 45 of the

Rules of Court. This principle holds true, particularly for

regional trial court decisions brought directly to this Court. If a

__________________

* On official leave.
review of factual questions is sought, the petition should be elevated to the

Court of Appeals. For failing to observe this basic doctrine, herein

petitioner should not expect this Court to pass upon the question of

whether he was a mortgagee in good faith and for value. This factual

question was already ruled upon by the trial court, whose findings are thus

deemed conclusive and binding on the present proceedings.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,

assailing the November 19, 2002 Decision[2] of the Regional Trial Court

(RTC) of Pasig City (Branch 167) in Civil Case No. 67131, as well as its

January 24, 2003 Resolution[3] denying petitioners Motion for

Reconsideration. The assailed Decision disposed thus:

WHEREFORE, judgment is hereby rendered in favor of the

[respondents] and against [Petitioner] Jose T. Abad as follows:

a) Declaring as null and void and of no legal force and effect the
Deed of Mortgage of Real Properties, Exhibit B and 5,
respectively, registered and annotated on Transfer Certificate
of Title No. PT-80617 of the Register of Deeds for Pasig City
as Entry No. PT-9633/PT-80617 inscribed on 10 June 1997;

b) Ordering the Register of Deeds of Pasig City to cancel entry No.

PT-9633/PT-80617 annotated on Transfer Certificate of Title
No. PT-80617;
 c) Ordering the [Petitioner] Jose T. Abad to return to [respondents]
Transfer Certificate of Title No. PT-80617 of the Registry of
Dee[d]s of Pasig City;
d) Ordering the [Petitioner] Jose T. Abad to pay [respondent] the
amount of Php 20,000.00, as and for reasonable attorneys
fees; and

e) To pay the costs.

For lack of sufficient factual and legal basis, the

counterclaim of [Petitioner] Jose T. Abad against the
[respondent] as well as his cross-claim against the defaulting
defendant[s] Gemma Dela Cruz are, as they should be,
DENIED.[4]

The Facts

Respondent-Spouses Ceasar and Vivian Guimba are the registered owners of a parcel of land
covered by Transfer Certificate of Title (TCT) No. PT- 80617.

On March 7, 1997, Vivian entrusted her copy of the Owners Duplicate Certificate of
Title to Gemma de la Cruz to serve as collateral for Vivians application for a loan that was
to be released in four days. Afterwards, Gemma received a phone call from Vivian, who
informed her that she had changed her mind, was no longer interested in obtaining the loan, and
therefore wanted her TCT back. Told that the Certificate had been deposited in the vault of the
Bank of South East Asia, Vivian inquired at the bank, but was advised that the TCT was not
there.[5]

In November 1997, Vivian received a telegram from Petitioner Abad, a stranger,

reminding her of the impending maturity of her mortgage. It was the first time respondents
learned of any actual mortgage involving their property.[6] After seeking legal advice,[7] they
filed an adverse claim on their own title[8] and for the first time met with petitioner to settle the
matter.[9] While he insisted that they settle the mortgage,[10] they manifested their intention to
sue.[11]

Accordingly, respondents filed with the Regional Trial Court of Pasig City (assigned
to Branch 167) on November 18, 1998, a Complaint [12] against petitioner and Gemma de la
Cruz for annulment and cancellation of mortgage. They likewise filed with the Metropolitan
Trial Court of Pasig City (assigned to Branch 71) a criminal case against her for falsification of
public document.[13]
In his Answer, petitioner countered that respondents had connived with De la Cruz to swindle
him of his hard-earned savings.[14] He testified that he had met her and a couple posing as the
Guimba spouses (Guimbas) for the first time in March 1997.[15] The Guimbas allegedly asked
him for a loan and presented their duplicate copy of TCT No. PT-80617 as collateral. He claimed
that he accepted the mortgage only after verifying the authenticity of the Certificate with the
Register of Deeds.[16]

During the trial, petitioner admitted that the couple to whom he had given the loan of P335,000
were not herein respondents, whom he met only in December 1997 to discuss the matter of the
telegram.[17]
The principal issue presented before the trial court was whether Abad was a mortgagee for value
and in good faith. The RTC opined that this question was determinative of the validity of the
Deed of Mortgage.

Ruling of the Regional Trial Court

Assessing the evidence, the trial court found the testimonies offered

by petitioner to be conflicting and concocted. It determined that he had

never met a couple posing as respondent spouses. Rather, he had dealt

solely with De la Cruz over a property that manifestly belonged to the

Guimba spouses.[18] By entering into the mortgage without making the

necessary inquiries as to the identity and the authority of the person he was

dealing with, he could not be considered a mortgagee in good faith and for

value.[19]

Having determined that respondents, as registered owners, had never

executed the Deed of Mortgage in favor of petitioner, the trial court held

that the instrument was a forgery and, hence, an absolute nullity.

Consequently, it ordered the cancellation of the annotation on the TCT of

respondents.
As for petitioners defense of laches, the lower court ruled that Vivian

Guimba could not be belabored for negligence, considering that she had

taken the necessary steps to recover her title from De la Cruz.[20]

Unsubstantiated by evidence, petitioners claim of connivance and

conspiracy between respondents and De la Cruz was dismissed by the

RTC.[21]

Denying the Motion for Reconsideration filed by petitioner, the trial

court ruled that although the Certificate was admittedly clean on its face, he

was not a mortgagee in good faith, because he had not made the necessary

inquiries about the true identity of the persons introduced as owners of the

subject property. Moreover, he had not presented convincing proof of the

negotiation and execution of the mortgage Contract.[22]

 Skipping the Court of Appeals, petitioner lodged his Petition for

Review directly with this Court.[23]

Issues

Petitioner raises the following issues in his Memorandum:

1. Given the state of facts in the above-entitled case, will the PROPERTY
REGISTRATION DECREE, (P.D. 1529) particularly Chapter V, Sections 52 and
53 thereof be totally ignored and overlooked, considering the fact that the
[p]etitioner, who was an innocent third person and holder for value relied on the
strength of the a (sic) CLEAN title prior to the execution of the Real Estate
Mortgage Contract?

2. Will not an innocent holder for value of an original Owners

Duplicate Copy of a Transfer Certificate of Title who caused
the registration of the Real Estate Mortgage Contract SIX
MONTHS prior to the recording or registration of an Affidavit
of Adverse Claim executed by the registered owner of a
parcel of land be not protected by P.D. 1529?

3. WILL (sic) LACHES not apply in the case at bar against the
[r]espondents considering their inaction for more than NINE
MONTHS prior to the execution and recording of an
Affidavit of Adverse Claim over their title, which has
unfortunately found its way to an innocent third person and
holder for value?[24]
 The Courts Ruling

The Petition has no merit.

First and Second Issues:

Applicability of PD 1529

Petitioner insists on the application of Sections 52[25] and 53[26] of

PD 1529 to protect his interest as an innocent holder for value. Whether he

is, indeed, is at the outset the most crucial question to be resolved in this

case.

Only Questions of Law Raised in a Rule 45 Petition

Preliminarily, we should stress that the remedy of appeal by certiorari

under Rule 45 of the Rules of Court contemplates only questions of law,

not of fact.[27] Therefore, a party who files a Rule 45 petition waives the

opportunity to inquire into the findings of fact of the lower court.

 A question of law exists when there is doubt or controversy as to

what the law is on a certain state of facts. There is a question of fact when

doubt arises as to the truth or falsity of the statement of facts.[28] The

resolution of a question of fact necessarily involves a calibration of the

evidence, the credibility of the witnesses, the existence and the relevance of

surrounding circumstances, and the probability of specific situations. It is

for this reason that this Court defers to the factual findings of a trial judge,

who has had the distinct advantage of directly observing the witnesses on

the stand and determining from their demeanor whether they were

speaking or distorting the truth.[29]

Coming to the present case, the paramount question regarding the

good faith of petitioner is obviously one of fact[30] on which the RTC

already had the following findings:

All told, as mortgagee of a real property, [Petitioner] Abad

neglected to make the necessary inquiries and closed his eyes
to facts which should put a reasonable man on guard as to the
value of the property being presented as collateral and of any
flaw in the title of the mortgagor and of the identity of persons
being introduced to him as the owners of the property being
mortgaged. By merely relying on his belief that there was no
defect in the title of the property being presented as collateral
and on the identity of the prospective mortgagors being
introduced to him without undertaking further investigation,
[Petitioner] Abad cannot be considered a mortgagee in good
faith and for value.[31] [Emphasis supplied]
 If petitioner wanted to assail the correctness of these findings of fact,

he should have brought his appeal before the Court of Appeals. He shot

himself in the foot, so to speak, by resorting to the wrong remedy and

filing his petition in the wrong forum. By his error, or by his deliberate

choice of remedy and forum, he must now accept the consequences: the

conclusiveness of the factual finding of the trial court that he was a

mortgagee in bad faith.

A Mortgagee in Bad Faith Not Protected

by PD 1529

The main purpose of land registration, covered by PD 1529, is to facilitate transactions relative
to real estate by giving the public the right to rely upon the face of the Torrens certificate of
title.[32] Therefore, as a rule, the purchaser is not required to explore further than what the
Certificate indicates on its face. This rule, however, applies only to innocent purchasers for value
and in good faith; it excludes a purchaser who has knowledge of a defect in the title of the
vendor, or of facts sufficient to induce a reasonably prudent man to inquire into the status of the
property.[33] Under Section 32 of PD 1529,[34] an innocent purchaser for value is deemed to
include an innocent mortgagee for value.

By insisting on the application of PD 1529 in his favor, petitioner begs the question. He invokes
Sections 52 and 53 of the law, which protects innocent mortgagees for value, but which the RTC
has already determined he was not. As already discussed, such factual determination by the trial
court is conclusive, because he did not question it in the proper forum. The logical consequence,
therefore, is the inapplicability of the said law to his factual situation.
 To be sure, there are exceptions to the rule.[35] Petitioner, however,

has not given us adequate reasons to apply any of these exceptions; verily,

we find no ground to reverse or modify the factual findings of the RTC.

RTC Decision Consistent With Jurisprudence

Upon the other hand, the RTCs legal conclusions are in accordance with

jurisprudence. A person who deals with registered land through someone

who is not the registered owner is expected to look behind the certificate of

title and examine all factual circumstances, in order to determine if the

mortgagor/vendee has the capacity to transfer any interest in the land.[36]

One has the duty to ascertain the identity of the person with whom one is

dealing, as well as the latters legal authority to convey.

The law requires a higher degree of prudence from one who buys

from a person who is not the registered owner, although the land object of

the transaction is registered. While one who buys from the registered

owner does not need to look behind the certificate of title, one who buys

from one who is not the registered owner is expected to examine not only

the certificate of title but all factual circumstances necessary for [one] to
determine if there are any flaws in the title of the transferor, or in [the]

capacity to transfer the land.[37] Although the instant case does not involve

a sale but only a mortgage, the same rule applies inasmuch as the law itself

includes a mortgagee in the term purchaser.[38]

Petitioners contention of due diligence and good faith in verifying the

authenticity of the Transfer Certificate of Title and finding it clean on its

face[39] is beside the point. He was not a mortgagee in good faith, not

because he neglected to ascertain the authenticity of the title, but because

he did not check if the person he was dealing with had any authority to

mortgage the property. There is no allegation whatsoever that Gemma de

la Cruz presented a special power of attorney to deal with the property of

the Guimbas; and even if we accept the story of petitioner that he was

duped by a woman posing as Vivian Guimba, his negligence lies in not

verifying her identity before accepting the mortgage.[40]

 Third Issue:

Laches

Petitioner likewise contends that respondents were guilty of laches

when they neglected to register their adverse claim immediately. Again, he

attempts to attack the RTCs factual determination that they had taken the

necessary steps to protect their rights.[41] Seeking its review, he resorted to

the wrong remedy in the wrong forum. We repeat, petitions under Rule 45

are limited to the determination of pure questions of law.

In any case, petitioners theory that respondents are guilty of laches

for belatedly registering an adverse claim is untenable. First, the law does

not compel them to file an adverse claim. The purpose of that claim is to

give notice to third persons of the existence of an interest adverse to that of

the registered owner.[42] In the instant case, respondents are the registered

owners. The fact that their names appear on the title as absolute owners

should already notify third persons, such as petitioner, that they have a

clear legal interest in the property.

 Second, there is no equitable basis for the application of laches,

considering that (1) only nine months had elapsed from the loss of the title

to the registration of an adverse claim, (2) no prejudice was caused an

innocent purchaser for value, and (3) there was a factual determination by

the trial court that respondents had taken the appropriate steps to protect

their interests.

Third, even if we assume arguendo that respondents were negligent,

petitioner still cannot claim a superior right, considering that he too was

negligent; he cannot feign innocence as regards their existing interests as

the registered owners. Simply put, their alleged negligence did not prejudice

petitioner, who was perfectly aware all the time that the property belonged

to them, not to De la Cruz.

Laches is a doctrine in equity and may not be invoked to resist the

enforcement of a legal right.[43] Thus, the assertion of laches to thwart the

claim of respondents is foreclosed by the finding that petitioner, as a

mortgagee in bad faith, is not entitled to the protection of our registration

laws.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. Costs against petitioner.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice

Chairman, Third Division

[1] Rollo, pp. 3-17.

[2] Id., pp. 18-23. Penned by Judge Alfredo C. Flores.

[3] Id., p. 31.

[4] Id., p. 23.

[5] Id., p. 2; rollo, p. 19.

[6] Id., pp. 4 & 21.

[7] Respondents Memorandum, p. 6; rollo, p. 96.

[8] RTC Decision, pp. 5-6; rollo, pp. 22-23.

[9] Id., pp. 3 & 20.

[10] Id., pp. 2 & 19.

[11] Id., pp. 4 & 21.

[12] Rollo, pp. 37-41.

[13] RTC Decision; rollo, p. 18.

[14] Id.
[15] Id., pp. 3-4 & 20-21.

[16] Id., pp. 3 & 20.

[17] Id.

[18] Id., pp. 4-5 & 21-22.

[19] Id., pp. 5 & 22.

[20] Id., pp. 5-6 & 22-23.

[21] Id.

[22] Assailed Resolution; rollo, p. 31.

[23] The Petition was deemed submitted for decision on September 1, 2003, upon the Courts
receipt of respondents Memorandum signed by Atty. Gallardo S. Tongohan. Petitioners
Memorandum, signed by Atty. Ma. Annaliza R. Teodoro-Tabilog, was received by the
Court on August 20, 2003.

[24] Petitioners Memorandum, p. 11; rollo, p. 64. Original in bold italics.

[25] SEC. 52. Constructive notice upon registration. 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 for 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 entering.

[26] SEC. 53. Presentation of owners duplicate upon entry of new certificate. No voluntary
instrument shall be registered by the Register of Deeds, unless the owners duplicate
certificate is presented with such instrument, except in cases expressly provided for in
this Decree or upon order of the court, for cause shown.

The production of the owners duplicate certificate, whenever any voluntary instrument is
presented for registration, shall be conclusive authority from the registered owner to the
Register of Deeds to enter a new certificate or to make a memorandum of registration in
accordance with such instrument, and the new certificate or memorandum shall be
binding upon the registered owner and upon all persons claiming under him, in favor of
every purchaser for value and in good faith.

In all cases of registration procured by fraud, the owner may pursue all his legal and
equitable remedies against the parties to such fraud without prejudice, however, to the
rights of any innocent holder for value of a certificate of title. After the entry of the
decree of registration on the original petition or application, any subsequent registration
procured by the presentation of a forged duplicate certificate of title, or a forged deed or
other instrument, shall be null and void.

[27] See Bernardo v. CA, 216 SCRA 224, December 7, 1992; Medina v. Asistio, 191 SCRA 218,
November 8, 1990; Cheeseman v. IAC, 193 SCRA 93, January 21, 1991; Perez v.
Araneta, 133 Phil. 34, July 15, 1968; Savellano v. Diaz, 8 SCRA 586, July 31, 1963.

[28] Potenciano v. Reynoso, 401 SCRA 391, April 22, 2003; Pilar Development Corporation

v. Intermediate Appellate Court, 146 SCRA 215, December 12, 1986.

[29] Bernardo v. CA, supra at note 28.

[30] See Pecson v. CA, 222 SCRA 580, 585, May 25, 1993; Velasquez Jr. v. CA, 426 SCRA 309,
314, March 25, 2004; Republic v. Heirs of Agustin L. Angeles, 390 SCRA 502, 509,
October 7, 2002.

[31] RTC Decision, p. 5; rollo, p. 22.

[32] See Republic v. CA, 301 SCRA 366, 380, January 21, 1999, citing Pascua v. Copuyoc, 77
SCRA 78, May 26, 1977.

[33] Agag v. Alpha Financing Corporation, 407 SCRA 602, 610, July 31, 2003.

[34] Section 32. Review of decree of registration; Innocent purchaser for value.

xxxxxxxxx
Whenever the phrase innocent purchaser for value or an equivalent phrase
occurs in this Decree, it shall be deemed to include an innocent lessee,
mortgagee, or other encumbrancer for value.

[35] Findings of fact may be passed upon and reviewed by the Supreme Court in the following
instances: (1) when the conclusion is a finding grounded entirely on speculation, surmises
or conjecture; (2) when the inference made is manifestly mistaken, absurd, or impossible;
(3) where there is a grave abuse of discretion in the appreciation of facts; (4) when
judgment is based on a misapprehension of facts; (5) when the lower court, in making its
findings, went beyond the issues of the case and such findings are contrary to the
admissions of both appellant and appellee; (6) when the factual findings of the Court of
Appeals are contrary to those of the trial court; (7) when the findings of fact are
themselves conflicting; (8) when the findings of fact are conclusions made without a
citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed by the
respondents; (10) when the findings of fact of the lower court are premised on the
supposed absence of evidence and are contradicted by the evidence on record; and (11)
when the lower court fails to notice certain relevant facts which, if properly considered,
would justify a different conclusion. See Francisco v. Court of Appeals, 401 SCRA 594,
605, April 25, 2003, citing Misa v. Court of Appeals, 212 SCRA 217, August, 5, 1992;
Philippine American General Insurance Company v. PKS Shipping Company, 401 SCRA
222, 230, April 9, 2003; Tansipek v. Philippine Bank of Communications, 372 SCRA
456, 460, December 14, 2001.

[36] De Lara et al. v. Ayroso, 95 Phil. 185, 189, May 31, 1954; Revilla and Fajardo v. Galindez,
107 Phil. 480, 485, March 30, 1960.

[37] Revilla and Fajardo v. Galindez, supra, per Gutirrez David, J.

[38] Supra at note 34.

[39] Petitioners Memorandum, pp. 12-14; rollo, pp. 65-67.

[40] RTC Decision, p. 5; rollo, p. 22.

[41] Id., pp. 5-6 & 22-23.

[42] Section 70, Presidential Decree 1529 states:

Whoever claims any part or interest in registered land adverse to the

registered owner, arising subsequent to the date of the original registration, may,
 if no other provision is made in this Decree for registering the same, make a
statement in writing setting forth fully his alleged right or interest, and how or
under whom acquired, a reference to the number of the certificate of title of the
registered owner, the name of the registered owner, and a description of the land
in which the right or interest is claimed. x x x

[43] Alcantara-Daus v. De Leon, 404 SCRA 74, 82-83, June 16, 2003.
 SUPREME COURT
Manila

FIRST DIVISION

G.R. Nos. 175181-82 September 14, 2007

METROPOLITAN BANK and TRUST COMPANY, INC., petitioner,

vs.
SLGT HOLDINGS, INC., DANILO A. DYLANCO and ASB DEVELOPMENT
CORPORATION, respondents.

x - - - - - - - - - - - - - - - - - - - - - - - -x

G.R. Nos. 175354 & 175387-88 September 14, 2007

UNITED COCONUT PLANTERS BANK, petitioner,

vs.
SLGT HOLDINGS, INC. and ASB DEVELOPMENT CORPORATION, respondents.

DECISION

GARCIA, J.:

It happened before; it will likely happen again. A developer embarks on an aggressive marketing
campaign and succeeds in selling units in a yet to-be completed condominium project. Short of
funds, the developer borrows money from a bank and, without apprising the latter of the pre-
selling transactions, mortgages the condominium complex, but also without informing the buyers
of the mortgage constitution. Saddled with debts, the developer fails to meet its part of the
bargain. The defaulting developer is soon sued by the fully-paid unit buyers for specific
performance or refund and is threatened at the same time with a foreclosure of mortgage. Having
his hands full parrying legal blows from different directions, the developer seeks a declaration of
suspension of payment, followed by a petition for rehabilitation with suspension of action.

With a slight variation, the scenario thus depicted describes the instant case which features
respondent ASB Development Corporation (ASB, for short), as the defaulting developer of the
BSA Twin Towers Condominium Project (BSA Towers or Project, for short) situated at Ortigas
Center, Mandaluyong City, and respondents Danilo A. Dylanco and SLGT Holdings, Inc.
(Dylanco and SLGT, respectively, hereinafter) as the unit buyers. Petitioners Metropolitan Bank
and Trust Company, Inc. (Metrobank) and United Coconut Planters Bank (UCPB) are the
lending-mortgagee banks.

And now to the case:

Before the Court are these separate petitions for review under Rule 45 of the Rules of Court
separately interposed by Metrobank and UCPB to nullify and set aside the consolidated
Decision1 and Resolution2 dated June 29, 2006, and October 31, 2006, respectively, of the Court
of Appeals (CA) in CA-G.R. SP No. 92807, CA-G.R. SP No. 92808 and CA-G.R. SP No. 92882.

The first assailed issuance affirmed the earlier Decision3 dated October 10, 2005 of the Office of
the President (OP, hereinafter), as modified in its Order4 of December 22, 2005, in consolidated
OP Case No. 05-F-212 and OP Case No. 05-G-215. The second assailed issuance, on the other
hand, denied reconsideration of the first.

Per its Resolution5 of March 26, 2007, the Court ordered the consolidation of these petitions.
From the petitions and the comments thereon, with their respective annexes, and other pleadings,
the Court gathers the following facts:

On October 25, 1995, Dylanco and SLGT each entered into a contract to sell with ASB
for the purchase of a unit (Unit 1106 for Dylanco and Unit 1211 for SLGT) at BSA
Towers then being developed by the latter. As stipulated, ASB will deliver the units thus
sold upon completion of the construction or before December 1999. Relying on this and
other undertakings, Dylanco and SLGT each paid in full the contract price of their
respective units. The promised completion date came and went, but ASB failed to deliver,
as the Project remained unfinished at that time. To make matters worse, they learned that
the lots on which the BSA Towers were to be erected had been mortgaged6 to Metrobank,
as the lead bank, and UCPB7 without the prior written approval of the Housing and Land
Use Regulatory Board (HLURB).

Alarmed by this foregoing turn of events, Dylanco, on August 10, 2004, filed with the
HLURB a complaint8 for delivery of property and title and for the declaration of nullity
of mortgage. A similar complaint9 filed by SLGT followed three (3) days later. At this
time, it appears that the ASB Group of Companies, which included ASB, had already
filed with the Securities and Exchange Commission a petition for rehabilitation and a
rehabilitation receiver had in fact been appointed.

What happened next are laid out in the OP decision adverted to above, thus:

In response to the above complaints, ASB alleged that it encountered liquidity

problems sometime in 2000 after its creditors [UCPB and Metrobank] simultaneously
demanded payments of their loans; that on May 4, 2000, the Commission (SEC)
granted its petition for rehabilitation; that it negotiated with UCPB and Metrobank but
nothing came out positive from their negotiation .

On the other hand, Metrobank claims that complainants [Dylanco and SLGT] have no
personality to ask for the nullification of the mortgage because they are not parties to the
mortgage transaction ; that the complaints must be dismissed because of the ongoing
rehabilitation of ASB; xxx that its claim against ASB, including the mortgage to the
[Project] have already been transferred to Asia Recovery Corporation; xxx.

UCPB, for its part, denies its liability to SLGT [for lack of privity of contract] [and]
questioned the personality of SLGT to challenge the validity of the mortgage reasoning
that the latter is not party to the mortgage contract [and] maintains that the mortgage
transaction was done in good faith. Finally, it prays for the suspension of the
proceedings because of the on-going rehabilitation of ASB.

In resolving the complaint in favor of Dylanco and SLGT, the Housing Arbiter ruled that
the mortgage constituted over the lots is invalid for lack of mortgage clearance from the
HLURB. He also rebuffed the banks request to suspend the proceedings under Section 5
of Presidential Decree (PD) No. 902-A as the banks are parties under receivership. xxx

The HLURB Board of Commissioners, [per its separate Decision both dated April 21,
2005] affirmed the above rulings with the modification that ASB should cause the
subdivision of the mother titles into condominium certificates of title of Dylanco and
SLGT free from all liens and encumbrances. [On June 28, 2005 the HLURB denied the
separate motions of Metrobank and UCPB for reconsideration. (Words in brackets and
emphasis added).

For perspective, the decretal portion of the HLURBs underlying decision10 with respect to the
Dylanco case, docketed thereat as REM-A-050208-0021, reads as follows:
 WHEREFORE, the appeals are dismissed for lack of merit and the decision of the office
below is modified as follows:

1. Declaring the mortgage over the subject condominium unit in favor of

respondent [Metrobank] as null and void for violation of Section 18 of [PD] No.
957;

2. Directing respondent bank to cancel/release the mortgage on the subject

condominium unit [Unit 1106]; and accordingly, surrender/release the title thereof
to the complainant;

3. Directing respondent Bank to release to respondent ASB the transfer certificate

of title of the lots covering the BSA Twin Towers Project; directing ASB to cause
the subdivision of the mother titles into condominium certificates of tile within 90
days and to thereafter deliver title to complainant [Dylanco] free from all liens
and encumbrances; [and]

4. Ordering respondent ASB to complete the subject condominium project as per

SEC Order dated 03 November 2004. (Words in brackets added)

On the other hand, the HLURB decision11 on the SLGT case, docketed as REM-A-050208-0020,
was, on all material points, of the same tenor as in the Dylanco case, albeit the unit involved is
different and the banks referred to in SLGT are UCPB and Metrobank.

From the HLURB resolutions in REM-A-050208-0020 and REM-A-050208-0021, Metrobank

appealed to the OP, followed by UCPBs own appeal from the resolution in REM-A-050208-
0020. Owing to the obvious similarities in both cases, the OP had them consolidated, the
Dylanco case docketed as O.P. Case No. 05-F-212 and the SLGT case as O.P. Case No. 05-F-
215.

On October 10, 2005, the OP rendered a decision12 against Metrobank and UCPB, disposing as
follows:

WHEREFORE, premises considered, the appeals filed by Metropolitan Bank and Trust
Company and the United Coconut Planters Bank are hereby DISMISSED for lack of
merit.

SO ORDERED.

From the October 10, 2005 OP Decision, petitioner banks and SLGT interposed their respective
motions for reconsideration, SLGT excepting to that portion of the decision declaring the
mortgage contract as void only insofar as it and Dylanco are concerned. To SLGT, the
indivisibility of a mortgage contract requires that a declaration of nullity or a validity for that
matter - should cover the entire mortgage.

On December 22, 2005, the OP issued an Order13 acting favorably on SLGTs motion, but
denying those of Metrobank and UCPB. The fallo of the OPs Order reads:

"WHEREFORE, the Motions for Reconsideration of [Metrobank] and [UCPB] are

hereby DENIED. With respect to the partial motion for reconsideration of SLGT , the
same is hereby GRANTED. Accordingly, the mortgage contract executed between
ASB Development Corporation and respondent banks (Metrobank and UCPB) is
hereby declared null and void in its entirety. Respondents-appellants are hereby
ordered to release to ASBDC [TCT] Nos. 9834 and 9835, and for ASBDC to cause the
subdivision of the mother titles into condominium certificates of title, and thereafter
deliver to complainants [SLGT and Dylanco] their respective condominium certificates
of title free of lien and encumbrances.
 The records of the instant cases are hereby remanded to [HLURB] for its appropriate
disposition.

SO ORDERED. (Emphasis and words in brackets added)

In time, petitioner banks went to the CA on a petition for review under Rule 43 of the Rules of
Court whereat the appellate recourses were likewise consolidated and docketed as CA-G.R. SP
No. 92807, CA-G.R. SP No. 92808 and CA-G.R. SP No. 92882.

As stated at the threshold hereof, the appellate court, in its assailed Decision14 of June 29, 2006,
affirmed the OPs October 10, 2005 Decision as modified in its December 22, 2005 Order, the
affirmance being predicated, in gist, on the following main premises:

1. A mortgage constituted on a condominium project without the approval of the HLURB

in violation of the prescription of Presidential Decree (PD) 957, like the ASB-Metrobank-
Trust Division mortgage contract, is void; a mortgage is indivisible and cannot be divided
into a valid and invalid parts.

2. The complaints of Dylanco and SLGT are not covered by the order issued by the SEC
suspending all actions and proceedings against ASB.

Petitioner banks separate motions for reconsideration were later denied in the CAs equally
assailed resolution15 dated October 31, 2006.

Hence, these separate petitions.

Although formulated a bit differently, the grounds and arguments advanced in support of the
petitions converge and focus on two issues, to wit:

1. The declaration of nullity of the entire mortgage constituted on the project land site and
the improvements thereon; and

2. The applicability to this case of the suspension order granted by SEC to ASB.

We DENY.

As to the first issue, it is the petitioners posture that the CA, and, before it, the OP, erred when it
declared the subject mortgage contract void in its entirety and then directed both petitioner banks
to release the mortgage on the Project.

We are not persuaded.

Both petitioners do not dispute executing the mortgage in question without the HLURBs prior
written approval and notice to both individual respondents. Section 18 of Presidential Decree No.
(PD) 957 The Subdivision and Condominium Buyers Protective Decree provides:

SEC. 18. Mortgages. - No mortgage of any unit or lot shall be made by the owner or
developer without prior written approval of the [HLURB]. Such approval shall not be
granted unless it is shown that the proceeds of the mortgage loan shall be used for the
development of the condominium or subdivision project . The loan value of each lot or
unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be
notified before the release of the loan. The buyer may, at his option, pay his installment
for the lot or unit directly to the mortgagee who shall apply the payments to the
corresponding mortgage indebtedness secured by the particular lot or unit being paid for
. (Emphasis and word in bracket added)
There can thus be no quibbling that the project lot/s and the improvements introduced or be
introduced thereon were mortgaged in clear violation of the aforequoted provision of PD 957.
And to be sure, Dylanco and SLGT, as Project unit buyers, were not notified of the mortgage
before the release of the loan proceeds by petitioner banks.

As it were, PD 957 aims to protect innocent subdivision lot and condominium unit buyers against
fraudulent real estate practices. Its preambulatory clauses say so and the Court need not belabor
the matter presently. Section 18, supra, of the decree directly addresses the problem of fraud and
other manipulative practices perpetrated against buyers when the lot or unit they have contracted
to acquire, and which they religiously paid for, is mortgaged without their knowledge, let alone
their consent. The avowed purpose of PD 957 compels, as the OP correctly stated, the reading of
Section 18 as prohibitory and acts committed contrary to it are void.16 Any less stringent
construal would only accord unscrupulous developers and their financiers unbridled discretion to
follow or not to follow PD 957 and thus defeat the very lofty purpose of that decree. It thus
stands to reason that a mortgage contract executed in breach of Section 18 of the decree is null
and void.

In Philippine National Bank v. Office of the President,17 involving a defaulting mortgagor-

subdivision developer, a mortgagee-bank and a lot buyer, the Court expounded on the rationale
behind PD 957, as a tool to protect subdivision lot and/or condominium unit buyers against
developers and mortgaging banks, in the following wise:

xxx [T]he unmistakable intent of the law [is] to protect innocent lot buyers from scheming
subdivision developers. As between these small lot buyers and the gigantic financial
institutions which the developers deal with, it is obvious that the law as an instrument
of social justice must favor the weak. Indeed, the petitioner bank had at its disposal vast
resources with which it could adequately protect its loan activities, and therefore is
presumed to have conducted the usual "due diligence" checking and ascertaining the
actual status, condition, utilization and occupancy of the property offered as collateral.
xxx On the other hand, private respondents obviously were powerless to discover the
attempt of the land developer to hypothecate the property being sold to them. It was
precisely in order to deal with this kind of situation that P.D. 957 was enacted, its very
essence and intendment being to provide a protective mantle over helpless citizens who
may fall prey to the razzmatazz of what P.D. 957 termed "unscrupulous subdivision and
condominium sellers."

The Court then quoted with approval the following instructive comments of the Solicitor
General:

Verily, if P.D. 957 were to exclude from its coverage the aforecited mortgage contract,
the vigorous regulation which P.D. 957 seeks to impose on unconscientious subdivision
sellers will be translated into a feeble exercise of police power just because the iron hand
of the state cannot particularly touch mortgage contracts badged with the unfortunate
accident of having been constituted prior to the enactment of P.D. 957. Indeed, it would
be illogical in the extreme if P.D. 957 is to be given full force and effect and yet, the
fraudulent practices and manipulations it seeks to curb. xxx

Given the foregoing perspective, the next question to be addressed turns on whether or not the
nullity extends to the entire mortgage contract.

The poser should be resolved, as the CA and OP did resolve it, in the affirmative. This
disposition stems from the basic postulate that a mortgage contract is, by nature, indivisible.18
Consequent to this feature, a debtor cannot ask for the release of any portion of the mortgaged
property or of one or some of the several properties mortgaged unless and until the loan thus
secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the
obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the
proportionate extinguishments of the mortgage as long as the debt is not completely satisfied.
The situation obtaining in the case at bench is within the purview of the aforesaid rule on the
indivisibility of mortgage. It may be that Section 18 of PD 957 allows partial redemption of the
mortgage in the sense that the buyer is entitled to pay his installment for the lot or unit directly to
the mortgagee so as to enable him - the said buyer - to obtain title over the lot or unit after full
payment thereof. Such accommodation statutorily given to a unit/lot buyer does not, however,
render the mortgage contract also divisible. Generally, the divisibility of the principal obligation
is not affected by the indivisibility of the mortgage. The real estate mortgage voluntarily
constituted by the debtor (ASB) on the lots or units is one and indivisible. In this case, the
mortgage contract executed between ASB and the petitioner banks is considered indivisible, that
is, it cannot be divided among the different buildings or units of the Project. Necessarily, partial
extinguishment of the mortgage cannot be allowed. In the same token, the annulment of the
mortgage is an all or nothing proposition. It cannot be divided into valid or invalid parts. The
mortgage is either valid in its entirety or not valid at all. In the present case, there is doubtless
only one mortgage to speak of. Ergo, a declaration of nullity for violation of Section 18 of PD
957 should result to the mortgage being nullified wholly.

It will not avail the petitioners any to feign ignorance of PD 957 requiring prior written approval
of the HLURB, they being charged with knowledge of such requirement since granting loans
secured by a real estate mortgage is an ordinary part of their business.

Neither could they rightly claim to be mortgagees in good faith. We shall explain.

The unyielding rule is that persons dealing with property brought under the Torrens system of
land registration have the right to rely on what appears on the certificate of title without inquiring
further;19 that in the absence of anything to excite or arouse suspicion that should impel a
reasonably cautious person to make such further inquiry, a would-be mortgagee is without
obligation to look beyond the certificate and investigate the title of the mortgagor. Such rule,
however, does not apply to mortgagee-banks,20 their business being one affected with public
interest, holding as they do and keeping, in trust, money pertaining to the depositing public
which they should guard with earnest. Unlike private individuals, it behooves banks to exercise
greater care and prudence in their dealings, including those involving registered lands.21 As we
wrote in Cruz v. Bancom Finance Corporation,22 "a banking institution is expected to exercise
due diligence before entering into a mortgage contract. The ascertainment of the status or
condition of a property offered to it as a security must be standard and indispensable part of its
operations." A bank that failed to observe due diligence cannot be accorded the status of a bona
fide mortgagee.23

Surely, petitioner banks cannot plausibly assert compliance with the due diligence requirement
exacted contextually by the situation. For, have they done so, they could have easily discovered
that there is an on-going condominium project on the lots offered as mortgage collateral and, as
such, could have aroused their suspicion that the developer may have engaged in pre-selling, or,
with like effect, that there may be unit buyers therein, as was the case here. Having been short in
care and prudence, petitioners cannot be deemed to be mortgagees in good faith entitled to the
benefits arising from such status.

This thus brings us to the next issue of whether or not the HLURB, OP and, necessarily, the CA
reversibly erred in continuing with the resolution of this case notwithstanding the rehabilitation
proceedings before, and the appointment by, the SEC of a receiver for ASB which, under Section
6 (c)24 of PD 902-A, as amended,25 necessarily suspended "all actions for claims" against
distressed corporations.

Petitioners maintain that individual respondents demands initially filed with the HLURB
partake of the nature of "claim" within the contemplation of the aforesaid suspensive section of
PD 902-A. They cite Sobrejuanite v. ASB Development Corporation26 to drive home the idea of
the encompassing reach of the word "claim" which they deem to include any and all claims or
demands of whatever nature and character.
The Court is unable to accommodate the petitioners.

As we articulated in Arranza v. B.F. Homes, Inc.,27 the fact that respondent B.F. Homes is under
receivership does not preclude the continuance before the HLURB of the case for specific
performance of a real estate developers obligation under PD 957. For, "[E]"ven if respondent is
under receivership, its obligations as a real estate developer under P.D. 957 are not suspended.
Section 6 (C) of P.D. No. 902-A, as amended , on suspension of all actions for claims against
corporations refers solely to monetary claims."28 Says the Court further:

xxx The appointment of a receiver does not dissolve the corporation, nor does it interfere
with the exercise of corporate rights. In this case where there appears to be no restraints
imposed upon respondent as it undergoes rehabilitation receivership, respondent
continues or should continue to perform its contractual and statutory responsibilities to
petitioners as homeowners.

xxx xxx xxx

No violation of the SEC order suspending payments to creditors would result as far as
petitioners complaint before the HLURB is concerned. To reiterate, what petitioners
seek to enforce are respondents obligation as subdivision developer [for which the
HLURB, not the SEC, is equipped with the expertise to deal with the matter]. Such
claims are basically not pecuniary in nature.29

Arranza actually complemented the earlier case of Finasia Investments and Finance Corporation
v. CA30 where the Court defined and explained the term "claim" in the following wise:

We agree that the word "claim" as used in Sec. 6 (c) of P.D. 902-A, as amended, refers
to debts or demands of a pecuniary nature. It means "the assertion of a right to have
money paid. It is used in special proceedings like those before administrative court, on
insolvency. Consequently, the word "claim"

Petitioners citation and undue reliance on Sobrejuanite is quite misplaced in view of differing
set of facts. In that case, the Court held that the HLURB is bereft of jurisdiction to proceed with
the case during the pendency of the rehabilitation proceedings since the spouses Sobrejuanites
claim involves pecuniary consideration, or a claim for refund of the purchase price paid, with
interest, to be precise. Unlike the spouses Sobrejuanite in Sobrejuanite, SLGTs and Dylancos
complaints in the instant case did not seek monetary recovery or to touch the corporate coffers of
ASB ahead of others. They did not even consider themselves as money claimants. All they ask
was for the enforcement of ASBs statutory and contractual obligations as a condominium
developer. In the concrete, they pressed for the delivery of their units free from all liens and
encumbrances and the declaration of nullity of the mortgage in question arising from the breach
of Section 18 of PD 957.

Significantly, in Sobrejuanite, the Court stated the observation, in reference to the Arranza case,
that "the proceedings before the HLURB [may] be suspended during the rehabilitation [of the
ailing corporation]" "if the claim was for monetary awards."31

The Court is very much aware of A.M. No. 00-8-10-SC or the Interim Rules on Corporate
Rehabilitation32 which defines the term "claim" as including all claims or demands of whatever
character against a debtor or its property, whether for money or otherwise. But as aptly explained
by the CA, Section 2433 of the interim rules limits the coverage of the Rules on rehabilitation and
consequently the rule of suspension of action to those who stand in the category or debtors and
creditors. The relationship between the petitioner banks, as mortgagor of the ASB property, on
one hand, and respondents SLGT and Dylanco, as unit buyers, on the other, cannot be that of a
debtor-creditor as to bring the case within the purview of the rules on corporate recovery, let
alone the Sobrejuanite case. Then, too, the vinculum that binds SLGT/Dylanco, as unit buyers
and as suitors before the HLURB, and ASB is far from being akin to that of debtor-creditor. As it
were, SLGT/Dylanco sued ASB for having constituted, in breach of PD 957, a mortgage on the
condominium project without prior HLURB approval and so much as notifying them of the loan
release for which reason they prayed for the delivery of their units free from all liens and
encumbrances. With the view we take of the case, the complaint of individual respondents is not
in the nature of "claims" that should be covered by the suspensive effect of a rehabilitation
proceeding.

Looking beyond the strictly legal issues involved in this case, however, the pendency of the
rehabilitation proceedings ought not, as stressed in the Order34 of the OP, be invoked to defeat or
deny the claim of individual respondents. Suspending the proceedings would only perpetuate and
compound the injustice committed by ASB on SLGT and Dylanco. It would reduce to pure
jargon the beneficent provisions and render illusory the purpose of PD 957 which, to repeat, is to
protect innocent unit and lot buyers from scheming subdivision/condominium
owners/developers. As a matter of good conscience, the Court cannot allow it under the factual
and legal premises surrounding this case.

WHEREFORE, the instant petitions are DENIED and the assailed CA Decision and Resolution
are AFFIRMED.

Cost against the petitioners.

SO ORDERED.

Puno, C.J., Chairperson, Sandoval-Gutierrez, Corona, Azcuna, JJ., concur.

Footnotes
1
Penned by Associate Justice Vicente S.E. Veloso and concurred in by Associate Justices
Conrado M. Vasquez, Jr. and Mariano C. Del Castillo; rollo (G.R. Nos. 175181-82), pp.
59 et seq.
2
Id. at 82-83.
3
Id. at 18 et seq.
4
Id. at 798 et seq.
5
Rollo (G.R. Nos. 175354 & 175387-88), p. 768.
6
Created by Mortgage Trust Indenture entered into by Metrobank Trust and ASB dated
September 20, 1999. Metrobank Trust signed as Trustee in behalf of certain creditors
among whom is UCPB; rollo (G.R. Nos. 175181-82), pp. 277 et seq.
7
As participating creditor in the Mortgage Trust Indenture, UCPB is the holder of a
Mortgage Participation Certificate, representing its aliquot interest in the mortgage
created by the Indenture.
8
Impleading Metrobank and ASB as defendants; rollo (G.R. Nos. 175181-82), pp. 307 et
seq.
9
Id. at 293 et seq.; SLGT impleaded UCPB as additional defendant.
10
Id. at 1259 et seq.
11
Rollo (G.R. Nos. 175354 & 175387-88), pp. 292 et seq.
12
Supra note 3.
13
Supra note 4.
14
Supra note 1.
15
Supra note 2.
16
Article 5, Civil Code.
17
G.R. No. 104528, January 18, 1996, 252 SCRA 5.
18
Art. 2089 of the Civil Code provides: A pledge or mortgage is invisible, even though
the debt may be divided among the successors in interest of the debtor or of the creditor.
19
Republic v. Court of Appeals, G.R. No. 122801, April 8, 1997, 301 SCRA 366.
20
Rural Bank of Compostela v. CA, G.R. No. 116111, January 21, 1999, 271 SCRA 76;
Tomas v. Tomas, G.R. No. L-36897, June 25, 1980, 98 SCRA 280.
21
Cavite Development Bank v. Lim, G.R. No. 131679, February 1, 2000, 324 SCRA
346, citing cases.
22
G.R. No. 147788, March 19, 2002, 379 SCRA 490.
23
Rural Bank of Compostela, supra.
24
SEC. 6. In order to effectively exercise such jurisdiction [over corporations] the [SEC]
shall possess the following powers: xxx c) To appoint one or more receivers of the
property which is the subject of the action pending before the Commission .
Provided, finally That upon appointment of a rehabilitation receiver all actions for
claims against corporations pending before any court, tribunal, board or body shall be
suspended accordingly. (Italics added.)
25
Amended by PD 1758, as further amended by RA 8999 which transferred to the RTC
jurisdiction over cases listed under Sec. 5 of PD 902-A heretofore belonging to the SEC.
26
G.R. No. 165675, September 30, 2005, 471 SCRA 763.
27
G.R. No. 131683, June 19, 2000, 333 SCRA 799.
28
Id. at 811.
29
Id. at 815.
30
G.R. No. 107002, October 7, 1994, 237 SCRA 446.
31
At page 774 of the Sobrejuanite case, supra.
32
Its provisions were based primarily on the provisions of the SEC Rules on Corporate
Recovery.
33
Under Sec. 24, the rehabilitation plan produces, among others, the following effects: 1.
It binds the debtor, including creditors whether or not they participated or opposed the
plan; 2. Payment to the creditors must be made in accordance with the plan; 3. Existing
contracts and arrangements between the debtor and creditor shall be interpreted as
continuing; and 4. Any compromise on amounts or rescheduling of timing of payments
by the debtor shall be binding on the creditor regardless of whether or not the plan is
successfully implemented.
34
Supra note 4, at p. 7 of the Order.
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

DAVID SIA TIO and G.R. No. 160898

ROBERT SIA TIO,
Petitioners,

- versus -

LORENZO ABAYATA,
TEODULO ABAYATA, Present:
FELICIANO ABAYATA MIRANDO,
AUREA ABAYATA GODINEZ, YNARES-SANTIAGO, J.,
DOLORES ABAYATA PULVERA, Chairperson,
CASILDA ABAYATA BOOC, AUSTRIA-MARTINEZ,
RAFAELA ABAYATA BAGANO, CHICO-NAZARIO,
JEREMIAS ABAYATA and the NACHURA, and
HEIRS OF ELENA ABAYATA REYES, JJ.
MANATAD, namely: ALVIN,

JESELA, ELENITA, CHONA and

SUZETTE represented in this

instance by their father ANTONIO

MANATAD,
Respondents. Promulgated:
June 27, 2008

x----------------------------------------------x

Benajamin A. Lasola, Jr., Columbina Montesclaros Lasola and the Community Rural Bank of
Tabogon (Cebu), Inc., defendants-appellants in the Court of Appeals, were not included as parties in
the present petition.
 DECISION

AUSTRIA-MARTINEZ, J.:

Assailed in the present Petition for Review on Certiorari under Rule 45 of the Rules of Court is the
Decision23[1] dated May 6, 2003 and Resolution24[2] dated October 8, 2003, rendered by the Court of
Appeals (CA) in CA-G.R. CV No. 56665, dismissing the appeal of David Sia Tio and Robert Sia Tio
(petitioners) and affirming the Decision dated November 29, 1996 of Regional Trial Court (RTC) of Lapu-
Lapu City, Branch 54, in Civil Case No. 2230-L.

Civil Case No. 2230-L is an action for annulment of mortgage, mortgage sale, a subsequent sale
and certificates of title, filed by the successors-in-interest of Celedonio Abayata (respondents) with the RTC
on March 12, 1990. It was respondents' contention that they are the absolute owners of the property in
dispute, a 1,868-square meter parcel of land located in Lapu-Lapu City, Cebu, by virtue of a final Decision
dated November 26, 1986, rendered by the RTC of Lapu-Lapu City, Branch 27, in Civil Case No. 620-
L.25[3] Respondents alleged that through machinations, defendant Benjamin Lasola (Lasola) was able to
register the property in his name under Transfer Certificate of Title (TCT) No. 11428 and mortgage it to
secure a loan from the Commercial Rural Bank of Tabogon (Cebu), Inc. (Rural Bank). In turn, the Rural
Bank foreclosed the mortgage and sold the property to petitioners who registered the property under TCT
No. 20006.

Petitioners and the Rural Bank filed their respective Answers claiming that they were innocent
purchasers for value and in good faith. Defendant Lasola and his wife were declared in default.26[4]

On November 29, 1996, the RTC rendered its Decision in favor of respondents. The dispositive
portion of the RTC Decision reads:

WHEREFORE, premises considered, the Court renders judgment for the plaintiffs [respondents]
and against the defendants [petitioners together with Lasola and Rural Bank] and hereby:

23[1]
Penned by Associate Justice B.A. Adefuin-Dela Cruz, with Associate Justices Jose L. Sabio, Jr. and
Hakim S. Abdulwahid, concurring, rollo, p. 30.

24[2] Id. at 54.

25[3]
Records, pp. 9-23.
26[4]
Rollo, p. 119.
 a) Declares Transfer Certificate of Title No. 11428 in the name of defendant
Benjamin S. Lasola, Jr. as null and void;
b) Declares the real estate mortgage entered by defendants Lasolas and
Community Rural Bank of Tabogon (Cebu), Inc. as null and void;
c) Declares the subsequent auction sale and and the certificate of sale, as well
as the definite deed of sale, as null and void;
d) Declares the Deed of Sale dated May 30, 1989 (Exhibit 10) in favor of
defendants Tios as null and void;
e) Declares Transfer Certificate of Title No. 20006 in the names of
defendants David Sia Tio and Robert Sia Tio as null and void;
f) Declares the plaintiffs as the absolute owners of Lot No. 1, the property
subject of this controversy, and orders the Register of Deeds of Lapu-lapu City
to issue a new certificate of title in their names;
g) Orders the defendants to pay plaintiffs jointly and severally the sums of
P20,000.00 as moral damages and P20,000.00 as attorney's fees;
h) Orders the defendants to pay the costs of this suit;
i) Dismisses all counterclaims for lack of merit.

SO ORDERED.27[5]

The petitioners and the Rural Bank appealed to the CA. In the assailed Decision dated May 6, 2003,
the CA dismissed the appeals, to wit:

WHEREFORE, premises considered, the assailed decision dated November 29, 1996 is hereby
AFFIRMED in toto, and the present appeals are hereby DISMISSED for lack of merit.

SO ORDERED.28[6]

Petitioners filed a motion for reconsideration but it was denied by the CA in its Resolution dated October 8,
2003.

Hence, the present petition on the following grounds:

1. That with grave abuse of discretion amounting to excess of jurisdiction, the lower court grossly
erred: that even granting arguendo that defendant Benjammin Lasola and defendant-appellant Community
Rural Bank of Tabogon (Cebu) Inc., acted in good faith in not disclosing to the petitioners the existence of
27[5]
Records, p. 282.
28[6]
CA rollo, p. 207.
civil case No. 620-L, RTC-Lapu Lapu City, Branch 27, decided on November 26, 1986, and/or annotating
the notice of lis pendens, the lower court did not declare that the plaintiffs, the Abayatas now respondents
were also Equally Guilty of BAD FAITH in not complying with the mandate of Sec. 14, Rule 13, Rules of
Court and Section 78, PD 1529, thus said plaintiffs and defendants defeated the laudable purpose of the said
laws;

2. That with grave abuse of discretion the lower court did not apply the second part of Sec. 1 Art.
III, Constitution which mandates equal protection of law to all persons.

3. That with grave abuse of discretion, the lower court wittingly or unwittingly, failed to award to
the petitioners, the amount of damages stated in the counter claim and cross-claim, considering that the
cross-defendants Rural Bank of Tabogon (Cebu) Inc., and defendant Benjamin Lasola as well as the
plaintiffs/respondents were all guilty of Bad faith;

4. That with grave abuse of discretion, the lower court erred in not dismissing outright this case by
reason of prescription, pursuant to Art. 1391 Civil Code and/or laches;

5. That with grave abuse of discretion, the lower court erred in concluding that the P100,000.00
loan of Benjamin Lasola from the Bank with a collateral allegedly worth of P800,000.00 excites suspicion,
hence, both defendants-appellants were guilty of Bad faith.29[7]

As a preliminary matter, the Court notes a formal defect in the petition in that spouses Lasola and
the Rural Bank were not impleaded as parties to the present petition; rather, they were merely mentioned in
the title as defendants-appellants, their designation in the appeal before the CA. Under Section 4(a), Rule 45
of the Rules of Court, it is required that the petition shall state the full names of the appealing party as the
petitioner and the adverse party as the respondent, without impleading the lower courts or judges thereof
either as petitioners or respondents. The Lasolas and the Rural Bank are undoubtedly adverse parties,
specially since petitioners have a cross-claim against them;30[8] and one of the issues, including their
arguments, raised in their petition involves said parties.31[9] The result of such failure, fundamentally, will
be that said parties cannot be compelled to abide by and comply with the Court's Decision, as it
will not be binding on them. No man shall be affected by any proceeding to which he is a
stranger, and strangers to a case are not bound by any judgment rendered by the court.32[10]

Nonetheless, the Court may disregard such flaw33[11] since no prejudice will be caused to said
parties, as they were original parties before the RTC;34[12] and the Rural Bank, which was furnished all

29[7]
Rollo, pp. 20-21.
30[8]
Records, pp. 32-33.
31[9]
Rollo, p. 13.
32[10]
Civil Service Commission v. Sebastian, G.R. No. 161733, October 11, 2005, 472 SCRA 364, 375.
33[11]
Asia Traders Insurance Corporation v. Court of Appeals, 467 Phil. 531, 536 (2004).
the pleadings and resolutions in this petition, even filed its own Comment35[13] and Memorandum36[14]
before the Court.

The principal issue in this case is whether petitioners are innocent purchasers for value and in good
faith.

As a general rule, the question of whether or not a person is a purchaser in good faith is a factual
matter that will not be delved into by this Court, since only questions of law may be raised in petitions for
review.37[15] The rule, however, admits of certain exceptions, to wit:

(1) when the findings are grounded entirely on speculation, surmises or conjectures;

(2) when the inference made is manifestly mistaken, absurd or impossible;

(3) when there is grave abuse of discretion;

(4) when the judgment is based on a misapprehension of facts;

(5) when the findings of fact are conflicting;

(6) when in making its findings the Court of Appeals went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and the appellee;

(7) when the findings are contrary to the trial court;

(8) when the findings are conclusions without citation of specific evidence on which
they are based;

(9) when the facts set forth in the petition as well as in the petitioners main and reply
briefs are not disputed by the respondent;

34[12]
The Lasola spouses were declared in default before the RTC, records, p. 90.
35[13]
Rollo, pp. 81-85.
36[14]
Id. at 105-130.
37[15]
Chua v. Soriano, G.R. No. 150066, April 13, 2007, 521 SCRA 68, 77.
 (10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and

(11) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion.38[16]
(Emphasis supplied)

In the present case, a review of the records shows that both the RTC and the CA not only
misapprehended but also overlooked relevant facts which warrant a reversal of their respective Decisions
and a dismissal of Civil Case No. 2230-L

To begin with, in claiming ownership over the property, respondents chiefly relied on the Decision
dated November 26, 1986, rendered by the RTC of Lapu-Lapu City, Branch 27, in Civil Case No. 620-L,
which was an action for the recovery of property and ownership filed by Lasola against them. In Civil Case
No. 620-L, Lasola posited that he is the owner of the property and is entitled to its possession by virtue of
the Deed of Sale executed between him and the respondents' predecessor-in-interest, Celedonio Abayata. In
the RTC Decision dated November 26, 1986, the sale between Lasola and Abayata was pronounced as one
of equitable mortgage. The dispositive portion of said Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the defendants [respondents] and against
the plaintiff [Lasola] declaring the deed of sale Exhibit I, an equitable mortgage and allowing the
defendants to redeem the property for P27,440.00 within thirty (30) days from the date this judgment
becomes final and executory. Failure on the part of the defendants to redeem the property within the
period specified above, the property in question is hereby ordered sold at public auction in order to
realize the sum of P27,440.00 payable to the plaintiff as redemption price and the legal expenditures in
connection thereto. Whatever proceeds thereof is hereby ordered turned over to the defendants. Without
pronouncement as to costs.

SO ORDERED.39[17] (Emphasis supplied)

Based on said Decision, respondents filed Civil Case No. 2230-L, the progenitor of the present
petition against the petitioners, Lasola and the Rural Bank.

An equitable mortgage has been defined as one which although lacking in some formality, or form
or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge
real property as security for a debt, and contains nothing impossible or contrary to law.40[18] The

38[16] Id. at 77-78.

39[17]
Records, p. 23.
40[18]
Lumayag v. Heirs of Jacinto Nemeo, G.R. No. 162112, July 3, 2007, 526 SCRA 315, 325.
mortgagor retains ownership over the property but subject to foreclosure and sale at public auction upon
failure of the mortgagor to pay his obligation.41[19]

The Court notes, however, that there is a dearth of evidence in Civil Case No. 2230-L that will
prove that respondents, or their predecessor-in-interest, Celedonio Abayata (Celedonio), redeemed the
property in the amount and within the period provided by the RTC in Civil Case No. 620-L. Respondents
even failed to allege in their complaint in Civil Case No. 2230-L that they were able to pay off their
monetary obligation to Lasola. It was patently erroneous for the RTC to categorically rule that Celedonio
retained title to the property and respondents became owners thereof by succession in the absence of any
allegation or evidence that will establish that Celedonio or respondents were able to redeem the property
within 30 days from the time the judgment in Civil Case No. 620-L became final and executory.42[20] Such
failure on respondents' part is fatal, as they failed to lay the basis for their right to file Civil Case No. 2230-L.

Even assuming that, indeed, they are the rightful owners of the subject property at the time of the
filing of Civil Case No. 2230-L, the Court finds that ownership of the property has already been legitimately
transferred to petitioners who are innocent purchasers for value and in good faith.

Ineluctably, the Rural Bank is a mortgagee in bad faith. Records confirm that the Rural Bank did
not exercise the due diligence required of banking and financial institutions before entering into the
mortgage contract with Lasola. As aptly found by the RTC:

[D]efendant Rural Bank was not a mortgagee in good faith because of its failure to examine more closely
the title of the mortgagors despite the first-hand knowledge that other persons, and not the would-be
mortgagors, were in possession of the property. The very fact that the lot was not in the possession of the
Lasolas should have put the defendant bank on guard and prompted it to make a more thorough inquiry into
the ownership of the lot. x x x the defendant Rural Bank relied on the representation of Banjamin Lasola
that the residents on the lot were squatters. There is no showing that it inquired from the residents
themselves as to who the real owners were, something it would have done if it were reasonably diligent and
prudent in verifying the true ownership of the lot. Instead, as testified to by Mrs. Lechido, the bank relied
merely on the declarations of Benjamin Lasola and one resident on the lot that the houses were built and
occupied by squatters. x x x43[21]

As a banking institution, it is expected to exercise due diligence before entering into a mortgage
contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be
a standard and indispensable part of its operations.44[22]

41[19]
Roberts v. Papio, G.R. No. 166714, February 9, 2007, 515 SCRA 346, 368.
42[20]
Supra note 17.
43[21]
Records, pp. 278-279.
44[22]
Bank of Commerce v. San Pablo, Jr., G.R. No. 167848, April 27, 2007, 522 SCRA 713, 728.
 Moreover, it did not appeal the CA Decision dated May 15, 2003 and Resolution dated October 6,
2003, which affirmed the RTC Decision dated November 29, 1996. Thus, for all intents and purposes, the
RTC's finding that the Rural Bank was a mortgagee in bad faith is final and binding upon it.45[23]

The subject property was acquired by the Rural Bank in a foreclosure proceeding as the highest
bidder for which a Certificate of Sale and Definite Deed of Sale were issued by the Sheriff in its favor; and
was subsequently sold by the Rural Bank to petitioners who, as borne out by evidence, are purchasers in
good faith.

The doctrine that a fraudulent title may be the root of a valid title in the name of an innocent buyer for
value and in good faith46[24] applies to petitioners.

A purchaser in good faith is one who buys the property of another without notice that some other
person has a right to or interest in such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim of another person.47[25] The sources of notice are the title,
the recordings on the title and the land itself.

The rule has always been that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the
certificate to determine the condition of the property. Where there is nothing in the certificate of title to
indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is
not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden
defects or inchoate right that may subsequently defeat his right thereto.48[26] However, where the land
sold is in the possession of a person other than the vendor, the purchaser must go beyond the
certificate of title and make inquiries concerning the actual possessor. A buyer of real property which is
in possession of another must be wary and investigate the rights of the latter. Otherwise, without such
inquiry, the buyer cannot be said to be in good faith and cannot have any right over the property.49[27]

Petitioners bought the property in 1989 from the Rural Bank. While at the time of the sale, title to
the property still remained in the name of Lasola, the Rural Bank had documents showing that it bought the
property in a valid foreclosure proceeding. Notices of extra-judicial sale were published.50[28] An auction

45[23]
Rural Bank of Sta. Maria, Pangasinan v. Court of Appeals, 373 Phil. 27, 45 (1999).
46[24]
Republic of the Philippines v. Agunoy, Sr., G.R. No. 155394, February 17, 2005, 451 SCRA 735,
738.
47[25]
Cruz v. Court of Appeals, 346 Phil. 506, 512 (1997).
48[26]
Chua v. Soriano, supra note 15, at 79.
49[27]
Philippine National Bank v. Heirs of Estanislao Militar, G.R. No. 164801, June 30, 2006, 494
SCRA 308, 315.
50[28]
Records, pp. 165-166.
sale was held with the Rural Bank as the lone and highest bidder.51[29] A Certificate of Sale was issued by
the Deputy Provincial Sheriff in favor of the Rural Bank.52[30] After the lapse of the one-year redemption
period, a Definite Deed of Sale was executed by the RTC-Cebu Sheriff in favor of the Rural Bank.53[31]
The Certificate of Sale and the Definite Deed of Sale, including the Real Estate Mortgage between Lasola
and the Rural Bank, were inscribed on Lasola's title.54[32] What's more, petitioners even went beyond the
Rural Bank's documents and together with a Rural Bank representative, inspected the property. When
confronted with the presence of houses on the property, they were led to believe by the Rural Bank's
representative that the occupants were merely squatters whose occupation was being tolerated by the Rural
Bank.55[33]

It should be emphasized that the prudence required of petitioners is not that of a person with training
in law, but rather that of an average man who weighs facts and circumstances without resorting to the
calibration of our technical rules of evidence of which his knowledge is nil. Rather, he relies on the calculus
of common sense of which all reasonable men have an abundance. And, by law and jurisprudence, a
mistake upon a doubtful or difficult question of law may properly be the basis of good faith.56[34]

Thus, since petitioners were without actual notice of respondents' claim of ownership over the
property, and which claim was not discoverable by them after examining the title, the annotations on the
title, and an observation of the property, then they are entitled to a good faith status.

Besides, respondents have only themselves to blame. They are guilty of laches. As early as the
filing of Civil Case No. 620-L some time in 1982,57[35] they were well aware that the property was
already titled in Lasola's name.58[36] From that date, up to the time the RTC rendered its Decision in
1986, they did not do anything to protect their rights over the property. First, they did not cause an
inscription of a notice of lis pendens on Lasolas title. Without a notice of lis pendens, a third party who
acquires the property after relying only on the certificate of tile is a purchaser in good faith. Against such
third party, the supposed rights of a litigant cannot prevail, because the former is not bound by the property
owners undertakings not annotated in the transfer certificate of title.59[37] Second, respondents likewise
did not cause an inscription of the subsequent RTC Decision on Lasolas title showing that they were given
the right to redeem the property within 30 days from finality of the Decision dated November 26, 1986. Had
they done so, petitioners would have been forewarned of the cloud of doubt hovering over Lasolas claim of
ownership, and any transfer of the property to an innocent third person for value would have been avoided

51[29]
Id. at 167.
52[30]
Id.
53[31]
Id. at 168.
54[32]
Id. at 159-160.
55[33]
TSN, October 26, 1994, pp. 4-5.
56[34]
Philippine National Bank v. Heirs of Estanislao Militar, supra note 27, at 316-317.
57[35]
TSN, July 24, 1995, pp. 4-5.
58[36]
Records, p. 3.
59[37]
Heirs of Eugenio Lopez, Sr. v. Enriquez, G.R. No. 146262, January 21, 2005, 449 SCRA 173, 186-
187.
and the claim of the real owner preserved.60[38] Vigilantibus sed non dormientibus jura subveniunt. The
law aids the vigilant, not those who slumber on their rights.61[39]

The RTC and the CA make much ado of the fact that petitioners bought the 1,686-square meter
property in 1989 only at P150,000.00 or P88.96 per square meter, while the Bureau of Internal Revenue's
zonal valuation thereof in 1990 was between P850.00 and P1,000.00 per square meter.62[40] This
argument however, is specious.

Mere inadequacy of price is not ipso facto a badge of lack of good faith. To be so, the price must be
grossly inadequate or shocking to the conscience such that the mind revolts against it and such that a
reasonable man would neither directly nor indirectly be likely to consent to it.63[41] While there is an
apparent wide disparity in the value of the subject property between 1989 and 1990, undisputed attendant
circumstances show the reasonableness of the purchase price of the sale between Lasola and the Rural
Bank. It must be stressed that the property was mortgaged by Lasola to the Rural Bank for P100,000.00. It
was bought by the Rural Bank at the extra-judicial sale at P108,185.34. Also, the Certificate Authorizing
Registration issued by the Bureau of Internal Revenue to petitioners shows that the prevailing fair market
value of the property in 1989 was P85,260.00.64[42] All these show that the price in the amount of
P150,000.00 paid by petitioners for the purchase of the property was within reasonable bounds.

Finally, petitioners are not entitled to damages they prayed for in their counterclaim and cross-claim filed
before the RTC. In order that moral damages may be awarded, there must be proof of moral suffering, mental
anguish, fright and the like. While petitioners alleged in their Answer with counterclaim and cross-claim that they
suffered mental anguish, serious anxiety and sleepless nights, they failed to prove them during the trial. There is
nothing in their testimonies that will support their claim for damages. In fact, petitioner Robert Tio's testimony was
not even offered by counsel for such purpose.65[43] It should be stressed that mere allegations do not suffice; they
must be substantiated by clear and convincing proof.66[44]

Petitioners' prayer for exemplary damages cannot be sustained under Article 2234 of the Civil Code, to wit:

Article 2234. When the amount of the exemplary damages need not be proved, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages before the
60[38]
Id. at 190.
61[39]
Id. at 195.
62[40]
See RTC Decision, p. 15.
63[41]
Acabal v. Acabal, G.R. No. 148376, March 31, 2005, 454 SCRA 555, 573.
64[42]
Records, p. 174.
65[43]
TSN, January 23, 1996, pp. 3-4.
66[44]
Mahinay v. Velasquez, Jr., 464 Phil. 146, 149 (2004).
 court may consider the question of whether of not exemplary damages would be awarded. In case
liquidated damages have been agreed upon, although no proof of loss is necessary in order that
such liquidated damages may be recovered, nevertheless, before the court may consider the
question of granting exemplary in addition to the liquidated damages, the plaintiff must show that
he would be entitled to moral, temperate or compensatory damages were it not for the stipulation
for liquidated damages.

Petitioners failed to show that they are entitled to moral damages. They likewise failed to plead and prove that they
are entitled to temperate or compensatory damages.

Also, petitioners are not entitled to attorney's fees and litigation expenses as the right to litigate should bear
no premium.67[45] In the same vein, the Court likewise denies petitioners' claim for damages against respondents
since it has not been shown that the filing of the complaint before the RTC was imbued with bad faith.68[46]

WHEREFORE, the petition is GRANTED. The Decision dated May 6, 2003 and Resolution dated
October 8, 2003, rendered by the Court of Appeals in CA-G.R. CV No. 56665 are REVERSED and SET
ASIDE and Civil Case No. 2230-L is DISMISSED.

Petitioners' counterclaim against respondents and cross-claim against the Commercial Rural Bank
of Tabogon (Cebu), Inc. are DENIED for lack of merit.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

67[45]
Republic of the Philippines v. Lorenzo Shipping Corporation, G.R. No. 153563, February 7, 2005,
450 SCRA 550, 558.
68[46]
Industrial Insurance Company, Inc. v. Bondad, 386 Phil. 923, 934 (2000).
 CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

RUBEN T. REYES

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
 Associate Justice

Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

REYNATO S. PUNO

Chief Justice
 THIRD DIVISION

DEVELOPMENT BANK OF THE

PHILIPPINES, G.R. No.
Petitioner,
181790

Present:

AUSTRIA-MARTINEZ, J.,

Acting Chairperson,
- versus -
TINGA,*

CHICO-NAZARIO,

NACHURA, and

PERALTA, JJ.

GREGORIO CAPULONG,
Promulgated:
Respondent.

January 30, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

* Additional member in lieu of Associate Justice Consuelo Ynares-Santiago per Special

Order No. 556 dated January 15, 2009.
 This is a petition69[1] for review on certiorari under Rule 45 of the Rules of
Court seeking the reversal of the Decision70[2] dated September 18, 2007 and the
Resolution71[3] dated February 15, 2008 of the Court of Appeals (CA) in CA-G.R.
SP No. 90338.

On January 28, 1983, petitioner Development Bank of the Philippines (DBP)

granted a loan to Asialand Development Corporation (ADC) in the amount of
P16,000,000.00 for the purpose of real estate development. To secure the loan, a
mortgage was constituted on the project site and all improvements thereon
consisting of 378,226 square meters then covered by ten (10) mother certificates of
title.

After the mortgage was constituted, ADC caused the subdivision of the
entire property into separate individual residential lots eventually sold to different
buyers, one of whom was respondent Gregorio Capulong (Capulong), who
purchased five (5) lots by way of a Contract to Sell on September 30, 1984.

For failure of ADC to pay its obligation to DBP, the latter extrajudicially
foreclosed the mortgage and, thus, was able to acquire the property. ADC failed to
redeem the foreclosed properties within the redemption period.

69[1] Rollo, pp. 9-39.

70[2] Id. at 41-49.

71[3] Id. at 50.

 On December 8, 1986, the Asset Privatization Trust (APT) was created by
virtue of Proclamation No. 50 for the benefit of the National Government tasked to
take title to possess, conserve, provisionally manage and dispose of assets
identified for privatization. Consequently, DBP transferred the account and
properties of ADC to APT, including the subject property.

Later, for failure to obtain titles to the properties he purchased from ADC
despite full payment, Capulong filed a Complaint against ADC before the Housing
and Land Use Regulatory Board (HLURB) in Region III for the release of the
Transfer Certificates of Title over the purchased realties or the replacement thereof
and damages. Capulong impleaded DBP, being the former mortgagee and having
acquired the properties after foreclosure, and APT, now Property Management
Office (PMO), to which the properties were transferred after DBPs acquisition
thereof.

In the complaint, Capulong alleged that ADC sold the properties to him
without having the Contract to Sell registered with the HLURB; that it did not
inform him of the mortgage; and that despite his full payment, it refused to deliver
to him the titles to the properties in violation of Presidential Decree (PD) 957.

DBP interposed as its defenses, inter alia, that the loan to ADC was granted
at the time when the mortgaged property was not yet subdivided into individual
lots and when there were as yet no end-buyers thereof; that it foreclosed the
property pursuant to the Loan Agreement and the Mortgage Contract signed by
them; and that it was not the proper party in interest due to its transfer of the
account and the titles to PMO such that even if Capulong prevails in the case, it
would be impossible for it to comply with any order of the HLURB, as DBP was
no longer in possession of the said titles and could not dispose of the same.
 After due hearing, the HLURB Arbiter rendered a Decision72[4] dated May
7, 2002, in favor of Capulong. The Arbiter found that ADC committed several
violations of PD 957; declared the foreclosure null and void; ordered respondents
ADC, DBP, and PMO to cause the transfer of titles over the subject properties to
Capulongs name or, in the alternative, replace the realties with other lots of the
same value, standard, and area; indemnify Capulong in the form of damages and
attorneys fees; refund to him the excess payments with corresponding interest; and
pay the costs of suit.

DBP elevated the said Decision in a petition for review to the HLURB
Board of Commissioners which, in its Decision73[5] dated June 26, 2003, affirmed
the Decision of the Arbiter, but set aside the directive for the DBP and PMO to
return the excess payments made by Capulong and for PMO to pay damages.

DBP moved to reconsider the Decision, but the HLURB Board of

Commissioners denied the same in the Resolution74[6] dated June 18, 2004.

On appeal to the Office of the President (OP), the Decision of the HLURB
Board of Commissioners was affirmed in toto in an Order75[7] dated March 14,
2005. Subsequently, the OP denied DBPs motion for reconsideration in its
Order76[8] dated June 8, 2005.

72[4] Id. at 51-59.

73[5] Id. at 60-63.

74[6] Id. at 65-67.

75[7] Id. at 68-73.

76[8] Id. at 74.

 DBP went to the CA via a petition for review which was denied in the
assailed Decision dated September 18, 2007. The motion for reconsideration of the
said Decision was likewise denied by the CA in its Resolution dated February 15,
2008.

Hence, this petition ascribing to the CA the following errors:

1. Affirming that the mortgage, foreclosure, and auction sale of the

subject properties are null and void;

2. Declaring that DBP is obligated to inform the lot buyer of the

mortgage under PD 957 not being an owner or developer of the
subdivision lots;

3. Holding DBP liable for damages; and

4. Dismissing DBPs counterclaims.

Essentially, DBP asseverates that under Section 1877[9] of PD 957, it is

only the owner or the developer who had the obligation to obtain a prior written
approval of the HLURB before a mortgage on any unit or lot is constituted and to
inform the lot buyers of the mortgage. It points out that, at the time the mortgage
was executed, the subject property was not yet subdivided into individual lots and
sold to end-buyers such that when it granted the loan, the title to the property it
received as collateral was clean. Thus, for failure of ADC to comply with its
obligation to pay its loan, DBP had merely exercised its rights under the law when

77[9] Sec. 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the Authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan shall be used for the development
it foreclosed the mortgage on the property. DBP then should not be adjudged as a
mortgagee in bad faith.

It further argues that Far East Bank & Trust Co. v. Marquez78[10] is not
applicable because the factual milieu of the instant case is different. In Far East
Bank, the mortgage was constituted after the property was already subject of a
contract to sell, whereas, in this case, the contract to sell in favor of Capulong was
executed long after the mortgage was constituted on the entire property, including
the lots purchased by Capulong. Thus, it should not be held liable with ADC in
delivering to Capulong the purchased lots or their equivalent and in the payment of
damages.

The petition is partially meritorious.

DBP cannot bank on the factual difference in Far East Bank that it granted
the loan and constituted the mortgage on the property subject of that case after the
same was already subject of a contract to sell. The circumstance that DBP and
ADC executed the mortgage contract prior to the selling of the subdivided portions
of the property to Capulong is immaterial considering that when DBP granted the
loan to ADC, it already knew that the loan was to be used for realty development.

DBP should have considered that it was dealing with a property subject of a
real estate development project. A reasonable person, particularly a financial
institution such as DBP, should have been aware that, to finance the project, funds
other than those obtained from the loan could have been used to serve the purpose,
albeit partially. Hence, there was a need to verify whether any part of the property

78[10] 465 Phil. 276 (2004).

was already intended to be the subject of any other contract involving buyers or
potential buyers. In granting the loan, DBP should not have been content merely
with a clean title, considering the presence of circumstances indicating the need for
a thorough investigation of the existence of buyers like Capulong. Wanting in care
and prudence, the DBP cannot be deemed to be an innocent mortgagee. It should
not have relied only on the representation of ADC that it had secured all requisite
permits and licenses from the government agencies concerned. During the
existence of the loan and the mortgage, DBP should have required the submission
of certified true copies of those documents and verified their authenticity through
its own independent effort.79[11]

However, we believe that the award of damages and attorneys fees in favor
of Capulong, as against DBP, should be deleted because there is no direct causal
connection between the failure of DBP to require ADC to comply with the
HLURB requirements pursuant to PD 957 and the injury sustained by Capulong
owing to ADCs failure to inform him of the prior mortgage with DBP and of the
foreclosure of the mortgage. More importantly, it is noticeable that the decisions of
the HLURB Arbiter, the HLURB Board of Commissioners, the Office of the
President and the CA did not discuss the basis for the award of moral and
liquidated damages and attorneys fees as against DBP. It is a settled rule that the
factual bases of the award for damages and attorneys fees should be set forth in an
order or a decision, failing which, no grant of damages can be sustained.80[12]

WHEREFORE, the Decision dated September 18, 2007 and the Resolution
dated February 15, 2008 are AFFIRMED, with the MODIFICATION that the
award of P50,000.00 moral damages, P50,000.00 liquidated damages, and

79[11] Id. at 288.

80[12] Santiago v. Court of Appeals, G.R. No. 127440, January 26, 2007, 513 SCRA 69, 86.
P50,000.00 attorneys fees, in favor of respondent Capulong as against petitioner
DBP, is deleted.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

Acting Chairperson
 DANTE O. TINGA MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

DIOSDADO M. PERALTA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion of the Courts
Division.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

Acting Chairperson, Third Division

CERTIFICATION
 Pursuant to Section 13, Article VIII of the Constitution and the Division
Acting Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING

Acting Chief Justice

SECOND DIVISION
SPOUSES DAVID B. CARPO G.R. Nos. 150773 &

and RECHILDA S. CARPO, 153599

Petitioners,

Present:

- versus - PUNO, J.,

Chairman,

AUSTRIA-MARTINEZ,

CALLEJO, SR.,

ELEANOR CHUA and TINGA, and

ELMA DY NG, CHICO-NAZARIO, JJ.

Respondents.

Promulgated:

September 30, 2005

x-------------------------------------------------------------------x

DECISION
TINGA, J.:

Before this Court are two consolidated petitions for review. The
first, docketed as G.R. No. 150773, assails the Decision[1] of the
Regional Trial Court (RTC), Branch 26 of Naga City dated 26
October 2001 in Civil Case No. 99-4376. RTC Judge Filemon B.
Montenegro dismissed the complaint[2] for annulment of real estate
mortgage and consequent foreclosure proceedings filed by the
spouses David B. Carpo and Rechilda S. Carpo (petitioners).

The second, docketed as G.R. No. 153599, seeks to annul the Court
of Appeals Decision[3] dated 30 April 2002 in CA-G.R. SP No.
57297. The Court of Appeals Third Division annulled and set aside
the orders of Judge Corazon A. Tordilla to suspend the sheriffs
enforcement of the writ of possession.

The cases stemmed from a loan contracted by petitioners. On 18

July 1995, they borrowed from Eleanor Chua and Elma Dy Ng
(respondents) the amount of One Hundred Seventy-Five Thousand
Pesos (P175,000.00), payable within six (6) months with an interest
rate of six percent (6%) per month. To secure the payment of the
loan, petitioners mortgaged their residential house and lot situated
at San Francisco, Magarao, Camarines Sur, which lot is covered by
Transfer Certificate of Title (TCT) No. 23180. Petitioners failed to
pay the loan upon demand. Consequently, the real estate mortgage
was extrajudicially foreclosed and the mortgaged property sold at a
public auction on 8 July 1996. The house and lot was awarded to
respondents, who were the only bidders, for the amount of Three
Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos
and Eighty Centavos (P367,457.80).

Upon failure of petitioners to exercise their right of

redemption, a certificate of sale was issued on 5 September 1997 by
Sheriff Rolando A. Borja. TCT No. 23180 was cancelled and in its
stead, TCT No. 29338 was issued in the name of respondents.

Despite the issuance of the TCT, petitioners continued to

occupy the said house and lot, prompting respondents to file a
petition for writ of possession with the RTC docketed as Special
Proceedings (SP) No. 98-1665. On 23 March 1999, RTC Judge
Ernesto A. Miguel issued an Order[4] for the issuance of a writ of
possession.

On 23 July 1999, petitioners filed a complaint for annulment

of real estate mortgage and the consequent foreclosure proceedings,
docketed as Civil Case No. 99-4376 of the RTC. Petitioners
consigned the amount of Two Hundred Fifty-Seven Thousand One
Hundred Ninety-Seven Pesos and Twenty-Six Centavos
(P257,197.26) with the RTC.

Meanwhile, in SP No. 98-1665, a temporary restraining order

was issued upon motion on 3 August 1999, enjoining the
enforcement of the writ of possession. In an Order[5] dated 6
January 2000, the RTC suspended the enforcement of the writ of
possession pending the final disposition of Civil Case No. 99-4376.
Against this Order, respondents filed a petition for certiorari and
mandamus before the Court of Appeals, docketed as CA-G.R. SP
No. 57297.

During the pendency of the case before the Court of Appeals,

RTC Judge Filemon B. Montenegro dismissed the complaint in Civil
Case No. 99-4376 on the ground that it was filed out of time and
barred by laches. The RTC proceeded from the premise that the
complaint was one for annulment of a voidable contract and thus
barred by the four-year prescriptive period. Hence, the first petition
for review now under consideration was filed with this Court,
assailing the dismissal of the complaint.

The second petition for review was filed with the Court after
the Court of Appeals on 30 April 2002 annulled and set aside the
RTC orders in SP No. 98-1665 on the ground that it was the
ministerial duty of the lower court to issue the writ of possession
when title over the mortgaged property had been consolidated in the
mortgagee.

This Court ordered the consolidation of the two cases, on motion of

petitioners.

In G.R. No. 150773, petitioners claim that following the Courts

ruling in Medel v. Court of Appeals[6] the rate of interest stipulated
in the principal loan agreement is clearly null and void.
Consequently, they also argue that the nullity of the agreed interest
rate affects the validity of the real estate mortgage. Notably, while
petitioners were silent in their petition on the issues of prescription
and laches on which the RTC grounded the dismissal of the
complaint, they belatedly raised the matters in their Memorandum.
Nonetheless, these points warrant brief comment.

On the other hand, petitioners argue in G.R. No. 153599 that the
RTC did not commit any grave abuse of discretion when it issued
the orders dated 3 August 1999 and 6 January 2000, and that
these orders could not have been the proper subjects of a petition
for certiorari and mandamus. More accurately, the justiciable
issues before us are whether the Court of Appeals could properly
entertain the petition for certiorari from the timeliness aspect, and
whether the appellate court correctly concluded that the writ of
possession could no longer be stayed.

We first resolve the petition in G.R. No. 150773.

Petitioners contend that the agreed rate of interest of 6% per

month or 72% per annum is so excessive, iniquitous,
unconscionable and exorbitant that it should have been declared
null and void. Instead of dismissing their complaint, they aver that
the lower court should have declared them liable to respondents for
the original amount of the loan plus 12% interest per annum and
1% monthly penalty charge as liquidated damages,[7] in view of the
ruling in Medel v. Court of Appeals.[8]
 In Medel, the Court found that the interest stipulated at 5.5%
per month or 66% per annum was so iniquitous or unconscionable
as to render the stipulation void.

Nevertheless, we find the interest at 5.5% per month, or 66%

per annum, stipulated upon by the parties in the promissory note
iniquitous or unconscionable, and, hence, contrary to morals
(contra bonos mores), if not against the law. The stipulation is void.
The Court shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or
unconscionable.[9]

In a long line of cases, this Court has invalidated similar

stipulations on interest rates for being excessive, iniquitous,
unconscionable and exorbitant. In Solangon v. Salazar,[10] we
annulled the stipulation of 6% per month or 72% per annum
interest on a P60,000.00 loan. In Imperial v. Jaucian,[11] we
reduced the interest rate from 16% to 1.167% per month or 14%
per annum. In Ruiz v. Court of Appeals,[12] we equitably reduced
the agreed 3% per month or 36% per annum interest to 1% per
month or 12% per annum interest. The 10% and 8% interest rates
per month on a P1,000,000.00 loan were reduced to 12% per
annum in Cuaton v. Salud.[13] Recently, this Court, in Arrofo v.
Quino,[14] reduced the 7% interest per month on a P15,000.00 loan
amounting to 84% interest per annum to 18% per annum.

There is no need to unsettle the principle affirmed in Medel and like

cases. From that perspective, it is apparent that the stipulated
interest in the subject loan is excessive, iniquitous, unconscionable
and exorbitant. Pursuant to the freedom of contract principle
embodied in Article 1306 of the Civil Code, contracting parties may
establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. In the ordinary
course, the codal provision may be invoked to annul the excessive
stipulated interest.

In the case at bar, the stipulated interest rate is 6% per

month, or 72% per annum. By the standards set in the above-cited
cases, this stipulation is similarly invalid. However, the RTC refused
to apply the principle cited and employed in Medel on the ground
that Medel did not pertain to the annulment of a real estate
mortgage,[15] as it was a case for annulment of the loan contract
itself. The question thus sensibly arises whether the invalidity of the
stipulation on interest carries with it the invalidity of the principal
obligation.

The question is crucial to the present petition even if the

subject thereof is not the annulment of the loan contract but that of
the mortgage contract. The consideration of the mortgage contract
is the same as that of the principal contract from which it receives
life, and without which it cannot exist as an independent contract.
Being a mere accessory contract, the validity of the mortgage
contract would depend on the validity of the loan secured by it.[16]

Notably in Medel, the Court did not invalidate the entire loan
obligation despite the inequitability of the stipulated interest, but
instead reduced the rate of interest to the more reasonable rate of
12% per annum. The same remedial approach to the wrongful
interest rates involved was employed or affirmed by the Court in
Solangon, Imperial, Ruiz, Cuaton, and Arrofo.
The Courts ultimate affirmation in the cases cited of the validity of
the principal loan obligation side by side with the invalidation of the
interest rates thereupon is congruent with the rule that a usurious
loan transaction is not a complete nullity but defective only with
respect to the agreed interest.

We are aware that the Court of Appeals, on certain occasions, had

ruled that a usurious loan is wholly null and void both as to the
loan and as to the usurious interest.[17] However, this Court
adopted the contrary rule,
as comprehensively discussed in Briones v. Cammayo:[18]

In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court
likewise declared that, in any event, the debtor in a usurious contract
of loan should pay the creditor the amount which he justly owes him,
citing in support of this ruling its previous decisions in Go Chioco,
Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque
Valgona, 44 Phil. 739.

....

Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249,

We also held that the standing jurisprudence of this Court on the
question under consideration was clearly to the effect that the Usury
Law, by its letter and spirit, did not deprive the lender of his right to
recover from the borrower the money actually loaned to and enjoyed
by the latter. This Court went further to say that the Usury Law did
not provide for the forfeiture of the capital in favor of the debtor in
usurious contracts, and that while the forfeiture might appear to be
convenient as a drastic measure to eradicate the evil of usury, the
legal question involved should not be resolved on the basis of
convenience.

Other cases upholding the same principle are Palileo vs. Cosio,
97 Phil. 919 and Pascua vs. Perez, L-19554, January 31, 1964, 10
SCRA 199, 200-202. In the latter We expressly held that when a
contract is found to be tainted with usury "the only right of the
respondent (creditor) . . . was merely to collect the amount of the loan,
plus interest due thereon."

The view has been expressed, however, that the ruling thus
consistently adhered to should now be abandoned because Article
1957 of the new Civil Code a subsequent law provides that contracts
and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury, shall be void, and that in such
cases "the borrower may recover in accordance with the laws on
usury." From this the conclusion is drawn that the whole contract is
void and that, therefore, the creditor has no right to recover not even
his capital.

The meaning and scope of our ruling in the cases mentioned

heretofore is clearly stated, and the view referred to in the preceding
paragraph is adequately answered, in Angel Jose, etc. vs. Chelda
Enterprises, et al. (L-25704, April 24, 1968). On the question of
whether a creditor in a usurious contract may or may not recover the
principal of the loan, and, in the affirmative, whether or not he may
also recover interest thereon at the legal rate, We said the following:
 ....

Appealing directly to Us, defendants raise two

questions of law: (1) In a loan with usurious interest, may
the creditor recover the principal of the loan? (2) Should
attorney's fees be awarded in plaintiff's favor?"

Great reliance is made by appellants on Art. 1411 of

the New Civil Code . . . .

Since, according to the appellants, a usurious loan is void

due to illegality of cause or object, the rule of pari delicto
expressed in Article 1411, supra, applies, so that neither
party can bring action against each other. Said rule,
however, appellants add, is modified as to the borrower,
by express provision of the law (Art. 1413, New Civil
Code), allowing the borrower to recover interest paid in
excess of the interest allowed by the Usury Law. As to the
lender, no exception is made to the rule; hence, he cannot
recover on the contract. So they continue the New Civil
Code provisions must be upheld as against the Usury
Law, under which a loan with usurious interest is not
totally void, because of Article 1961 of the New Civil Code,
that: "Usurious contracts shall be governed by the Usury
Law and other special laws, so far as they are not
inconsistent with this Code."

We do not agree with such reasoning. Article 1411

of the New Civil Code is not new; it is the same as Article
1305 of the Old Civil Code. Therefore, said provision is no
warrant for departing from previous interpretation that, as
provided in the Usury Law (Act No. 2655, as amended), a
loan with usurious interest is not totally void only as to
the interest.

. . . [a]ppellants fail to consider that a contract of

loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay interest
thereon.

And said two stipulations are divisible in the

sense that the former can still stand without the
latter. Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter
shall leave the former in force."

The question therefore to resolve is whether the

illegal terms as to payment of interest likewise
renders a nullity the legal terms as to payments of the
principal debt. Article 1420 of the New Civil Code
provides in this regard: "In case of a divisible contract,
if the illegal terms can be separated from the legal
ones, the latter may be enforced."
 In simple loan with stipulation of usurious
interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract
(Article 1350, Civil Code), is not illegal. The illegality
lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should
be deemed void, since it is the only one that is illegal.

....

The principal debt remaining without stipulation for

payment of interest can thus be recovered by judicial
action. And in case of such demand, and the debtor
incurs in delay, the debt earns interest from the date of
the demand (in this case from the filing of the complaint).
Such interest is not due to stipulation, for there was none,
the same being void. Rather, it is due to the general
provision of law that in obligations to pay money, where
the debtor incurs in delay, he has to pay interest by way
of damages (Art. 2209, Civil Code). The court a quo
therefore, did not err in ordering defendants to pay the
principal debt with interest thereon at the legal rate, from
the date of filing of the complaint."[19]

The Courts wholehearted affirmation of the rule that the principal

obligation subsists despite the nullity of the stipulated interest is
evinced by its subsequent rulings, cited above, in all of which the
main obligation was upheld and the offending interest rate merely
corrected. Hence, it is clear and settled that the principal loan
obligation still stands and remains valid. By the same token, since
the mortgage contract derives its vitality from the validity of the
principal obligation, the invalid stipulation on interest rate is
similarly insufficient to render void the ancillary mortgage contract.

It should be noted that had the Court declared the loan and
mortgage agreements void for being contrary to public policy, no
prescriptive period could have run.[20] Such benefit is obviously not
available to petitioners.
 Yet the RTC pronounced that the complaint was barred by the
four-year prescriptive period provided in Article 1391 of the Civil
Code, which governs voidable contracts. This conclusion was
derived from the allegation in the complaint that the consent of
petitioners was vitiated through undue influence. While the RTC
correctly acknowledged the rule of prescription for voidable
contracts, it erred in applying the rule in this case. We are hard put
to conclude in this case that there was any undue influence in the
first place.

There is ultimately no showing that petitioners consent to the

loan and mortgage agreements was vitiated by undue influence.
The financial condition of petitioners may have motivated them to
contract with respondents, but undue influence cannot be
attributed to respondents simply because they had lent money.
Article 1391, in relation to Article 1390 of the Civil Code, grants the
aggrieved party the right to obtain the annulment of contract on
account of factors which vitiate consent. Article 1337 defines the
concept of undue influence, as follows:

There is undue influence when a person takes improper

advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. The following circumstances
shall be considered: the confidential, family, spiritual and other
relations between the parties or the fact that the person alleged to
have been unduly influenced was suffering from mental weakness,
or was ignorant or in financial distress.

While petitioners were allegedly financially distressed, it must be

proven that there is deprivation of their free agency. In other words,
for undue influence to be present, the influence exerted must have
so overpowered or subjugated the mind of a contracting party as to
destroy his free agency, making him express the will of another
rather than his own.[21] The alleged lingering financial woes of
petitioners per se cannot be equated with the presence of undue
influence.

The RTC had likewise concluded that petitioners were barred

by laches from assailing the validity of the real estate mortgage. We
wholeheartedly agree. If indeed petitioners unwillingly gave their
consent to the agreement, they should have raised this issue as
early as in the foreclosure proceedings. It was only when the writ of
possession was issued did petitioners challenge the stipulations in
the loan contract in their action for annulment of mortgage.
Evidently, petitioners slept on their rights. The Court of Appeals
succinctly made the following observations:

In all these proceedings starting from the foreclosure,

followed by the issuance of a provisional certificate of sale; then the
definite certificate of sale; then the issuance of TCT No. 29338 in
favor of the defendants and finally the petition for the issuance of
the writ of possession in favor of the defendants, there is no
showing that plaintiffs questioned the validity of these proceedings.
It was only after the issuance of the writ of possession in favor of
the defendants, that plaintiffs allegedly tendered to the defendants
the amount of P260,000.00 which the defendants refused. In all
these proceedings, why did plaintiffs sleep on their rights?[22]

Clearly then, with the absence of undue influence, petitioners have

no cause of action. Even assuming undue influence vitiated their
consent to the loan contract, their action would already be barred
by prescription when they filed it. Moreover, petitioners had clearly
slept on their rights as they failed to timely assail the validity of the
mortgage agreement. The denial of the petition in G.R. No. 150773
is warranted.
We now resolve the petition in G.R. No. 153599.

Petitioners claim that the assailed RTC orders dated 3 August 1999
and 6 January 2000 could no longer be questioned in a special civil
action for certiorari and mandamus as the reglementary period for
such action had already elapsed.

It must be noted that the Order dated 3 August 1999 suspending

the enforcement of the writ of possession had a period of effectivity
of only twenty (20) days from 3 August 1999, or until 23 August
1999. Thus, upon the expiration of the twenty (20)-day period, the
said Order became functus officio. Thus, there is really no sense in
assailing the validity of this Order, mooted as it was. For the same
reason, the validity of the order need not have been assailed by
respondents in their special civil action before the Court of Appeals.

On the other hand, the Order dated 6 January 2000 is in the nature
of a writ of injunction whose period of efficacy is indefinite. It may
be properly assailed by way of the special civil action for certiorari,
as it is interlocutory in nature.

As a rule, the special civil action for certiorari under Rule 65 must
be filed not later than sixty (60) days from notice of the judgment or
order.[23] Petitioners argue that the 3 August 1999 Order could no
longer be assailed by respondents in a special civil action for
certiorari before the Court of Appeals, as the petition was filed
beyond sixty (60) days following respondents receipt of the Order.
Considering that the 3 August 1999 Order had become functus
officio in the first place, this argument deserves scant consideration.
Petitioners further claim that the 6 January 2000 Order could not
have likewise been the subject of a special civil action for certiorari,
as it is according to them a final order, as opposed to an
interlocutory order. That the 6 January 2000 Order is interlocutory
in nature should be beyond doubt. An order is interlocutory if its
effects would only be provisional in character and would still leave
substantial proceedings to be further had by the issuing court in
order to put the controversy to rest.[24] The injunctive relief granted
by the order is definitely final, but merely provisional, its effectivity
hinging on the ultimate outcome of the then pending action for
annulment of real estate mortgage. Indeed, an interlocutory order
hardly puts to a close, or disposes of, a case or a disputed issue
leaving nothing else to be done by the court in respect thereto, as is
characteristic of a final order.

Since the 6 January 2000 Order is not a final order, but rather
interlocutory in nature, we cannot agree with petitioners who insist
that it may be assailed only through an appeal perfected within
fifteen (15) days from receipt thereof by respondents. It is axiomatic
that an interlocutory order cannot be challenged by an appeal,
but is susceptible to review only through the special civil action of
certiorari.[25] The sixty (60)-day reglementary period for special
civil actions under Rule 65 applies, and respondents petition was
filed with the Court of Appeals well within the period.

Accordingly, no error can be attributed to the Court of Appeals in

granting the petition for certiorari and mandamus. As pointed out
by respondents, the remedy of mandamus lies to compel the
performance of a ministerial duty. The issuance of a writ of
possession to a purchaser in an extrajudicial foreclosure is merely a
ministerial function.[26]

Thus, we also affirm the Court of Appeals ruling to set aside

the RTC orders enjoining the enforcement of the writ of
possession.[27] The purchaser in a foreclosure sale is entitled as a
matter of right to a writ of possession, regardless of whether or not
there is a pending suit for annulment of the mortgage or the
foreclosure proceedings. An injunction to prohibit the issuance or
enforcement of the writ is entirely out of place.[28]

One final note. The issue on the validity of the stipulated

interest rates, regrettably for petitioners, was not raised at the
earliest possible opportunity. It should be pointed out though that
since an excessive stipulated interest rate may be void for being
contrary to public policy, an action to annul said interest rate does
not prescribe. Such indeed is the remedy; it is not the action for
annulment of the ancillary real estate mortgage. Despite the nullity
of the stipulated interest rate, the principal loan obligation subsists,
and along with it the mortgage that serves as collateral security for
it.

WHEREFORE, in view of all the foregoing, the petitions are

DENIED. Costs against petitioners.

SO ORDERED.

DANTE O. TINGA Associate

Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairman

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO
 Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been in

consultation before the case was assigned to the writer of the
opinion of the Courts Division.

REYNATO S. PUNO
Associate Justice
Chairman, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Division Chairmans Attestation, it is hereby certified that the
conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the
Courts Division.

HILARIO G. DAVIDE, JR.

Chief Justice

[1]G.R. No. 150773, Rollo, pp. 15-21.

 [2]Id.at 22-25. Elevated directly to this Court, it raising pure questions of
law, in accordance with Section 1, Rule 45, Rules of Court.

[3]Penned by Associate Justice Eubolo G. Verzola and concurred in by

Associate Justices Bernardo P. Abesamis and Josefina Guevara-Salonga. G.R.
No. 153599, Rollo, pp. 22-26.

[4]G.R. No. 153599, Rollo, p.30.

[5] Id. at 38-40.

[6]359 Phil. 820 (1998).

[7]G.R. No. 150773, Rollo, p.10.

[8]Supra note 6.

[9]Ibid.
Citing Ibarra v. Averyro, 37 Phil. 274 (1917); Almeda v. Court of
Appeals, 326 Phil. 309 (1998).

[10]412 Phil. 816 (2001).

[11]G.R. No. 149004, 14 April 2004, 427 SCRA 517.

[12]G.R. No. 146942, 22 April 2003, 401 SCRA 410.

[13]G.R. No. 158382, 27 January 2004, 421 SCRA 278.

[14]G.R. No. 145794, 26 January 2005, 449 SCRA 284.

 [15]G.R. No. 150773, Rollo, p. 18.

[16]Naguiatv. Court of Appeals, G.R. No. 118375, 3 October 2003, 412

SCRA 591, citing China Banking Corporation v. Lichauco, 46 Phil. 460 (1926)
and Filipinas Marble Corp. v. Intermediate Appellate Court, 226 Phil. 109, 119
(1986).

[17]See H. DE LEON, COMMENTS AND CASES ON CREDIT

TRANSACTIONS (2002 ed.), at 95, citing Sebastian v. Bautista [CA] 58 O.G. No.
15, 3147; People v. Masangkay, [CA] 58 O.G. No. 17, 3565; Torres v. Joco, [CA]
59 O.G. No. 10, 1580.

[18]148-B Phil. 881 (1971).

[19]Id. at 891-893. Emphasis supplied.

[20]See Article 1410, Civil Code.

[21]Coso v. Fernandez Deza, 42 Phil. 595 (1921).

[22]G.R. No. 150773, Rollo, p. 20.

[23]Section 4, Rule 65, Rules of Court.

[24]Sto. Tomas Hospital v. Surla, 355 Phil. 804 (1998), citing Investments,
Inc. vs. Court of Appeals, L-60036, 27 January 1987, 147 SCRA 334; Denso
Phils. Inc. v. Intermediate Appellate Court, L-75000, 27 February 1987, 148
SCRA 280; Bairan v. Tan Siu Lay, 125 Phil. 371 (1966).

[25]Yamaoka v. Pescarich, 414 Phil. 211 (2001); Go v. Court of Appeals,

358 Phil. 214 (1998). [T]he proper remedy in such cases is an ordinary appeal
from an adverse judgment on the merits, incorporating in said appeal the
grounds for assailing the interlocutory orders. Allowing appeals from
interlocutory orders would result in the sorry spectacle of a case being subject
of a counterproductive ping-pong to and from the appellate court as often as a
trial court is perceived to have made an error in any of its interlocutory
rulings. However, where the assailed order is patently erroneous and the
remedy of appeal would not afford adequate and expeditious relief, the Court
may allow certiorari as a mode of redress.

[26]F. David Enterprises v. Insular Bank of Asia and America, G.R. No. 78714, 21
November 1990, 191 SCRA 516; Primetown Property Group v. Juntilla, G.R. No. 157801, 8
June 2005; Santiago v. Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March
2005; DBP v. Gatal, G.R. No. 138567, 4 March 2005; Mamerto Maniquis Foundation v. Pizarro,
A.M. No. RTJ-03-1750, 14 January 2005, 448 SCRA 140; De Vera v. Agloro, G.R. No. 155673,
14 January 2005, 448 SCRA 203, citing China Banking Corporation v. Ordinario, G.R. No.
121943, 24 March 2003, 399 SCRA 430; A.G. Development Corporation v. Court of Appeals,
346 Phil. 136 (1997); Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160 (1999);
Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005, 450 SCRA 396, citing Samson,
et al. v. Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428 SCRA 759.

[27]Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v.
Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v. Gatal, G.R.
No. 138567, 4 March 2005; Mamerto Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750,
14 January 2005, 448 SCRA 140; De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448
SCRA 203, citing China Banking Corporation v. Ordinario, G.R. No. 121943, 24 March 2003,
399 SCRA 430; A.G. Development Corporation v. Court of Appeals, 346 Phil. 136 (1997); Suico
Industrial Corporation v. Court of Appeals, 361 Phil. 160 (1999). Idolor v. Court of Appeals,
G.R. No. 161028, 31 January 2005, 450 SCRA 396, citing Samson, et al. v. Judge Rivera, et
al., G.R. No. 154355, 20 May 2004, 428 SCRA 759.

[28]Kho v. Court of Appeals, G.R. No. 83498, 22 October 1991, 203 SCRA
160; Veloso v. Intermediate Appellate Court, G.R. No. 73338, 21 January 1992,
205 SCRA 227.
SECOND DIVISION

[G.R. No. 115412. November 19, 1999]

HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner vs. COURT OF

APPEALS and FAR EAST BANK & TRUST COMPANY, respondents.

DECISION

BUENA , J.:

This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the
decisioni[1] of the Court of Appealsii[2] dated January 21, 1994 in CA-G.R. SP No. 29725,
dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the
Regional Trial Court of Makatiiii[3] in Civil Case No. 92-145, the first, dated April 30, 1992,
denying petitioner's motion to dismiss and the second, dated October 1, 1992 denying petitioner's
motion for reconsideration thereof.

The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in
Civil Case No. 92-145, 0issued Home Bankers Savings and Trust Company (HBSTC) check No.
193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust Company
(FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00 and
P8,100,000.00, respectively, the three checks amounting to P25,200,000.00. Tancuan and
Arriesgado exchanged each other's checks and deposited them with their respective banks for
collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it
for being "Drawn Against Insufficient Funds." On October 15, 1991, HBSTC sent Arriesgado's
three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC
but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received
the notice of dishonor on October 21, 1991 but refused to accept the checks and on October 22,
1991, returned them to FEBTC through the PCHC for the reason "Beyond Reglementary
Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared and
allowed the proceeds thereof to be withdrawn.iv[4] FEBTC demanded reimbursement for the
returned checks and inquired from HBSTC whether it had permitted any withdrawal of funds
against the unfunded checks and if so, on what date. HBSTC, however, refused to make any
reimbursement and to provide FEBTC with the needed information.

Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC
Arbitration Committee,v[5] under the PCHC's Supplementary Rules on Regional Clearing to
which FEBTC and HBSTC are bound as participants in the regional clearing operations
administered by the PCHC.vi[6]

On January 17, 1992, while the arbitration proceedings was still pending, FEBTC filed an action
for sum of money and damages with preliminary attachmentvii[7] against HBSTC, Robert Young,
Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A motion
to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and accordingly
should be dismissed because it seeks to enforce an arbitral award which as yet does not exist.viii[8] The
trial court issued an omnibus order dated April 30, 1992 denying the motion to dismiss and an order dated
October 1, 1992 denying the motion for reconsideration.

On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of
Appeals contending that the trial court acted with grave abuse of discretion amounting to lack of
jurisdiction in denying the motion to dismiss filed by HBSTC.

In a Decisionix[9] dated January 21, 1994, the respondent court dismissed the petition for lack of
merit and held that "FEBTC can reiterate its cause of action before the courts which it had
already raised in the arbitration case"x[10] after finding that the complaint filed by FEBTC "seeks
to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an arbitral
award."xi[11] The respondent court observed that "[i]n the Complaint, FEBTC applied for the
issuance of a writ of preliminary attachment over HBT's [HBSTC] property" xii[12] and citing
section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that
"[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT
[HBSTC],"xiii[13] and that "[t]his prayer for conservatory relief [writ of preliminary attachment]
satisfies the requirement of a cause of action which FEBTC may pursue in the courts."xiv[14]

Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the
cases of National Union Fire Insurance Company of Pittsburg vs. Slolt-Nielsen Philippines,
Inc.,xv[15] and Bengson vs. Chan,xvi[16] "when there is a condition requiring prior submission to
arbitration before the institution of a court action, the complaint is not to be dismissed but should
be suspended for arbitration."xvii[17] Finding no merit in HBSTC's contention that section 7 of
the Arbitration Law "contemplates a situation in which a party to an arbitration agreement has
filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has
initiated arbitration proceedings before filing a court action," the respondent court held that "if
the absence of a prior arbitration may stay court action, so too and with more reason, should an
arbitration already pending as obtains in this case stay the court action. A party to a pending
arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of
action although the disposal of that action on the merits cannot as yet be obtained."xviii[18] The
respondent court discarded Puromines, Inc. vs. Court of Appeals,xix[19] stating that "perhaps
Puromines may have been decided on a different factual basis."xx[20]

In the instant petition,xxi[21] petitioner contends that first, "no party litigant can file a non-
existent complaint,"xxii[22] arguing that "one cannot file a complaint in court over a subject that
is undergoing arbitration."xxiii[23] Second, petitioner submits that "[s]ince arbitration is a special
proceeding by a clear provision of law,xxiv[24] the civil suit filed below is, without a shadow of
doubt, barred by litis pendencia and should be dismissed de plano insofar as HBSTC is
concerned."xxv[25] Third, petitioner insists that "[w]hen arbitration is agreed upon and suit is
filed without arbitration having been held and terminated, the case that is filed should be
dismissed,"xxvi[26] citing Associated Bank vs. Court of Appeals,xxvii[27] Puromines, Inc. vs.
Court of Appeals,xxviii[28] and Ledesma vs. Court of Appeals.xxix[29] Petitioner demurs that the
Puromines ruling was deliberately not followed by the respondent court which claimed that:

"xxx xxx.

It would really be much easier for Us to rule to dismiss the complainant as the petitioners here
seeks to do, following Puromines. But with utmost deference to the Honorable Supreme Court,
perhaps Puromines may have been decided on a different factual basis.

xxx xxx."xxx[30]

Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse the
rulings in National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines,
Inc.,xxxi[31] and Bengson vs. Chan,xxxii[32] where this Court suspended the action filed pending arbitration, and
argues that "[s]ound policy requires that the conclusion of whether a Supreme Court decision has or has not reversed
or modified [a] previous doctrine, should be left to the Supreme Court itself; until then, the latest pronouncement
should prevail."xxxiii[33] Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court
is void considering that the case filed before it "is a separate action which cannot exist,"xxxiv[34] and "there is even
no need for the attachment as far as HBSTC is concerned because such automatic debit/credit procedurexxxv[35]
may be regarded as a security for the transactions involved and, as jurisprudence confirms, one requirement in the
issuance of an attachment [writ of preliminary attachment] is that the debtor has no sufficient security."xxxvi[36]
Petitioner asserts further that a writ of preliminary attachment is unwarranted because no ground exists for its
issuance. According to petitioner, "the only allegations against it [HBSTC] are that it refused to refund the amounts
of the checks of FEBTC and that it knew about the fraud perpetrated by the other defendants,"xxxvii[37] which, at
best, constitute only "incidental fraud" and not causal fraud which justifies the issuance of the writ of preliminary
attachment.

Private respondent FEBTC, on the other hand, contends that "the cause of action for collection
[of a sum of money] can coexist in the civil suit and the arbitration [proceeding]"xxxviii[38] citing
section 7 of the Arbitration Law which provides for the stay of the civil action until an arbitration
has been had in accordance with the terms of the agreement providing for arbitration. Private
respondent further asserts that following section 4(3), article VIIIxxxix[39]of the 1987
Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier cases
of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc.xl[40]
and Bengson vs. Chan,xli[41] hence, private respondents concludes that the prevailing doctrine is
that the civil action must be stayed rather than dismissed pending arbitration.

In this petition, the lone issue presented for the consideration of this Court is:

WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN

ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE
CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF
ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY
TO OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE
BANK, THE ADVERSE PARTY IN THE ARBITRATION PROCEEDINGS."xlii[42]

We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the
Arbitration Law, allows any party to the arbitration proceeding to petition the court to take
measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration, thus:

Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have the power to require
any person to attend a hearing as a witness. They shall have the power to subpoena witnesses and
documents when the relevancy of the testimony and the materiality thereof has been
demonstrated to the arbitrators. Arbitrators may also require the retirement of any witness during
the testimony of any other witness. All of the arbitrators appointed in any controversy must
attend all the hearings in that matter and hear all the allegations and proofs of the parties; but an
award by the majority of them is valid unless the concurrence of all of them is expressly required
in the submission or contract to arbitrate. The arbitrator or arbitrators shall have the power
at any time, before rendering the award, without prejudice to the rights of any party to
petition the court to take measures to safeguard and/or conserve any matter which is the
subject of the dispute in arbitration. (emphasis supplied)

Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply
grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before
rendering the award. The exercise of such power is without prejudice to the right of a party to
file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In
the case at bar, private respondent filed an action for a sum of money with prayer for a writ of
preliminary attachment. Undoubtedly, such action involved the same subject matter as that in
arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private
respondent in what is known in banking as a "kiting scheme." However, the civil action was not
a simple case of a money claim since private respondent has included a prayer for a writ of
preliminary attachment, which is sanctioned by section 14 of the Arbitration Law.

Petitioner cites the cases of Associated Bank vs. Court of Appeals,xliii[43] Puromines, Inc. vs.
Court of Appeals,xliv[44] and Ledesma vs. Court of Appealsxlv[45] in contending that "[w]hen
arbitration is agreed upon and suit is filed without arbitration having been held and terminated,
the case that is filed should be dismissed."xlvi[46] However, the said cases are not in point. In
Associated Bank, we affirmed the dismissal of the third-party complaint filed by Associated
Bank against Philippine Commercial International Bank, Far East Bank & Trust Company,
Security Bank and Trust Company and Citytrust Banking Corporation for lack of jurisdiction, it
being shown that the said parties were bound by the Clearing House Rules and Regulations on
Arbitration of the Philippine Clearing House Corporation. In Associated Bank, we declared that:
 "xxx xxx. Under the rules and regulations of the Philippine Clearing House Corporation
(PCHC), the mere act of participation of the parties concerned in its operations in effect
amounts to a manifestation of agreement by the parties to abide by its rules and
regulations. As a consequence of such participation, a party cannot invoke the
jurisdiction of the courts over disputes and controversies which fall under the
PCHC Rules and Regulations without first going through the arbitration processes
laid out by the body."xlvii[47] (emphasis supplied)

And thus we concluded:

"Clearly therefore, petitioner Associated Bank, by its voluntary participation and its
consent to the arbitration rules cannot go directly to the Regional Trial Court when
it finds it convenient to do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to all the parties in the third
party complaint under their obligation to first seek redress of their disputes and
grievances with the PCHC before going to the trial court."xlviii[48] (emphasis supplied)

Simply put, participants in the regional clearing operations of the Philippine Clearing House
Corporation cannot bypass the arbitration process laid out by the body and seek relief
directly from the courts. In the case at bar, undeniably, private respondent has initiated
arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration
has sought relief from the trial court for measures to safeguard and/or conserve the subject of the
dispute under arbitration, as sanctioned by section 14 of the Arbitration Law, and otherwise not
shown to be contrary to the PCHC rules and regulations.

Likewise, in the case of Puromines, Inc. vs. Court of Appeals,xlix[49] we have ruled that:

"In any case, whether the liability of respondent should be based on the sales contract or
that of the bill of lading, the parties are nevertheless obligated to respect the arbitration
provisions on the sales contract and/or bill of lading. Petitioner being a signatory and
party to the sales contract cannot escape from his obligation under the arbitration clause
as stated therein."

In Puromines, we found the arbitration clause stated in the sales contract to be valid and
applicable, thus, we ruled that the parties, being signatories to the sales contract, are obligated to
respect the arbitration provisions on the contract and cannot escape from such obligation by
filing an action for breach of contract in court without resorting first to arbitration, as agreed
upon by the parties.

At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is

encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes.l[50] The Court looks with favor upon such amicable
arrangement and will only interfere with great reluctance to anticipate or nullify the action of the
arbitrator.li[51]

WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the
court a quo is AFFIRMED.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ. concur.

SECOND DIVISION

[G.R. No. 154489. July 25, 2003]

FAR EAST BANK AND TRUST COMPANY (FEBTC) and/or BANK OF THE PHILIPPINE
ISLANDS, petitioners, vs. SPOUSES ROMULO PLAZA and WILMA PLAZA, respondents.

DECISION

BELLOSILLO, J.:

One Charlie Ang obtained from petitioners a loan of P2,158,000.00 using as collateral a piece of
land owned by respondent-spouses; hence the mortgage to petitioners. Ang later obtained more
loans from petitioners covered by promissory notes amounting to P4,800,000.00. When Ang
failed to pay the loans upon maturity, petitioners started proceedings to foreclose the mortgage.
Respondent-spouses offered to pay the mortgage indebtedness of P2,158,000.00 but petitioners
refused to accept payment unless respondents assumed the other obligations of Ang with
petitioners.

Respondents filed a civil action against petitioner banks and Charlie Ang for release of the real
estate mortgage and damages with prayer for temporary restraining order and issuance of writ of
injunction. Petitioners filed a motion to dismiss the complaint on the ground of lack of
jurisdiction for non-payment of docket fees. Petitioners alleged that the action to enjoin
foreclosure of mortgage was a real action and there was no showing that the docket fees were
paid based on the assessed or estimated value of the real property involved. The Regional Trial
Court of Cebu City denied the Motion to Dismiss as well as petitioners Motion for
Reconsideration. Petitioners filed a petition for certiorari before the Court of Appeals. The
appellate court dismissed the petition and petitioners motion for reconsideration. Petitioners then
filed this petition for review.

On 3 March 2003, the trial court issued a writ of preliminary injunction enjoining petitioners
from foreclosing the mortgage while the case before it was pending. The trial court also denied
petitioners motion for reconsideration of the 3 March 2003 Order.

In the meantime, the civil case before the trial court proceeded to the pre-trial stage where
petitioners expressed their willingness to await any written offer to pay by respondents.
Respondents sent a formal letter to petitioners offering to pay the amount of P2,158,000.00 and
asking the release of the real estate mortgage. They enclosed a cashiers check in the amount of
P2,158,000.00. Petitioners accepted the check only as partial payment without prejudice to the
remaining balance of the loans. Respondents now insist that they have already paid the loans in
full and that petitioners should release the mortgage in view of the payment.

Petitioners maintain that the civil action filed by respondents for the release of the mortgage is a
real action, not a personal action of specific performance because it involves title to real property
or any interest therein. It is allegedly a real action since the ultimate objective of the civil action
involves recovery of ownership of the real property. Since it is a real action, petitioners assert
that the trial court did not acquire jurisdiction over the case due to non-payment of the prescribed
docket fees.

Respondents contend on the other hand that the civil case is a personal one as it involves a
cancellation of real estate mortgage, citing Hernandez v. Rural Bank of Lucena.81[1] Respondents
primary action is to compel acceptance of their payment of the mortgage debt and not necessarily
to enjoin foreclosure. Petitioners already accepted the payment of P2,158,000.00 but the
mortgage has not been released. Respondents title to the property is not also in question and

81[1] No. L-29791, 10 January 1978, 81 SCRA 75.

respondents are still in peaceful, actual and physical possession of the realty. Since title to
property is not involved, it is a personal action.

The Court of Appeals did not commit any reversible error. The action filed by respondent-
spouses before the RTC is a personal action. An action to compel the mortgagee to accept
payment and for the consequent cancellation of a real estate mortgage is a personal action if the
mortgagee has not foreclosed the mortgage and the mortgagor is in possession of the premises
since neither the mortgagors title to nor possession of the property is in question.82[2]

Contrary to petitioners contention, respondents do not question the validity of the real estate
mortgage they entered into. In fact they uphold its validity since they are willing to pay their
obligation under the contract after which the contract should then be declared without legal
effect. Also, there is as yet no transfer of title from respondents to petitioners. Respondents
maintain that the title remains in their name and they are still in actual physical possession of the
property. There is no foreclosure yet of the mortgage. Hence, there is no title to the land to be
affected by the action.

There is also the issue of whether the real estate mortgage secured only the loan of
P2,158,000.00 or it also secured the other loans subsequently obtained by Ang from petitioners.
Petitioners argue that the mortgage is a continuing security for the loans obtained by Ang
subsequent to the principal amount of P2,158,000.00. Respondents counter that they limited
themselves to repay petitioners to the extent only of P2,158,000.00 and no more. Respondents
admit in their Comment that this question could be properly ventilated in the trial court where the
civil suit is pending, but since this is raised in connection with the petition at bar, they are willing
to have the matter resolved now.

Considering that the civil suit is still before the trial court and conformably with its Order of 17
March 2003 where the issue is raised therein, it would not be proper to resolve it here. Any
ruling thereon would be premature. Moreover, there may be evidence aside from the
contract/mortgage deed that may be presented by the parties in the trial court to support their
respective contentions.

WHEREFORE, there being no reversible error committed by the Court of Appeals, the petition
is DENIED.

SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.

Supra; reiterated in Carandang v. Court of Appeals, No. L-44932, 15 April 1988, 160 SCRA
82[2]
266, 271.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 170785 October 19, 2007

REPUBLIC PLANTERS BANK (now known as MAYBANK PHILIPPINES, INC.) and

PHILMAY PROPERTY, INC., petitioners,
vs.
VIVENCIO T. SARMIENTO, JESUSA N. SARMIENTO, JOSE N. SARMIENTO AND
ELIZABETH B. SARMIENTO, respondents.

DECISION

TINGA, J.:

This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the
Decision1 of the Court of Appeals in CA-G.R. CV No. 74451. The Court of Appeals decision
affirmed the decision2 of the Regional Trial Court (RTC) of Paraaque City, Branch 258, which
ordered petitioner Maybank Philippines, Inc. (Maybank) to execute in favor of respondents a
deed of redemption covering two pieces of mortgaged realty and rescinded the deeds of sale
executed by Maybank in favor of petitioner Philmay Property, Inc. (Philmay) and Clara Fabra
(Fabra).

As found by the Court of Appeals, the factual antecedents are as follows:

On 13 March 1979, respondents spouses Vivencio and Jesusa Sarmiento, their son, Jose, and the
latters spouse, Elizabeth, executed a promissory note, obligating themselves to pay Maybank,
then known as Republic Planters Bank, the amount of P80,000.00 due 360 days after date plus
interest at the rate of 12 percent per annum.3

Earlier, on 9 March 1979, all four respondents executed a Real Estate Mortgage over two parcels
of land covered by OCT No. 5781 and TCT No. 145850 and registered under the names of
respondents Jesusa and Jose, respectively. The mortgage secured the payment of the principal
loan of P80,000.00 and all other obligations, overdrafts and other credit accommodations
obtained and those that may be obtained in the future from Maybank.4

On 8 April 1980, Vivencio for himself and as attorney-in-fact of Jesusa and Jose, executed a
promissory note in which he undertook to pay the amount of P100,000.00 plus 14% interest per
annum on or before April 1981.5 In the same month, all four respondents executed an
amendment to the real estate mortgage changing the consideration of the mortgage from
P80,000.00 to P100,000.00 but adopting all the terms and conditions of the previous mortgage as
integral parts of the later one.6

Vivencio was the owner of V. Sarmiento Rattan Furniture, a sole proprietorship engaged in
export business. On various occasions in 1981, he incurred loan obligations from Maybank by
way of export advances. As of 08 September 1982, the debts incurred under the export bills
transactions totaled P1,281,748.03.

On 3 September 1981, Vivencio, Jose and Elizabeth executed a Suretyship Agreement,7 whereby
they agreed to be solidarily liable with V. Sarmiento Rattan Furniture for the payment of
P100,000.00 plus all obligations which the latter incurred or would incur from Maybank.

Respondents defaulted in the payment of the export advances, prompting Maybank to institute an
extrajudicial foreclosure of the real estate mortgage on 9 November 1982. At the foreclosure
sale, Maybank was awarded the property for its bid of P254,000.00 and issued a certificate of
sale. The certificate of sale was registered with the Register of Deeds on 04 March 1983.8

Maricel Sarmiento, sister of respondent Jose, purchased a managers check from Maybank in the
amount of P300,000.00 on 21 July 1983.9 A week later, respondent Jesusa deposited the amount
of P12,000.00.10 Maybank treated the total amount of P312,000.00 as a deposit and did not grant
respondents request for certificate of redemption releasing the foreclosed property. Sometime in
November 1983, Maybank demanded the payment of all outstanding loans under the export bills
transactions. On 3 December 1983, respondents tendered the amount of P302,333.33 in the name
of V. Sarmiento Rattan Furniture.

On 4 July 1990, Maybank consolidated its ownership over the foreclosed property. On 12
November 1997, Maybank and Philmay executed a deed of absolute sale, transferring ownership
of the foreclosed property to the latter. On 15 July 1998, Philmay sold the same to Fabra.

On 3 September 1998, respondents Vivencio and Jose instituted an action for specific
performance against Maybank, Philmay and Fabra. The Complaint,11 docketed as Civil Case No.
98-0323, prayed for judgment directing Maybank to execute a deed of redemption in favor of
respondents and revoking the subsequent sale of the property to Philmay and Fabra. During the
pendency of the trial, Fabra died and was substituted by Kim Caro as the legal representative of
the formers heirs.

On 8 January 2002, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, viewed in the light of the foregoing, the plaintiffs having been able to
preponderantly prove their case against the defendants, judgment for specific
performance is hereby rendered ordering defendant Maybank to execute in favor of the
plaintiffs a Deed of Redemption covering the two (2) parcels of land formerly embraced
in and covered by Transfer Certificates of Title Nos. 5281 and 145850 of the Register of
Deeds of the City of Paraaque together with all the improvements existing thereon free
from all liens and encumbrances and once accomplished, to immediately deliver the said
document to plaintiffs.

Likewise, the Deed of Sale executed by Republic Planters Bank, now Maybank, in favor
of Philmay Property, Inc., and thereafter, from Philmay Property, Inc. to Clara Fabra, are
hereby revoked and rescinded as well as Certificate of Title No. 139161 registered in the
latters name for being null and void.

So also, Phimay Property is hereby directed to reimburse Clara Fabra, now represented
by Kim Caro, the amount of P4,200,000.00[,] representing the purchase price of the
property plus interest thereon at the legal rate computed from the filing of the complaint
until fully paid.

Defendants are likewise ordered to pay plaintiffs jointly and severally the following, to
wit:

1. The amount of P100,000.00 as moral damages;

2. The amount of P50,000.00 as exemplary damages;

3. The amount of P100,000.00 as and by way of attorneys fees; and

4. The cost of suit.

The counterclaims of the defendants are DISMISSED.

SO ORDERED.12
The RTC based its finding that respondents were able to tender to Maybank within the
redemption period the redemption price of P312,000.00 on the testimony of respondent Jose on
and the official bank receipts evidencing the separate payments totaling said amount made by
Maricel Sarmiento and respondent Jesusa. Upon this finding, the trial court held that Maybank
had no justifiable legal reason to refuse the execution of documents reconveying the titles of the
mortgaged property to respondents. Thus, the trial court concluded that the subsequent transfers
of the mortgaged property to Philmay and then to Fabra were void because Maybank had not
acquired any rights thereto in the first place. The trial court, however, declared Fabra as a
purchaser in good faith and, therefore, entitled to reimbursement of the purchase price.

The RTC rejected Maybanks defense that the suretyship agreement signed by respondents
Vivencio, Jose and Elizabeth also constituted the mortgaged property as security for the export
advances incurred in the name of V. Sarmiento Rattan Furniture because the real estate mortgage
documents were signed by respondents in their personal capacity, whereas the suretyship
agreement was signed by Vivencio in his capacity as manager of V. Sarmiento Rattan Furniture.
The trial court noted that the suretyship agreement was not even annotated in the titles of the
mortgaged property.

On 12 December 2005, the Court of Appeals rendered the assailed Decision affirming the trial
courts judgment, particularly the latters finding that respondents made a valid tender of the
redemption price and that the export advances in the name of V. Sarmiento Rattan Furniture did
not belong to the species of obligations secured by the real estate mortgage. Furthermore, the
appellate court construed as a contract of adhesion the proviso in the mortgage contract that
included "interest and expenses or any other obligation owing to the Mortgagee, whether direct
or indirect, principal or secondary, as appears in the accounts, books and records of the
Mortgagee."13 Describing the same as a "dragnet clause," the appellate court held that it should
be carefully scrutinized and strictly construed.

Only petitioners Maybank and Philmay appealed from the decision of the Court of Appeals. In
the instant petition, they raise the following arguments:

THE TRIAL COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT
PETITIONERS HAVE PROPERLY REDEEMED THE FORECLOSED PROPERTIES.

THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT TREATING

RESPONDENTS EXPORT ADVANCES AS SECURED BY THE REAL ESTATE
MORTGAGE AND THUS SHOULD ALSO BE PAID.

THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT RULING THAT
THE RESPONDENTS CLAIM IS ALREADY BARRED BY LACHES.

THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT CONSIDERING

AND FINDING THAT PHILMAY AND DEFENDANT CLARA FABRA ARE
BUYERS IN GOOD FAITH.

THE LOWER COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT
MAYBANK ACTED IN BAD FAITH.

RESPONDENTS ARE NOT ENTITLED TO MORAL AND EXEMPLARY

DAMAGES AS WELL AS ATTORNEYS FEES.14

In a nutshell, the instant petition raises the issue of whether the deposits made by respondents
constituted a valid tender of the redemption price. Essential to the resolution of this issue is the
determination of the amount of indebtedness that respondents were legally obligated to satisfy in
order to consider the payment thereof as a valid redemption of the foreclosed property.
Maybank argues that respondents outstanding obligation amounted to more than P1 million as
of the date of the foreclosure sale. Hence, the tender by respondents of an amount less than that
did not constitute a valid redemption of the foreclosed property. For their part, respondents
contend that the factual finding of both the trial court and the Court of Appeals to the effect that
they were able to make a valid tender of the redemption price, is binding on this Court.

The petition is meritorious.

The crux of the controversy pertains not to the amount of redemption price tendered by
respondents but rather to the sufficiency of the amount tendered that would warrant the
redemption of the foreclosed property. The determination of whether the amount tendered by
respondents was enough to redeem the foreclosed property calls for the ascertainment of the
liabilities covered and secured by the mortgage based on the text of the mortgage deed. Both the
trial court and the appellate court concurred in concluding that the export advances obtained by
respondent Vivencio from Maybank did not belong to the species of obligations secured by the
mortgage and that, hence, respondents tender of an amount exceeding the principal loan of
P100,000.00 was sufficient. Whether or not this conclusion is correct is a question of law15 that
is within the purview of a Rule 45 petition.

The real estate mortgage provides:

xxx

That, for and in consideration of certain loans, overdrafts and other credit
accommodations obtained from the Mortgagee, and to secure the payment of the same
and those that may hereafter be obtained, the principal of all of which is hereby fixed
as EIGHTY THOUSAND ONLY Pesos (P80,000.00), Philippine Currency, as well as
those that the Mortgagee may extend to the Mortgagor, including interest and
expenses or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary, as appears in the accounts, books and records of the Mortgagee,
the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee,
its successor or assigns, the parcels of land which are described in the list inserted on the
back of this document, and/or appended hereto; x x x (Emphasis supplied)16

The aforementioned clause is a "blanket mortgage clause." A blanket mortgage clause, also
known as a dragnet clause in American jurisprudence, is one that is specifically phrased to
subsume all debts of past or 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 closing costs, costs of extra legal services, recording fees, etc.17

It is basic in the interpretation and construction of contracts that the literal meaning of the
stipulations shall control if the terms of the contract are clear and leave no doubt on the intention
of the contracting parties.18 It is only when the words appear to contravene the evident intention
of the parties that the latter shall prevail over the former. The real nature of a contract may be
determined from the express terms of the agreement and from the contemporaneous and
subsequent acts of the parties thereto.19

Although at the time of the execution of the real estate mortgage the export advances had not yet
been incurred and the principal obligation was fixed at P80,000.00 and thereafter amended to
P100,000.00, the express tenor of the mortgage contract contemplated the inclusion of future
loans and obligations obtained from Maybank to be secured by the mortgaged property. Nothing
in the mortgage contract would suggest that the parties actually intended to limit the security to
only the principal amount of the loan fixed therein. The stipulations of the mortgage contract
being clear, there is no necessity to ascertain the real intention of the parties. Be that as it may,
nothing in the records would reveal that by the parties acts contemporaneous and subsequent to
the execution of the real estate mortgage, they intended to be bound by terms and conditions
other than those provided in the mortgage contract.

The trial court reached the conclusion that the export advances were excluded from the security
of the real estate mortgage based on the theory that respondent Vivencio agreed to be bound as
surety for the payment of the export advances in his capacity as manager of V. Sarmiento Rattan
Furniture, whereas he signed the real estate mortgage in his personal capacity.

This theory is defensible if V. Sarmiento Rattan Furniture were a corporation having a

personality distinct and separate from its corporate officers and Vivencio signed merely as a
corporate representative of V. Sarmiento Rattan Furniture. Even then, a corporate officer may
still be held personally liable for the debts of the corporation if he bound himself to pay the debt
of the corporation under a separate contract of surety or guaranty.

For its part, the Court of Appeals opined that the dragnet clause in the subject real estate
mortgage should be strictly construed and, therefore, the subsequent export advances obtained
from Maybank should not be included in the obligation secured by the mortgage contract.

It is well settled that mortgages given to secure future advancements or loans are valid and legal
contracts, and that 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 gathered.20 A mortgage given to secure
advancements is a continuing security and is not discharged by repayment of the amount named
in the mortgage, until the full amount of the advancements is paid.21

At the time of the foreclosure sale of the mortgaged property, the outstanding obligation arising
from the export bills transactions had already amounted to more than P1 million. In accordance
with Section 78 of the General Banking Act, as amended,22 then governing the foreclosure of the
mortgaged property, redemption may only be made by paying the amount due under the
mortgage deed within one year from the sale of the property. Since respondents failed to satisfy
the full amount of the indebtedness to Maybank, the latter was justified in refusing to grant
respondents demand for redemption of the foreclosed property.

WHEREFORE, the instant petition for review on certiorari is GRANTED and the Decision of
the Court of Appeals in CA-G.R. CV No. 74451 is hereby REVERSED and SET ASIDE. The
complaint in Civil Case No. 98-0323 before the Regional Trial Court, Branch 258, Paraaque
City is DISMISSED. Costs against respondents.

SO ORDERED.

Quisumbing, Carpio, Carpio-Morales, Velasco, Jr., JJ., concur.

Footnotes
1
Rollo, pp. 44-49. Penned by Associate Justice Eliezer R. De Los Santos, and concurred
in by Associate Justices Eugenio S. Labitoria and Jose C. Reyes, Jr.
2
Id. at 50-61.
3
Records, Vol. 1, p. 39.
4
Rollo, pp. 79-82.
5
Records, Vol. 1, p. 44.
6
Id. at 45.
7
Rollo, pp. 105-106.
8
Id. at 23.
9
Records, Vol. 1, p. 260.
10
Id.
11
Records, Vol. 1, pp. 1-6.
12
Rollo, pp. 60-61.
13
Id. at 48.
14
Id. at 26-38.
15
There is a question of law when the issue does not call for an examination of the
probative value of evidence presented, the truth or falsehood of facts being admitted and
the doubt concerns the correct application of law and jurisprudence on the matter. On the
other hand, there is a question of fact when the doubt or controversy arises as to the truth
or falsity of the alleged facts. When there is no dispute as to fact, the question of whether
or not the conclusion drawn therefrom is correct is a question of law. Gomez v. Sta. Ines,
G.R. No. 132537, 14 October 2005, 473 SCRA 25, 37.
16
Rollo, p. 79.
17
Prudential Bank v. Alviar, G.R. No. 150197, 28 July 2005, 464 SCRA 353, 363.
18
Almira v. Court of Appeals, 447 Phil. 467, 477 (2003).
19
Dela Cruz v. Dela Cruz, G.R. No. 146222, January 15, 2004, 419 SCRA 648, 655.
20
China Banking Corporation v. Court of Appeals, 333 Phil. 158, 170 (1996).
21
Mojica v. Court of Appeals, G.R. No. 94247, 11 September 1991, 201 SCRA 517, 522.
22
SECTION 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of
any mortgage on real estate which is security for any loan granted before the passage of
this Act or under the provisions of this Act, the mortgagor or debtor whose real property
has been sold at public auction, judicially or extrajudicially, for the full or partial
payment of an obligation to any bank, banking or credit institution, within the purview of
this Act shall have the right, within one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem the property by paying the amount
fixed by the court in the order of execution, or the amount due under the mortgage deed,
as the case may be, with interest thereon at the rate specified in the mortgage, and all the
costs, and judicial and other expenses incurred by the bank or institution concerned by
reason of the execution and sale and as a result of the custody of said property less the
income received from the property. x x x Presidential Decree No. 1828 (1981), Sec. 78,
Amendments to R.A. No. 337 As Amended (General Banking Act).
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 167098 March 28, 2008

PHILIPPINE VETERANS BANK, Petitioner,

vs.
BENJAMIN MONILLAS, Respondent.

DECISION

NACHURA, J.:

Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the
November 3, 2004 Decision1 of the Regional Trial Court (RTC) of Santiago City, Branch 35 in
Civil Case No. 35-3123. Also assailed is the February 10, 2005 Order2 denying the motion for
the reconsideration of the challenged decision.

The antecedent facts and proceedings follow.

Respondent Benjamin Monillas and his brother, Ireneo, inherited from their father a parcel of
land covered by TCT No. T-53038. On May 21, 1973, respondent executed a deed of sale of his
share over the property to Ireneo under the latters representation that he would use the deed to
facilitate the procurement of a loan (with the Development Bank of the Philippines) for a
planned housing project on the land. Ireneo then caused the transfer of the title in his name, the
propertys subdivision into 308 lots, and the issuance of individual titles for the subdivided lots.3

In 1978, Ireneo mortgaged twenty-two (22) lots covered by TCT Nos. T-75517 to 75539, to
petitioner Philippine Veterans Bank (PVB). Three years thereafter or in 1981, respondent
instituted Civil Case No. 24-0047 before the RTC of Echague, Isabela, for the nullification of the
1973 deed of sale, the recovery of the property, and the payment of damages.4

While the case remained pending, PVB foreclosed the mortgage on June 2, 1984.5 In the
foreclosure sale, petitioner was the highest bidder.

Later, on March 21, 1985, respondent caused the annotation of notices of lis pendens relating to
the said civil case on the titles of the subdivided lots. On September 29, 1988, the RTC of
Echague rendered its decision in the said civil case declaring the 1973 deed as null and void,
cancelling the subsequent titles issued, and ordering the payment of damages. This ruling was
affirmed by the Court of Appeals on October 31, 1991 in CA-G.R. CV No. 23944. Per entry of
judgment, the case attained finality on November 29, 1991.6

On January 27, 1999, the Sheriffs Certificate of Sale and the Affidavit of Consolidation of
Ownership were annotated on TCT Nos. T-75517 to T-75539. The said titles were then cancelled
and new titles, TCT Nos. T-323794 to 323816, were issued in PVBs name on June 24, 2002.7

On April 10, 2003, respondent sued petitioner and the Register of Deeds of Isabela before the
RTC of Santiago City, Branch 35, for the cancellation of the mortgage, the invalidation of the
foreclosure, and the declaration of the nullity of the titles issued in petitioners name.8 The case
was docketed as Civil Case No. 35-3123.

After trial on the merits, the court rendered the assailed November 3, 2004 Decision9 ruling that
petitioner was bound by the outcome of Civil Case No. 24-0047 because notices of lis pendens
were annotated in the properties titles. The RTC rationalized that while the annotation of the
notices succeeded the registration of the mortgage, still the effect of the notices was that PVB
acquired knowledge of an impediment against its interest, and as a matter of fact, petitioner
ignored the notices and slept on its rights, as it did not intervene in the said civil case.10 The trial
court proceeded to dispose of the case as follows:

WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered in favor
of the plaintiff and against the defendant as follows:

1) DECLARING as null and void the mortgage contract between Ireneo Monillas, Jr. and
defendant Philippine Veterans Bank (PVB) over TCT Nos. T-75517 to T-75539,
inclusive;

2) DECLARING as null and void the foreclosure of the mortgage contract mentioned in
the preceding paragraph over the same properties;

3) DECLARING as null and void TCT Nos. T-323794 to T-323816, inclusive, in the
name of defendant Philippine Veterans Bank (PVB); and

4) ORDERING defendant Register of Deeds of Isabela (Ilagan and Santiago City Office)
to cancel TCT Nos. T-323794 to T-323816, inclusive, all in the name of defendant PVB,
and issue corresponding certificates of title thereto in the name of plaintiff Benjamin
Monillas, upon payment of required fees.

No other pronouncements.

SO ORDERED.11

Petitioners Motion for Reconsideration12 was later denied by the trial court in the likewise
challenged February 10, 2005 Order.13

Frustrated at these developments, petitioner filed before the Court the instant petition for review
on certiorari on the following grounds:

THE LOWER COURT DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN

ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS OF THE SUPREME
COURT.

I. It denied Philippine Veterans Bank the status of the mortgagee in good faith despite the
undisputed fact that defendant did not know of any infirmity whatsoever in the titles when they
were mortgaged.1avvphi1

II. It in effect gave a notice of lis pendens a retroactive effect contrary to the provision of the
Rules of Court that lis pendens only effects (sic) subsequent dealings.

III. It in effect made petitioner bound by a decision it was not a party (sic).14

Whether the prior registered mortgage and the already concluded foreclosure proceedings should
prevail over the subsequent annotation of the notices of lis pendens on the lot titles, is the central
question to be addressed by the Court in this case.

The petition is meritorious.

On the procedural issue raised, we declare that the instant petition, contrary to respondents
contention, is the correct remedy to question the challenged issuances. Under the Rules of Court,
a party may directly appeal to this Court from a decision of the trial court only on pure questions
of law.15 A question of law lies, on one hand, when the doubt or difference arises as to what the
law is on a certain set of facts; on the other hand, a question of fact exists when the doubt or
difference arises as to the truth or falsehood of the alleged facts.16 Here, the facts are not
disputed; the controversy merely relates to the correct application of the law or jurisprudence to
the undisputed facts.

On the merits of the petition, the Court rules that the prior registered mortgage of PVB and the
foreclosure proceedings already conducted prevail over respondents subsequent annotation of
the notices of lis pendens on the titles to the property. Settled in this jurisdiction is the doctrine
that a prior registration of a lien creates a preference;17 hence, the subsequent annotation of an
adverse claim cannot defeat the rights of the mortgagee, or the purchaser at the auction sale
whose rights were derived from a prior mortgage validly registered. A contrary rule will make a
prior registration of a mortgage or any lien nugatory or meaningless.18 It may not be amiss to
point out, at this juncture, that the doctrine applies with greater force in this case considering that
the annotation of the notice of lis pendens was made not only after the registration of the
mortgage, but also, and much later, after the conclusion of the foreclosure sale. Furthermore, the
mortgagee itself, PVB, is the purchaser of the subject properties in the foreclosure sale.

The Court also notes that PVB is an innocent mortgagee for value. When the lots were
mortgaged to it by Ireneo, the titles thereto were in the latters name, and they showed neither
vice nor infirmity.19 In accepting the mortgage, petitioner was not required to make any further
investigation of the titles to the properties being given as security,20 and could rely entirely on
what is stated in the aforesaid titles.21 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, relied upon what appears on the face
of the certificate of title.22

PVB cannot even be considered to have slept on its rights when it only registered the Sheriffs
certificate of sale after the lapse of almost 15 years, because, as already discussed, it registered
its prior mortgage and had already foreclosed on the same. Petitioner, therefore, had every reason
to expect that its rights were amply protected. And the mortgagor was even benefited by this late
registration of the Sheriffs Sale, because then, he would still have a chance to redeem the
property. Laches, being a doctrine in equity, cannot be invoked to resist the enforcement of a
legal right.23 Furthermore, oft-repeated is the rule that the foreclosure sale retroacts to the date of
the registration of the mortgage.24 Thus, it no longer matters that the annotation of the sheriffs
certificate of sale and the affidavit of consolidation of ownership was made subsequent to the
annotation of the notice of lis pendens.

WHEREFORE, premises considered, the petition for review on certiorari is GRANTED. The
November 3, 2004 Decision and the February 10, 2005 Order of the RTC of Santiago City,
Branch 35, in Civil Case No. 35-3123, are hereby REVERSED AND SET ASIDE, and another
judgment is hereby rendered DISMISSING the complaint for lack of merit.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
Acting Chairperson

DANTE O. TINGA* MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice
 RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Acting Chairperson's
Attestation, it is hereby certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

Footnotes
*
In lieu of Associate Justice Consuelo Ynares-Santiago, per Special Order No. 497, dated
March 14, 2008.
1
Rollo, pp. 49-59.
2
Id. at 71.
3
Id. at 105.
4
Id.
5
Id. at 106.
6
Id.
7
Id.
8
Id. at 127.
9
Supra note 1.
10
Rollo, pp. 53-58.
11
Id. at 58-59.
12
Id. at 60-65
13
Supra note 2.
14
Rollo, pp. 14-15.
15
See RULES OF COURT, Rule 45, Sec. 1; see Mendoza v. Salinas, G.R. No. 152827,
February 6, 2007, 514 SCRA 414, 418-419, in which the Court ruled that direct resort to
the Supreme Court (from a decision of the trial court) may be had when the issue
involves a pure question of law. Rule 45, Section 1 of the Rules of Court authorizes such
procedure. The principle of hierarchy of courts further finds no application because the
remedy availed of is a petition for review on certiorari under Rule 45, not a petition for
certiorari under Rule 65.
16
Cebu Womens Club v. Hon. De la Victoria, 384 Phil. 264, 269 (2000); see Mendoza
v. Salinas, supra note 15, in which the Court further ruled that a question of law exists
when the doubt or controversy concerns the correct application of law or jurisprudence to
a certain set of facts; or when the issue does not call for an examination of the probative
value of the evidence presented, the truth or falsehood of facts being admitted. A question
of fact exists when the doubt or difference arises as to the truth or falsehood of facts or
when the query invites calibration of the whole evidence considering mainly the
credibility of the witnesses, the existence and relevancy of specific surrounding
circumstances, as well as their relation to each other and to the whole, and the probability
of the situation.
17
Lavides v. Pre, 419 Phil. 665, 672 (2001).
18
See Pineda v. Court of Appeals, 456 Phil. 732, 751-752 (2003); see also Gonzales v.
Intermediate Appellate Court, No. L-69622, January 29, 1988, 157 SCRA 587, 598 and
Bank of the Philippine Islands, v. Noblejas, 105 Phil. 418, 424 (1959), in which the Court
ruled that any subsequent lien or encumbrance annotated at the back of the certificates of
title can not in any way prejudice the mortgage previously registered, and the lots subject
thereto pass to the purchaser at the public auction sale free from any lien or encumbrance;
otherwise, the value of the mortgage can be easily destroyed by a subsequent record of an
adverse claim, for no one will purchase at a foreclosure sale if bound by the posterior
claim; but see Rehabilitation Finance Corp. v. Morales, 101 Phil. 171 (1957), in which
the Court held that, while the notice of lis pendens cannot affect the mortgagees right as
such because the same was annotated subsequent to the mortgage, yet the said notice
affects its right as purchaser because notice of lis pendens simply means that a certain
property is involved in a litigation and serves as a notice to the whole world that one who
buys the same does so at his own risk.
19
In Duran v. Intermediate Appellate Court, No. L-64159, September 10, 1985, 138
SCRA 489, 494, the Court, citing prior cases, stated that good faith requires a well-
founded belief that the person from whom title was received was himself the owner of the
land, with the right to convey it.
20
See Planters Development Bank v. Court of Appeals, G.R. No. 96357, May 29, 1991,
197 SCRA 698, 702; Mallorca v. Deocampo, 143 Phil. 17, 20 (1970).
21
La Urbana v. Bernardo, 62 Phil. 790, 800 (1936).
22
Cavite Development Bank v. Spouses Lim, 381 Phil. 355, 368 (2000).
23
Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 356, 371.
24
Bank of the Philippine Islands, v. Noblejas, supra note 18; Gonzales v. Intermediate
Appellate Court, supra note 18.
i[1] Penned by Justice Cezar D. Francisco and concurred in by Justices Manuel C. Herrera and
Cancio C. Garcia.

ii[2] Special Fifth Division.

iii[3] Branch 133. Presided by Judge Buenaventura J. Guerrero, now Associate Justice of the
Court of Appeals.

iv[4] Rollo, p. 128.

v[5] Docketed as PCHC Arbitration Case No. 91-069.

vi[6] Ibid., at p. 129.

vii[7] Docketed as Civil Case No. 92-145.

viii[8] Rollo, p. 131.

ix[9] Ibid., at p. 127.

x[10] Ibid., at p. 135.

xi[11] Ibid., at p. 131.

xii[12] Ibid., at p. 136.

xiii[13] Ibid.

xiv[14] Ibid, at p. 138.

xv[15] 184 SCRA 682 (1990).

xvi[16] 78 SCRA 113 (1977).

xvii[17] Rollo, p. 139.

xviii[18] Ibid., at p. 140.

xix[19] 220 SCRA 281 (1993).

xx[20] Rollo, p. 141.

xxi[21] Petitioner's memorandum was filed on February 17, 1995.

xxii[22] Rollo, p. 314.

xxiii[23] Ibid., at p. 315.

xxiv[24] Petitioner referring to section 22 of Republic Act No. 876.

xxv[25] Rollo, p. 318.

xxvi[26] Ibid.

xxvii[27] 233 SCRA 137 (1994).

xxviii[28] 220 SCRA 281 (1993).

xxix[29] 211 SCRA 753 (1992).

xxx[30] Rollo, p. 141.

xxxi[31] 184 SCRA 682 (1990).

xxxii[32] 78 SCRA 113 (1977).

xxxiii[33] Rollo, p. 320.

xxxiv[34] Ibid., at p. 323.

xxxv[35] Under the arbitration system of the PCHC, an award results in a mere automatic
debit/credit procedure.

xxxvi[36] Rollo, p. 324. Citation omitted.

xxxvii[37] Ibid.

xxxviii[38] Ibid., p. 278.

xxxix[39] Article VIII, section 4(3) provides:

"xxx xxx; Provided, that no doctrine or principle of law laid down by the court in a decision
rendered en banc or in division may be modified or reversed except by the court sitting en banc."

xl[40] 184 SCRA 682 (1990).

xli[41] 78 SCRA 113 (1977).

xlii[42] Rollo, pp. 310-311.

xliii[43] 233 SCRA 137 (1994).

xliv[44] 220 SCRA 281 (1993).

xlv[45] 211 SCRA 753 (1992). This case involves the application of the Katarungang
Pambarangay Law (P.D. 1508).

xlvi[46] Rollo, p. 318.

xlvii[47] Associated Bank vs. Court of Appeals, 233 SCRA 137, 142-143 (1994).

xlviii[48] Ibid., at p. 145.

xlix[49] 220 SCRA 281 (1993).

l[50] Allied Banking Corporation vs. Court of Appeals, 294 SCRA 803, 812 (1998).

li[51] Puromines, Inc. vs. Court of Appeals, 220 SCRA 281, 290 (1993).
 SECOND DIVISION
PRODUCERS BANK OF THE G.R. No. 152071

PHILIPPINES,

Petitioner,

Present:

CARPIO MORALES, J.*,

- versus- Acting Chairperson,

TINGA,

VELASCO, JR.,

LEONARDO-DE CASTRO, and**

EXCELSA INDUSTRIES, INC., BRION, JJ.

Respondent.

Promulgated:

May 8, 2009

x --------------------------------------------------------------------------------------x

DECISION

TINGA, J.:
 This is a petition for review on certiorarili[1] under Rule 43 of the 1997 Rules of Civil

Procedure, assailing the decisionli[2] and resolutionli[3] of the Court of Appeals in CA-G.R.

CV No. 59931. The Court of Appeals decisionli[4] 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 petitioners motion for
reconsideration.li[5]

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 Philippines
laws.li[6]

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, 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 outstanding.li[7]

Respondent executed the corresponding promissory notes evidencing the indebtedness.li[8]

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 Marikina.li[9]
 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 that he/it is the absolute owner, free from all liens and
encumbrances.li[10]

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 April 1987.li[11]

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. returned to petitioner the export documents.li[12]

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 account of the non-acceptance by the importer.li[13]
 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

P573,225.60li[14]

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 Sale in favor of petitioner as the highest bidder.li[15] The certificate

of sale was registered on 24 March 1988.li[16]

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 title in the name of petitioner.li[17]
 On 17 November 1989, respondent instituted an action for the annulment of the
extrajudicial foreclosure with prayer for preliminary 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 petitioner.li[18]

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 Civil Case No, 1587-A and LR Case No. 90-787.li[19]

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.

SO ORDERED.li[20]

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 accepted and paid in
accordance with their tenor.li[21]
 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
export advances from petitioner.li[22]

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 advances.li[23]

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
advances.li[24]

The RTC denied respondents motion for reconsideration.li[25] 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.

SO ORDERED.li[26]

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.

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

the personal notice requirement under paragraph 12li[27] 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 reconsiderationli[28] 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 not estopped from
questioning the foreclosure sale.li[29]

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 the general rule.li[30]

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 supplied)li[31]

In Velasquez v. Solidbank Corporation,li[32] 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 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 was dishonored for any reason by the
Bank of Seoul.li[33]

Thus, notwithstanding petitioners alleged failure to comply with the requirements of

notice of dishonor and protest under Sections 89li[34] and 152,li[35] 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 gathered.li[36]

In Union Bank of the Philippines v. Court of Appeals,li[37] 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
closing costs, costs of extra legal services, recording fees, et cetera.li[38]

xxx

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 12li[39] 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 saleli[40] was sent by

registered mail to respondent and received in due course.li[41] 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 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. 1587-A and LR Case No. 90-787 is REINSTATED.

SO ORDERED.

DANTE O. TINGA

Associate Justice
WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

Acting Chairperson

PRESBITERO J. VELASCO, JR. TERESITA LEONARDO DE-CASTRO

Associate Justice Associate Justice

ARTURO D. BRION

Associate Justice

ATTESTATION
 I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Division Acting Chairpersons Attestation, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 146322 December 6, 2006

ERNESTO RAMAS UYPITCHING and RAMAS UYPITCHING SONS, INC., petitioners,

vs.
ERNESTO QUIAMCO, respondent.

DECISION

CORONA, J.:

Honeste vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to injure
others and to give everyone his due. These supreme norms of justice are the underlying
principles of law and order in society. We reaffirm them in this petition for review on certiorari
assailing the July 26, 2000 decision1 and October 18, 2000 resolution of the Court of Appeals
(CA) in CA-G.R. CV No. 47571.

In 1982, respondent Ernesto C. Quiamco was approached by Juan Davalan,2 Josefino Gabutero
and Raul Generoso to amicably settle the civil aspect of a criminal case for robbery3 filed by
Quiamco against them. They surrendered to him a red Honda XL-100 motorcycle and a
photocopy of its certificate of registration. Respondent asked for the original certificate of
registration but the three accused never came to see him again. Meanwhile, the motorcycle was
parked in an open space inside respondents business establishment, Avesco-AVNE Enterprises,
where it was visible and accessible to the public.

It turned out that, in October 1981, the motorcycle had been sold on installment basis to
Gabutero by petitioner Ramas Uypitching Sons, Inc., a family-owned corporation managed by
petitioner Atty. Ernesto Ramas Uypitching. To secure its payment, the motorcycle was
mortgaged to petitioner corporation.4

When Gabutero could no longer pay the installments, Davalan assumed the obligation and
continued the payments. In September 1982, however, Davalan stopped paying the remaining
installments and told petitioner corporations collector, Wilfredo Verao, that the motorcycle had
allegedly been "taken by respondents men."

Nine years later, on January 26, 1991, petitioner Uypitching, accompanied by policemen,5 went
to Avesco-AVNE Enterprises to recover the motorcycle. The leader of the police team, P/Lt.
Arturo Vendiola, talked to the clerk in charge and asked for respondent. While P/Lt. Vendiola
and the clerk were talking, petitioner Uypitching paced back and forth inside the establishment
uttering "Quiamco is a thief of a motorcycle."

On learning that respondent was not in Avesco-AVNE Enterprises, the policemen left to look for
respondent in his residence while petitioner Uypitching stayed in the establishment to take
photographs of the motorcycle. Unable to find respondent, the policemen went back to Avesco-
AVNE Enterprises and, on petitioner Uypitchings instruction and over the clerks objection,
took the motorcycle.
On February 18, 1991, petitioner Uypitching filed a criminal complaint for qualified theft and/or
violation of the Anti-Fencing Law6 against respondent in the Office of the City Prosecutor of
Dumaguete City.7 Respondent moved for dismissal because the complaint did not charge an
offense as he had neither stolen nor bought the motorcycle. The Office of the City Prosecutor
dismissed the complaint8 and denied petitioner Uypitchings subsequent motion for
reconsideration.

Respondent filed an action for damages against petitioners in the RTC of Dumaguete City,
Negros Oriental, Branch 37.9 He sought to hold the petitioners liable for the following: (1)
unlawful taking of the motorcycle; (2) utterance of a defamatory remark (that respondent was a
thief) and (3) precipitate filing of a baseless and malicious complaint. These acts humiliated and
embarrassed the respondent and injured his reputation and integrity.

On July 30, 1994, the trial court rendered a decision10 finding that petitioner Uypitching was
motivated with malice and ill will when he called respondent a thief, took the motorcycle in an
abusive manner and filed a baseless complaint for qualified theft and/or violation of the Anti-
Fencing Law. Petitioners acts were found to be contrary to Articles 1911 and 2012 of the Civil
Code. Hence, the trial court held petitioners liable to respondent for P500,000 moral damages,
P200,000 exemplary damages and P50,000 attorneys fees plus costs.

Petitioners appealed the RTC decision but the CA affirmed the trial courts decision with
modification, reducing the award of moral and exemplary damages to P300,000 and P100,000,
respectively.13 Petitioners sought reconsideration but it was denied. Thus, this petition.

In their petition and memorandum, petitioners submit that the sole (allegedly) issue to be
resolved here is whether the filing of a complaint for qualified theft and/or violation of the Anti-
Fencing Law in the Office of the City Prosecutor warranted the award of moral damages,
exemplary damages, attorneys fees and costs in favor of respondent.

Petitioners suggestion is misleading. They were held liable for damages not only for instituting
a groundless complaint against respondent but also for making a slanderous remark and for
taking the motorcycle from respondents establishment in an abusive manner.

Correctness of the Findings of the RTC and CA

As they never questioned the findings of the RTC and CA that malice and ill will attended not
only the public imputation of a crime to respondent14 but also the taking of the motorcycle,
petitioners were deemed to have accepted the correctness of such findings. This alone was
sufficient to hold petitioners liable for damages to respondent.

Nevertheless, to address petitioners concern, we also find that the trial and appellate courts
correctly ruled that the filing of the complaint was tainted with malice and bad faith. Petitioners
themselves in fact described their action as a "precipitate act."15 Petitioners were bent on
portraying respondent as a thief. In this connection, we quote with approval the following
findings of the RTC, as adopted by the CA:

x x x There was malice or ill-will [in filing the complaint before the City Prosecutors
Office] because Atty. Ernesto Ramas Uypitching knew or ought to have known as he is a
lawyer, that there was no probable cause at all for filing a criminal complaint for
qualified theft and fencing activity against [respondent]. Atty. Uypitching had no
personal knowledge that [respondent] stole the motorcycle in question. He was merely
told by his bill collector ([i.e.] the bill collector of Ramas Uypitching Sons, Inc.)[,]
Wilfredo Verao[,] that Juan Dabalan will [no longer] pay the remaining installment(s)
for the motorcycle because the motorcycle was taken by the men of [respondent]. It must
be noted that the term used by Wilfredo Verao in informing Atty. Ernesto Ramas
Uypitching of the refusal of Juan Dabalan to pay for the remaining installment was
 []taken[], not []unlawfully taken[] or stolen. Yet, despite the double hearsay, Atty.
Ernesto Ramas Uypitching not only executed the [complaint-affidavit] wherein he named
[respondent] as the suspect of the stolen motorcycle but also charged [respondent] of
qualified theft and fencing activity before the City [Prosecutors] Office of Dumaguete.
The absence of probable cause necessarily signifies the presence of malice. What is
deplorable in all these is that Juan Dabalan, the owner of the motorcycle, did not accuse
[respondent] or the latters men of stealing the motorcycle[,] much less bother[ed] to file
a case for qualified theft before the authorities. That Atty. Uypitchings act in charging
[respondent] with qualified theft and fencing activity is tainted with malice is also shown
by his answer to the question of Cupid Gonzaga16 [during one of their conversations] -
"why should you still file a complaint? You have already recovered the motorcycle"[:]
"Aron motagam ang kawatan ug motor." ("To teach a lesson to the thief of
motorcycle.")17

Moreover, the existence of malice, ill will or bad faith is a factual matter. As a rule, findings of
fact of the trial court, when affirmed by the appellate court, are conclusive on this Court. We see
no compelling reason to reverse the findings of the RTC and the CA.

Petitioners Abused Their Right of Recovery as Mortgagee(s)

Petitioners claim that they should not be held liable for petitioner corporations exercise of its
right as seller-mortgagee to recover the mortgaged vehicle preliminary to the enforcement of its
right to foreclose on the mortgage in case of default. They are clearly mistaken.

True, a mortgagee may take steps to recover the mortgaged property to enable it to enforce or
protect its foreclosure right thereon. There is, however, a well-defined procedure for the recovery
of possession of mortgaged property: if a mortgagee is unable to obtain possession of a
mortgaged property for its sale on foreclosure, he must bring a civil action either to recover such
possession as a preliminary step to the sale, or to obtain judicial foreclosure.18

Petitioner corporation failed to bring the proper civil action necessary to acquire legal possession
of the motorcycle. Instead, petitioner Uypitching descended on respondents establishment with
his policemen and ordered the seizure of the motorcycle without a search warrant or court order.
Worse, in the course of the illegal seizure of the motorcycle, petitioner Uypitching even mouthed
a slanderous statement.

No doubt, petitioner corporation, acting through its co-petitioner Uypitching, blatantly

disregarded the lawful procedure for the enforcement of its right, to the prejudice of respondent.
Petitioners acts violated the law as well as public morals, and transgressed the proper norms of
human relations.

The basic principle of human relations, embodied in Article 19 of the Civil Code, provides:

Art. 19. Every person must in the exercise of his rights and in the performance of his
duties, act with justice, give every one his due, and observe honesty and good faith.

Article 19, also known as the "principle of abuse of right," prescribes that a person should not
use his right unjustly or contrary to honesty and good faith, otherwise he opens himself to
liability.19 It seeks to preclude the use of, or the tendency to use, a legal right (or duty) as a
means to unjust ends.

There is an abuse of right when it is exercised solely to prejudice or injure another.20 The
exercise of a right must be in accordance with the purpose for which it was established and must
not be excessive or unduly harsh; there must be no intention to harm another.21 Otherwise,
liability for damages to the injured party will attach.
In this case, the manner by which the motorcycle was taken at petitioners instance was not only
attended by bad faith but also contrary to the procedure laid down by law. Considered in
conjunction with the defamatory statement, petitioners exercise of the right to recover the
mortgaged vehicle was utterly prejudicial and injurious to respondent. On the other hand, the
precipitate act of filing an unfounded complaint could not in any way be considered to be in
accordance with the purpose for which the right to prosecute a crime was established. Thus, the
totality of petitioners actions showed a calculated design to embarrass, humiliate and publicly
ridicule respondent. Petitioners acted in an excessively harsh fashion to the prejudice of
respondent. Contrary to law, petitioners willfully caused damage to respondent. Hence, they
should indemnify him.22

WHEREFORE, the petition is hereby DENIED. The July 26, 2000 decision and October 18,
2000 resolution of the Court of Appeals in CA-G.R. CV No. 47571 are AFFIRMED.

Triple costs against petitioners, considering that petitioner Ernesto Ramas Uypitching is a lawyer
and an officer of the court, for his improper behavior.

SO ORDERED.

Puno, J., Chairperson, Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.

Footnotes
1
Penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Presiding
Justice Salome A. Montoya (retired) and Associate Justice Romeo J. Callejo, Sr. (now a
member of the Supreme Court) of the First Division of the Court of Appeals; rollo, pp.
26-36.
2
"Juan Dabalan" in some parts of the records.
3
The case was filed in the Regional Trial Court (RTC) of Negros Oriental, Dumaguete
City, Branch 31 where it was docketed as Criminal Case No. 5630. On March 3, 1986,
the trial court (through Judge Rolando R. Villaraza) convicted Davalan and Generoso and
acquitted Gabutero.
4
The certificate of registration issued to Gabutero bore the notation "Mortgaged."
5
These policemen were P/Lt. Arturo Vendiola, Pfc. Damiola, Capt. Tayco, Pat. Romeo
Tan and Pat. Catigtig.
6
Presidential Decree No. 1612.
7
Docketed as I.S. No. 91-74.
8
Resolution dated June 14, 1991; rollo, pp. 147-151.
9
Presided by Judge Temistocles B. Diez. The case was docketed as Civil Case No.
10492.
10
Penned by Judge Temistocles B. Diez.
11
Art. 19. Every person must in the exercise of his rights and in the performance of his
duties, act with justice, give every one his due, and observe honesty and good faith.
12
Art. 20. Every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
13
The modification was based on the principle that moral and exemplary damages are not
imposed to enrich a party.
14
In fact, malice is presumed from a defamatory imputation.
15
Petition, p. 5; rollo, p.17.
16
One of respondents witnesses.
17
CA Decision, supra note 1.
18
Filinvest Credit Corporation v. Court of Appeals, G.R. No. 115902, 27 September
1995, 248 SCRA 549.
19
Hongkong Shanghai Banking Corporation, Ltd. v. Catalan, G.R. Nos. 159590-91, 18
October 2004, 440 SCRA 498.
20
Id.
21
Id.
22
Civil Code, Art. 20.
FIRST DIVISION

CONSUELO METAL G.R. No. 152580

CORPORATION,

Petitioner,

Present:

PUNO, C.J., Chairperson,

- versus - CARPIO,

CORONA,

AZCUNA, and

LEONARDO-DE CASTRO, JJ.

PLANTERS DEVELOPMENT

BANK and ATTY. JESUSA PRADO- Promulgated:

MANINGAS, in her capacity as

Ex-officio Sheriff of Manila,

Respondents. June 26, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO, J.:

The Case

This is a petition for review[1] seeking to reverse the 14 December 2001 Decision[2] and the 6
March 2002 Resolution[3] 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) petition for certiorari and affirmed the 25 April 2001 Order[4] 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 under Section 5(d) of Presidential Decree No. 902-A.[5] 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, tribunal, office, board, body and/or commission are deemed
suspended immediately until further order from the SEC.[6]

In an Order dated 13 September 1999, the SEC directed the creation of a management committee
to undertake CMCs rehabilitation and reiterated the suspension of all actions for claims against
CMC.[7]

On 29 November 2000, upon the management committees recommendation,[8] the SEC issued
an Omnibus Order directing the dissolution and liquidation of CMC.[9] 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 transferred.[10]

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 ordered the
immediate transfer of the case records to the trial court.[11]
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 reconsideration.[12] 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.

On 13 June 2001, Planters Bank extra-judicially foreclosed the real estate mortgage.[13]

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 Corporation Code,[14] 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)[15] 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 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 corporation,[16] 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 Court,[17] 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 credits as ordinary claims.[18]
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
creditor-mortgagee 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 rehabilitation receiver[19] or upon the issuance of a stay order by the trial court.[20] However,
the creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of
the rehabilitation proceedings or upon the lifting of the stay order.[21]

Foreclosure proceedings have in their favor the presumption of regularity and the burden of
evidence to rebut the same is on the party that seeks to challenge the proceedings.[22] 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 afternoon.[23] The Sheriffs Minutes of the Sale stated that the foreclosure sale
was actually opened at 10:00 A.M. and commenced at 2:30 P.M.[24] 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.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:
REYNATO S. PUNO

Chief Justice

Chairperson

RENATO C. CORONA ADOLFO S. AZCUNA

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

REYNATO S. PUNO

Chief Justice
[1] Under Rule 45 of the 1997 Rules of Civil Procedure.
[2] Rollo, pp. 49-56. Penned by Associate Justice Alicia L. Santos, with Associate Justices
Buenaventura J. Guerrero and Marina L. Buzon, concurring.

[3] Id. at 57-59.

[4] CA rollo, pp. 32-35. Penned by Judge Artemio S. Tipon.

[5] Section 5(d) of Presidential Decree No. 902-A provides:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving x x x x

(d) Petitions of corporations, partnerships or associations to be declared in a state of suspension

of payments in cases where the corporation, partnership or association possesses sufficient
property to cover all its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or association has no
sufficient assets to cover its liabilities but is under the management of a Rehabilitation Receiver
or Management Committee.

[6] CA rollo, p. 61.

[7] Rollo, pp. 102-107.

[8] CA rollo, pp. 68-70.

[9] Rollo, pp. 108-113.

[10] Id. at 113.

[11] Id. at 114-116.

[12] CA rollo, pp. 36-37.

[13] Id. at 130-132.

[14] Section 121 of the Corporation Code provides:

Sec. 121. Involuntary dissolution. - A corporation may be dissolved by the Securities and
Exchange Commission upon the filing of a verified complaint and after proper notice and
hearing on grounds provided by existing laws, rules and regulations.

[15] Also known as The Securities Regulation Code which took effect on 8 August 2000.

[16] Sections 119 and 121 of the Corporation Code.

[17] 378 Phil. 10 (1999).

[18] Vitug, J., Commercial Laws and Jurisprudence, 557 (Volume 1 ed. 2006).

[19] Section 6(c) of Presidential Decree No. 902-A.

[20] Section 6, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation.

[21] Section 12, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation.

[22] Union Bank of the Philippines v. Court of Appeals, G.R. No. 164910, 30 September 2005,
471 SCRA 751.

[23] CA rollo, p. 130.

[24] Rollo, p. 62.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. Nos. 159669 & 163521 March 12, 2007

UNITED OVERSEAS BANK PHILS. (formerly WESTMONT BANK), Petitioner,

vs.
ROSEMOORE MINING & DEVELOPMENT CORP. and DRA. LOURDES PASCUAL,
Respondents.

DECISION

TINGA, J.:

We resolve these two consolidated cases, which though with distinct courts of origin, pertain to
issues stemming from the same loan transaction.

The antecedent facts follow.

Respondent Rosemoor Mining and Development Corporation (Rosemoor), a Philippine mining

corporation with offices at Quezon City, applied for and was granted by petitioner Westmont
Bank1 (Bank) a credit facility in the total amount of P80 million consisting of P50,000,000.00 as
long term loan and P30,000,000.00 as revolving credit line.2

To secure the credit facility, a lone real estate mortgage agreement was executed by Rosemoor
and Dr. Lourdes Pascual (Dr. Pascual), Rosemoors president, as mortgagors in favor of the
Bank as mortgagee in the City of Manila.3 The agreement, however, covered six (6) parcels of
land located in San Miguel, Bulacan4 (Bulacan properties), all registered under the name of
Rosemoor,5 and two (2) parcels of land6 situated in Gapan, Nueva Ecija (Nueva Ecija
properties), owned and registered under the name of Dr. Pascual.7

Rosemoor subsequently opened with the Bank four (4) irrevocable Letters of Credit (LCs)
totaling US$1,943,508.11.8 To cover payments by the Bank under the LCs, Rosemoor proceeded
to draw against its credit facility and thereafter executed promissory notes amounting
collectively to P49,862,682.50.9 Two (2) other promissory notes were also executed by
Rosemoor in the amounts of P10,000,000.00 and P3,500,000.00, respectively, to be drawn from
its revolving credit line.10

Rosemoor defaulted in the payment of its various drawings under the LCs and promissory notes.
In view of the default, the Bank caused the extra-judicial foreclosure of the Nueva Ecija
properties on 22 May 1998 and the Bulacan properties on 10 August 1998. The Bank was the
highest bidder on both occasions.11

On 8 October 1999, the Bank caused the annotation of the Notarial Certificate of Sale covering
the Nueva Ecija properties on the certificates of title concerned. Later, on 16 March 2001, the
Notarial Certificate of Sale covering the Bulacan properties was annotated on the certificates of
title of said properties.12

The foregoing facts led to Rosemoors filing of separate complaints against the Bank, one before
the Regional Trial Court of Manila (Manila RTC) and the other before the Regional Trial Court
of Malolos, Bulacan (Malolos RTC).
The Manila Case (G.R. No. 163521)

On 5 August 1998, Rosemoor and Dr. Pascual filed a Complaint, originally captioned as one for
"Damages, Accounting and Release of Balance of Loan and Machinery and for Injunction"
before the Manila RTC.13 Impleaded as defendants were the Bank and Notary Public Jose
Sineneng, whose office was used to foreclose the mortgage.14 The complaint was twice amended,
the caption eventually reflecting an action for "Accounting, Specific Performance and
Damages."15 Through the amendments, Pascual was dropped as a plaintiff while several officers
of the Bank were included as defendants.16

The Bank moved for the dismissal of the original and amended complaints on the ground that the
venue had been improperly laid.17 The motion was denied by the trial court through an Omnibus
Resolution dated 24 January 2000.18

Rosemoors prayer in the Second Amended Complaint, which was filed in November of 1999,
reads as follows:

WHEREFORE, plaintiff Rosemoor Mining & Development Corporation respectfully prays that,
after trial of the issues, this court promulgate judgment

1. Directing Westmont to render an accounting of the loan account of Rosemoor under

the Long Term Loan Facility and the Revolving Credit Line at least up to the dates of
foreclosure of Rosemoors mortgaged properties on May 22, 1998 and August 18, 1998,
showing among others (a) the sums of money paid by Rosemoor or otherwise debited
from its deposit account in payment of the loans it had obtained from Westmont to cover
the cost of the machinery to be imported under the Unpaid LCs and under LC No. 97-058
for the tiling plant, as well as for working capital, and (b) all interests, penalties and
charges imposed on the loans pertaining to the Unpaid LCs and LC No. 97-058 and for
which Westmont had foreclosed Rosemoors and Dra. Pascuals real estate mortgage; (c)
the amount of import and customs duties, demurrage, storage and other fees which
Rosemoor had paid or which was otherwise debited from Rosemoors deposit account, in
connection with the importation of the tiling plant and as a consequence of the non-
release thereof by Westmont;

2. Ordering all the defendants jointly and severally to pay to Rosemoor, by way of actual
damages, the dollar equivalent of the amounts in (1) (a), (b) and (c) at the exchange rate
prevailing at the time of the opening of the LCs;

3. Ordering defendants jointly and severally to pay to Rosemoor actual damages for
operational losses suffered by Rosemoor due to its failure to use the tiling plaint which
Westmont had refused to release to Rosemoor, in such amount as may be proven at the
trial;

4. Directing the defendants jointly and severally to pay, by way of correction for the
public good, exemplary damages in the amount of P 500,000.00 each;

5. Ordering defendants jointly and severally to indemnify Rosemoor in the sum of

P350,000.00, representing attorneys fees and litigation expenses incurred by Rosemoor
for the protection and enforcement of its rights and interests.

Plaintiff prays for further and other relief as may be just and equitable under the circumstances.
19

On 15 August 2002, the Bank filed another motion to dismiss the Second Amended Complaint
on the ground of forum-shopping since, according to it, Rosemoor had filed another petition
earlier on 11 March 2002 before the Malolos RTC.20 The Bank contended that as between the
action before the Manila RTC and the petition before the Malolos RTC, there is identity of
parties, rights asserted, and reliefs prayed for, the relief being founded on the same set of facts.
The Bank further claimed that any judgment that may be rendered in either case will amount to
res judicata in the other case.21 Still, the

Manila RTC denied the motion to dismiss.22 It also denied the

Banks motion for reconsideration of the order of denial.23

The Bank challenged the Manila RTCs denial of the Banks second motion to dismiss before the
Court of Appeals, through a petition for certiorari. The appellate court dismissed the petition in a
Decision dated 26 February 2004.24 The Bank filed a motion for reconsideration which, however,
was denied through a Resolution dated 30 April 2004.25

In the Petition for Review on Certiorari in G.R. No. 163521, the Bank argues that the Court of
Appeals erred in holding that no forum-shopping attended the actions brought by Rosemoor.26

The Malolos Case (G.R. No. 159669)

After the complaint with the Manila RTC had been lodged, on 11 March 2002, Rosemoor and
Dr. Pascual filed another action against the Bank, this time before the Malolos RTC. Impleaded
together with the Bank as respondent was the Register of Deeds for the Province of Bulacan in
the Petition for Injunction with Damages,

with Urgent Prayer for Temporary Restraining Order and/or Preliminary Injunction.27

In the Malolos case, Rosemoor and Dr. Pascual alleged that the redemption period for the
Bulacan properties would expire on 16 March 2002. They claimed that the threatened
consolidation of titles by the Bank is illegal, stressing that the foreclosure of the real estate
mortgage by the Bank was fraudulent and without basis,28 as the Bank had made them sign two
blank forms of Real Estate Mortgage and several promissory notes also in blank forms. It
appeared later, according to Rosemoor and Dr. Pascual, that the two Real Estate Mortgage blank
forms were made as security for two loans, one for P80 million and the other for P48 million,
when the total approved loan was only for P80 million. The Bank later released only the amount
of P10 million out of the P30 million revolving credit line, to the prejudice of Rosemoor, they
added.29

The Petitions prayer reads as follows:

WHEREFORE, premises considered, it is most respectfully prayed that this Honorable Court

1. Issue ex-parte a temporary restraining order before the matter could be heard on notice
to restrain and enjoin respondent BANK from proceeding with its threatened
consolidation of its titles over the subject properties of petitioner Rosemoor in San
Miguel, Bulacan covered by TCT Nos. 42132; 42133; 42134; 42135; 42136 and RT
34569 (T-222448) on March 16, 2002 or at any time thereafter; that the respondent
Register of Deeds for the Province of Bulacan be enjoined and restrained from registering
any document(s) submitted and/or to be submitted by respondent BANK consolidating its
titles over the above-named properties of petitioner Rosemoor in San Miguel, Bulacan;
and likewise, that the Register of Deeds for the province of Bulacan be restrained and
enjoined from canceling the titles of Rosemoor over its properties, namely, TCT Nos.
42132; 42133; 42134; 42135; 42136 and RT 34569 (T-222448);

2. That after due notice, a writ of preliminary injunction be issued upon the posting of a
bond in such amount as may be fixed by this Court;
 3. That after due hearing and trial, judgment be rendered in favor of petitioners and
against respondent BANK

a. Permanently enjoining respondent BANK from proceeding with the

consolidation of its titles to the subject properties of Rosemoor covered by TCT
Nos. 42132; 42133; 42134; 42135; 42136 and RT 34569 (T-222448); and
permanently restraining respondent Register of Deeds for the Province of Bulacan
from registering any document(s) submitted and/or to be submitted by respondent
BANK consolidating its titles over the above-named properties of petitioner
Rosemoor in San Miguel, Bulacan; and likewise, that the Register of Deeds for
the province of Bulacan be restrained and enjoined from cancelling the titles of
Rosemoor over its properties, namely, TCT Nos. 42132; 42133; 42134; 42135;
42136 and RT 34569 (T-222448);

b. Declaring the foreclosures of Real Estate Mortgages on the properties of

petitioners Rosemoor and Dra. Pascual to be null and void;

c. Recognizing the ownership in fee simple of the petitioners over their properties
above-mentioned;

d. Awarding to petitioners the damages prayed for, including attorneys fees and
costs and expenses of litigation.

Petitioners pray for such other reliefs and remedies as may be deemed just and equitable in the
premises.30

As it did before the Manila RTC, the Bank filed a motion to dismiss on 26 March 2002 on the
ground that Rosemoor had engaged in forum-shopping, adverting to the pending Manila case.31
The Bank further alleged that Dr. Pascual has no cause of action since the properties registered in
her name are located in Nueva Ecija. The Malolos RTC denied the motion to dismiss in an Order
dated 13 May 2002.32 In the same Order, the Malolos RTC directed the Bank to file its answer to
the petition within five (5) days from notice.33

Despite receipt of the Order on 21 May 2002, the Bank opted not to file its answer as it filed
instead a motion for reconsideration on 5 June 2002.34 Meanwhile, Rosemoor and Dr. Pascual
moved to declare the Bank in default for its failure to timely file its answer.35 On 10 September
2002, the Malolos RTC issued an order denying the Banks motion for reconsideration for lack
of merit and at the same time declaring the Bank in default for failure to file its answer.36

Hence, the Bank filed a second petition for certiorari before the Court of Appeals, where it
assailed the Orders dated 13 May 2002 and 10 September 2002 of the Malolos RTC. During the
pendency of this petition for certiorari, the Malolos RTC decided the Malolos case on the merits
in favor of Rosemoor.37 The decision in the Malolos case was also appealed to the Court of
Appeals.38 Based on these developments, the appellate court considered the prayer for
preliminary injunction as moot and academic and proceeded with the resolution of the petition,
by then docketed as CA-G.R. SP No.73358, on the merits. The appellate court dismissed the
petition in a Decision dated 20 June 2003.39 Undaunted, the Bank filed the petition in G.R. No.
159669 before this Court.

The two petitions before this Court have been consolidated. We find one common issue in G.R.
No. 159669 and G.R. No. 163521 whether Rosemoor committed forum-shopping in filing the
two cases against the Bank. The other issues for resolution were raised in G.R. No. 159669,
pertaining as they do to the orders issued by the Malolos RTC. These issues are whether the
action to invalidate the foreclosure sale was properly laid with the Malolos RTC even as regards
the Nueva Ecija properties; whether it was proper for the Malolos RTC to declare the Bank in
default; and whether it was proper for the Malolos RTC to deny the Banks motion to dismiss
through a minute resolution.40

Forum-Shopping

The central issue in these consolidated cases is whether Rosemoor committed forum-shopping in
filing the Malolos case during the pendency of the Manila case.

The essence of forum-shopping is the filing of multiple suits involving the same parties for the
same cause of action, either simultaneously or successively, for the purpose of obtaining a
favorable judgment.41 The elements of forum-shopping are: (a) identity of parties, or at least such
parties as represent the same interests in both actions; (b) identity of rights asserted and reliefs
prayed for, the reliefs being founded on the same facts; and (c) the identity with respect to the
two preceding particulars in the two cases is such that any judgment rendered in the pending
cases, regardless of which party is successful, amount to res judicata in the other case.42

As to the existence of identity of parties, several bank officers and employees impleaded in the
Amended Complaint in the Manila case were not included in the Malolos case. These bank
officers and employees were sued in Manila in their personal capacity. A finding of negligence
or bad faith in their participation in the preparation and execution of the loan agreement would
render them personally liable. Dr. Pascual, on the other hand, was included as petitioner only in
the Malolos case because it involved properties registered in her name. As correctly pointed out
by the Court of Appeals, Dr. Pascual is a real party-in-interest in the Malolos case because she
stood to benefit or suffer from the judgment in the suit. Dr. Pascual, however, was not included
as plaintiff in the Manila case because her interest therein was not personal but merely in her
capacity as officer of Rosemoor.

As regards the identity of rights asserted and reliefs prayed for, the main contention of Rosemoor
in the Manila case is that the Bank had failed to deliver the full amount of the loan, as a
consequence of which Rosemoor demanded the remittance of the unreleased portion of the loan
and payment of damages consequent thereto.43 In contrast, the Malolos case was filed for the
purpose of restraining the Bank from proceeding with the consolidation of the titles over the
foreclosed Bulacan properties because the loan secured by the mortgage had not yet become due
and demandable.44 While the right asserted in the Manila case is to receive the proceeds of the
loan, the right sought in the Malolos case is to restrain the foreclosure of the properties
mortgaged to secure a loan that was not yet due.

Moreover, the Malolos case is an action to annul the foreclosure sale that is necessarily an action
affecting the title of the property sold.45 It is therefore a real action which should be commenced
and

tried in the province where the property or part thereof lies.46 The Manila case, on the other hand,
is a personal action47 involving as it does the enforcement of a contract between Rosemoor,
whose office is in Quezon City, and the Bank, whose principal office is in Binondo, Manila.48
Personal actions may be commenced and tried where the plaintiff or any of the principal
plaintiffs resides, or where the defendants or any of the principal defendants resides, at the
election of the plaintiff.49

It was subsequent to the filing of the Manila case that Rosemoor and Dr. Pascual saw the need to
secure a writ of injunction because the consolidation of the titles to the mortgaged properties in
favor of the Bank was in the offing. But then, this action can only be commenced where the
properties, or a portion thereof, is located. Otherwise, the petition for injunction would be
dismissed for improper venue. Rosemoor, therefore, was warranted in filing the Malolos case
and cannot in turn be accused of forum-shopping.
Clearly, with the foregoing premises, it cannot be said that respondents committed forum-
shopping.

Action to nullify foreclosure sale of mortgaged properties in Bulacan and Nueva Ecija before the
Malolos RTC

The Bank challenges the Malolos RTCs jurisdiction over the action to nullify the foreclosure
sale of the Nueva Ecija properties along with the Bulacan properties. This question is actually a
question of venue and not of jurisdiction,50 which if improperly laid, could lead to the dismissal
of the case.51

The rule on venue of real actions is provided in Section 1, Rule 4 of the 1997 Rules of Civil
Procedure, which reads in part:

Section 1. Venue of Real Actions. Actions affecting title to or possession of real property, or
interest therein, shall be commenced and tried in the proper court which has jurisdiction over the
area wherein the real property involved, or a portion thereof, is situated.

xxx

The venue of the action for the nullification of the foreclosure sale is properly laid with the
Malolos RTC although two of the properties together with the Bulacan properties are situated in
Nueva Ecija. Following the above-quoted provision of the Rules of Court, the venue of real
actions affecting properties found in different provinces

is determined by the singularity or plurality of the transactions involving said parcels of land.
Where said parcels are the object of one and the same transaction, the venue is in the court of any
of the provinces wherein a parcel of land is situated.52

Ironically, the Bank itself correctly summarized the applicable jurisprudential rule in one of the
pleadings before the Court.53 Yet the Bank itself has provided the noose on which it would be
hung. Resorting to deliberate misrepresentation, the Bank stated in the same pleading that "the
Bulacan and Nueva Ecija [p]roperties were not the subject of one single real estate mortgage
contract."54

In the present case, there is only one proceeding sought to be nullified and that is the extra-
judicial mortgage foreclosure sale. And there is only one initial transaction which served as the
basis of the foreclosure sale and that is the mortgage contract. Indeed, Rosemoor, through Dr.
Pascual, executed a lone mortgage contract where it undertook to "mortgage the land/real
property situated in Bulacan and Nueva Ecija," with the list of mortgaged properties annexed
thereto revealing six (6) properties in Bulacan and two (2) properties in Nueva Ecija subject of
the mortgage.

This apparent deliberate misrepresentation cannot simply pass without action. The real estate
mortgage form supplied to Rosemoor is the Banks standard pre-printed form. Yet the Bank
perpetrated the misrepresentation. Blame must be placed on its doorstep. But as the Banks
pleading was obviously prepared by its counsel, the latter should also share the blame. A lawyer
shall not do any falsehood, nor consent to the doing of any in court; nor shall he mislead, or
allow the Court to be misled by any artifice.55 Both the Banks president and counsel should be
made to explain why they should not be sanctioned for contempt of court.

Propriety of Default Order

The Court of Appeals did not touch upon the soundness or unsoundness of the order of default
although it is one of the orders assailed by the Bank. However, the silence of the appellate court
on the issue does not improve the legal situation of the Bank.
To recall, the Bank filed a motion to dismiss the Malolos case. The Malolos RTC denied the
motion in an Order dated 13 May 2002.56 In the same Order, the Malolos RTC directed the Bank
to file

its answer to the petition within five (5) days from the receipt of the Order.57 The Bank received
a copy of the Order on 21 May 2002. Instead of filing an answer, the Bank filed a motion for
reconsideration but only on 5 June 2002.58

The motion for reconsideration59 could not have tolled the running of the period to answer for
two reasons. One, it was filed late, nine (9) days after the due date of the answer. Two, it was a
mere rehash of the motion to dismiss; hence, pro forma in nature. Thus, the Malolos RTC did not
err in declaring the Bank in default.

Deviation from the Prescribed Content of an Order Denying a Motion to Dismiss

Finally, the Bank questions the Malolos RTCs Order dated 13 May 2002 denying its motion to
dismiss on the ground that it is contrary to law and jurisprudence because it had failed to apprise
the Bank of the legal basis for the denial.

The Bank adverts to the content requirement of an order denying a motion to dismiss prescribed
by Sec. 3, Rule 16 of the Rules of Court. The Court in Lu Ym v. Nabua60 made a thorough
discussion on the matter, to quote:

Sec. 3, Rule 16 of the Rules provides:

Sec. 3. Resolution of motion.After the hearing, the court may dismiss the action or claim, deny
the motion or order the amendment of the pleading.

The court shall not defer the resolution of the motion for the reason that the ground relied upon is
not indubitable.

In every case, the resolution shall state clearly and distinctly the reasons therefor.

xxxx

Further, it is now specifically required that the resolution on the motion shall clearly and
distinctly state the reasons therefor. This proscribes the common practice of perfunctorily
dismissing the motion for "lack of merit." Such cavalier dispositions can often pose
difficulty and misunderstanding on the part of the aggrieved party in taking recourse
therefrom and likewise on the higher court called upon to resolve the same, usually on
certiorari.61

The questioned order of the trial court denying the motion to dismiss with a mere statement that
there are justiciable questions which require a full blown trial falls short of the requirement of
Rule 16 set forth above. Owing to the terseness of its expressed justification, the challenged
order ironically suffers from undefined breadth which is a hallmark of imprecision. With its
unspecific and amorphous thrust, the issuance is inappropriate to the grounds detailed in the
motion to dismiss.

While the requirement to state clearly and distinctly the reasons for the trial courts resolutory
order under Sec. 3, Rule 16 of the Rules does call for a liberal interpretation, especially since
jurisprudence dictates that it is decisions on cases submitted for

decision that are subject to the stringent requirement of specificity of rulings under Sec. 1, Rule
3662 of the Rules, the trial courts order in this case leaves too much to the imagination.
(Emphasis supplied.)63
The assailed order disposed of the motion to dismiss in this wise:

xxxx

After a careful scrutiny of the grounds cited in the Motion to Dismiss and the arguments en
contra contained in the Opposition thereto and finding the Motion to Dismiss to be not well taken
as grounds cited are not applicable to the case at bar, the Court hereby DENIES the instant
Motion to Dismiss.

x x x x64

Clearly, the subject order falls short of the content requirement as expounded in Lu Ym v. Nabua.
Despite the aberration, however, the Bank was not misled, though it could have encountered
difficulties or inconvenience because of it. Comprehending, as it did, that the Malolos RTC did
not share its position that Rosemoor had engaged in forum-shopping, it went to great lengths to
impress upon the Court of

Appeals that there was indeed forum-shopping on Rosemoors part. But the appellate court did
not likewise agree with the Bank as it soundly debunked the forum-shopping charge. In fact, the
same forum-shopping argument has been fully ventilated before the Court but we are utterly
unimpressed as we made short shrift of the argument earlier on. In the ultimate analysis,
therefore, the trial courts blunder may be overlooked as it proved to be harmless.

WHEREFORE, considering the foregoing, the Decision of the Court of Appeals in G.R. 163521
dated 26 February 2004 and in G.R No. 159669 dated 20 June 2003 are AFFIRMED. Costs
against petitioner. Petitioner, United Overseas Bank, Phils. and its counsel, Siguion Reyna
Montecillo & Ongsiako Law Offices, are given ten (10) days from notice to EXPLAIN why they
should not be held in contempt of court for making a misrepresentation before the Court as
adverted to in this Decision.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Asscociate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division
 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

Footnotes
1
Now United Overseas Bank Philippines.
2
Rollo, (G.R. No. 159669), p. 73.
3
Id. at 159-161; Real Estate Mortgage.
4
Covered by Transfer Certificate of Title Nos. 42132, 42133, 42134, 42135, 42136 and
34569.
5
Rollo, (G.R. No. 159669), p. 73
6
Covered by Transfer Certificate of Title Nos. NT- 12627 and NT-12628.
7
Rollo, (G.R. No. 163521), p. 14.
8
Id. at 15 and 271.
9
Id. at 15 and 273.
10
Id.
11
Rollo, (G.R. No. 159669), p. 73.
12
Rollo, (G.R. No. 163521), p. 15.
13
Id. at 221-235.
14
Id. at 62.
15
Id. at 2660286.
16
Impleaded as defendants in the Second Amended Complaint were Florido Casuela,
Avelina Dela Cruz, Proserfina Cruz, and Rolando Castro. Casuela was included as a
former Vice President of the Bank while Dela Cruz, Cruz, and Castro were impleaded as
incumbent Vice President, Manager, and Senior Officer, respectively, of the Bank. See
Rollo, (G.R. No. 163521), pp. 267-268.
17
Id. at 237-242; Urgent Motion to Dismiss.
18
Id. at 327-328.
19
Id. at 283-284.
20
Id. at 63; CA Decision.
21
Id. at 65.
22
Id. at 404. See also p. 65.

The pertinent portion of the Order reads:

There is no forum shopping.

There is forum shopping when in two or more cases pending there is identity of
(a) parties, (b) rights or causes of action and (c) relief sought, (Buan v. Lopez, 145
SCRA 34). These requisites are not present in the Bulacan case, the action is for
Injunction with damages, while the case before this Court is for Accounting,
Specific Performance and Damages. Thus, the case of Denville Maritime, Inc. v.
Commission on Audit, 175 SCRA 701 cited[,] by the defendants does not apply.

WHEREFORE, the Motion to Dismiss is DENIED for lack of merit.

SO ORDERED.
23
Id. at 65.
24
Id. at 61-68, Decision of the Court of Appeals is dated 26 February 2004, penned by
Associate Justice Rodrigo V. Cosico with the concurrence of Associate Justices Mariano
C. Del Castillo and Vicente Q. Roxas.
25
Id. at 70-71.
26
Id. at 29.
27
Rollo, (G.R. No. 159669), pp. 230-238.
28
Id. at 74.
29
Id.
30
Id. at 236-237.
31
Id. at 363.
32
Id. at 75.
33
Id.
34
Id.; id. at 363.
35
Id.
36
Id.
37
Id. at 367; dispositive part of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

petitioners and against respondents, to wit:
 1. The Writ of Preliminary Injunction issued by this Court on 25 March
2002 is hereby made permanent;

2. Declaring as null and void the Real Estate Mortgage executed by

petitioner corporation in favor of respondent Bank (Exhibits "D" and "E")
and the subsequent foreclosures of such mortgages;

3. Ordering the respondent United Overseas Bank Philippines to pay unto

petitioners as follows:

P2,000,000.00 as moral and exemplary damages unto Dra.

Lourdes Pascual (P1,000,000.00 as moral damages; P1,000,000.00
as exemplary damages);

P13,000,000.00 unto petitioner Rosemoor Mining and

Development Corporation as moral and exemplary damages
(P3,000,000.00 as moral damages and P10,000,000.00 as
exemplary damages); and

P100,000.00 unto petitioner as attorneys fees, plus cost of

litigation.

SO ORDERED.
38
Id. at 75 citing CA rollo, pp. 463-466.
39
Id. at 72- 79; Penned by Associate Justice Romeo A. Brawner with the concurrence of
Associate Justices Eliezer R. Delos Santos and Regalado E. Maambong.
40
Rollo, (G.R. No. 163521), p. 584.
41
Mondragon Leisure and Resorts Corporation v. United Coconut Planters Bank, G.R.
No. 154187, 14 April 2004, 427 SCRA 585.
42
Id. See also Valencia v. Court of Appeals, 331 Phil. 590, 603 (1996).
43
Rollo, (G.R. No. 163521), pp. 283-284.
44
Id. at 236-237.
45
Fortune Motors, (Phils.), Inc. v. Court of Appeals G.R. No. 76431, 16 October 1989,
178 SCRA 564, 568-569.
46
Rules of Court, Rule 4, Sec. 1.
47
A personal action is one brought for the recovery of personal property or for the
enforcement of some contract or for the recovery of damages for its breach, or the
recovery of damages for the commission of an injury to the person or property. See Asset
Privatization Trust v. Court of Appeals, 381 Phil. 530, 550 (2000) citing The Dial
Corporation v. Soriano, G.R. No. L-82330, May 31, 1988, 161 SCRA 737, 742 citing
Hernandez v. DBP, L-31095, June 18, 1976, 71 SCRA 290, 292.
48
Rollo, (G.R. No. 159669), p. 159.
49
Rules of Court, Rule 4, Sec. 2.
50
Unimasters Conglomeration, Inc. v. Court of Appeals, 335 Phil. 415 (1997).
51
Rules of Court, Rule 16, Sec. 1(c).
52
Regalado, Remedial Law Compendium, Vol. 1 (1999 ed.), p. 105, citing El Hogar
Filipino v. Seva, 57 Phil. 573 (1932).
53
Rollo, (G.R. No. 159669), p. 597. Vide Petitioners Memorandum. The Bank stated:

"Where the subject matter of the action involves various parcels of land situated
in different provinces, the venue is determined by the singularity or plurality of
the transactions involving said parcels of land. Thus, where said parcels are the
objects of one and the same transaction, the venue was in the then CFI of any of
the provinces wherein a parcel of land is situated" (Regalado, Remedial Law
Compendium, Vol. 1, p. 105). As enunciated by the Supreme Court in El Hogar
Filipino v. Seva (G.R. No. 36627, 19 November 1932), it is only "when various
parcels of land or real property situated in different provinces, are included in one
mortgage contract, (that) the Court of First Instance of the province wherein they
are situated or a part thereof is situated, has jurisdiction to take cognizance of an
action for the foreclosure of said mortgage, and the judgment therein rendered
may be executed in all the other provinces wherever the mortgaged real property
may be found."
54
Id. at 596-597.
55
Code of Professional Responsibility, Chapter III, Rule 10.01.
56
Rollo (G.R. No. 159669), p. 75.
57
Id.
58
Id. at 363.
59
Id. at 287-291.
60
G.R. No. 161309, 23 February 2005, 452 SCRA 298.
61
Pefianco v. Moral, 379 Phil. 468 (2000); Intramuros Administration v. Contacto, 450
Phil. 765 (2003).
62
SECTION 1. Rendition of judgments and final orders.A judgment or final order
determining the merits of the case shall be in writing personally and directly prepared by
the judge, stating clearly and distinctly the facts and the law on which it is based, signed
by him, and filed with the clerk of the court.
63
Id. at 307-307.
64
Rollo, (G.R No. 159669), pp. 283-284; Order dated 13 May 2002; Penned by Presiding
Judge Thelma R. Pinero Cruz.
SECOND DIVISION

[A.M. No. P-04-1829. July 7, 2004]

GLORIA R. SAYSON, FRANCISCO R. RELLOROSA, RUSTICO Y. CAPARAS,

complainants, vs. EFREN LUNA, Sheriff III, Metropolitan Trial Court, Branch 37, Quezon City,
respondent.

RESOLUTION

CALLEJO, SR., J.:

The instant administrative case arose from the Affidavit-Complaintli[1] dated August 4, 1999 of
Gloria R. Sayson, Francisco R. Rellorosa and Rustico Y. Caparas charging Efren Luna, Sheriff
III, Metropolitan Trial Court, Branch 37, Quezon City, with grave misconduct and/or conduct
prejudicial to the best interests of the service relative to Civil Case No. 37-15744, entitled
Genaro Serrano v. Gregorio Rellorosa.

The complainants alleged that the weekend before July 15, 1999, Gregorio Rellorosa informed
them that his car would be levied upon pursuant to a writ of execution issued by the Metropolitan
Trial Court of Quezon City, and that it was scheduled to be sold at public auction at 10:00 a.m.
on July 15, 1999. Rellorosa requested them to participate in the bidding, to which they agreed,
subject to the condition that in case one of them would win the bid, they would allow Rellorosa
to redeem the car within one year at the bid price plus accrued interest.

The complainants alleged that at 9:00 a.m. of July 15, 1999, they met Rellorosa and agreed to
pool their resources so that they would come out as the highest bidder. They also met the
respondent sheriff that same morning. Upon being told that the scheduled auction sale had been
postponed to July 19, 1999, the complainants left. They, however, later learned from Rellorosa
that the respondent sheriff conducted the auction sale of the said car at 2:00 p.m. that same day.

In his comment, the respondent narrated that he levied the car in question pursuant to a writ of
executionli[2] issued by the court. The auction sale was set at 10:00 a.m. of July 15, 1999, with
due notice to Gregorio Rellorosa. Three days prior to the scheduled auction sale or on July 12,
1999, Gregorio Rellorosa filed a Petition for Relief from Judgment with Urgent Prayer for
Preliminary Injunction Inter Alia and Temporary Restraining Order to Stop Sheriffs Sale
Scheduled on July 15, 1999.li[3] The respondent further averred that he came to see Gregorio
Rellorosa alone in the morning of July 15, 1999, and informed the latter that his motion was
denied. He also told Gregorio that the auction sale would not push through as scheduled, but
would proceed any time of the day once the order was signed.

The respondent avers that he advised Gregorio to wait for the plaintiff, Genaro Serrano, to ask if
the latter would postpone the auction sale, but Rellorosa immediately left.

The instant case was then referred to Second Vice-Executive Judge Thelma A. Ponferrada,
Regional Trial Court, Branch 104, Quezon City. After conducting an investigation on the matter,
the Executive Judge recommended the exoneration of the respondent, and opined that the latter
was able to substantially comply with the requirements for the conduct of a public auction.

We agree.

The respondent sheriff acted in accordance with the Writ of Executionli[4] dated June 11, 1999, as
issued by Judge Augustus C. Diaz, Metropolitan Trial Court, Branch 37, Quezon City. Indeed, a
sheriffs duty
in the execution of a writ is purely ministerial he is to execute the order of the court strictly to the
letter, and he has no discretion whether to execute the judgment or not.li[5] A perusal of the notice
of levy and sale will also show that the sale at public auction was to take place on July 15, 1999
at 10:00 a.m. or soon thereafter at the front of [the] Hall of Justice Building, Q.C.li[6] As found by
Executive Judge Ponferrada, such notice was served on July 8, 1999, or more than five (5) days
before the scheduled auction sale. Furthermore, a sheriffs report, in this case the Minutes of the
Auction Sale,li[7] as a document, is clothed with the presumption of regularity, and since it was
not objected to by the complainant, it must be upheld.li[8]

The complainants failed to substantiate the charges against the respondent. As against the bare
allegations of misconduct with no cogent proof thereon, and the presumption of regularity in the
performance of official functions, the latter shall prevail.

WHEREFORE, the Court resolves to DISMISS the complaint against respondent Efren Luna,
Sheriff III, Metropolitan Trial Court, Branch 37, Quezon City, for lack of merit.

SO ORDERED.

Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.