THIRD DIVISION Petitioners failed to pay the amount.
On March 25, 1998, the trial court issued a writ of
[G.R. No. 137792. August 12, 2003.]
SPOUSES RICARDO ROSALES and ERLINDA SIBUG, Petitioners, v. SPOUSES
ALFONSO and LOURDES SUBA, THE CITY SHERIFF OF MANILA, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Challenged in the instant petition for review on certiorari are the Resolutions 1 dated
November 25, 1998 and February 26, 1999 of the Court of Appeals dismissing the
petition for certiorari in CA G.R. SP No. 49634, "Spouses Ricardo Rosales and Erlinda
Sibug v. Alfonso and Lourdes Suba."cralaw virtua1aw library
On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a Decision 2 in
Civil Cases Nos. 94-72303 and 94-72379, the dispositive portion of which
reads:chanrob1es virtua1 1aw 1ibrary
"WHEREFORE, judgment is rendered:chanrob1es virtual 1aw library
(1) Declaring the Deed of Sale of Exhibit D, G and I, affecting the property in question, as
an equitable mortgage;
(2) Declaring the parties Erlinda Sibug and Ricardo Rosales, within 90 days from finality
of this Decision, to deposit with the Clerk of Court, for payment to the parties Felicisimo
Macaspac and Elena Jiao, the sum of P65,000.00, with interest at nine (9) percent per
annum from September 30, 1982 until payment is made, plus the sum of P219.76 as
reimbursement for real estate taxes;
(3) Directing the parties Felicisimo Macaspac and Elena Jiao, upon the deposit on their
behalf of the amounts specified in the foregoing paragraph, to execute a deed of
reconveyance of the property in question to Erlinda Sibug, married to Ricardo Rosales,
and the Register of Deeds of Manila shall cancel Transfer Certificate of Title No. 150540 in
the name of the Macaspacs (Exh. E) and issue new title in the name of Sibug;
(4) For non-compliance by Sibug and Rosales of the directive in paragraph (2) of this
dispositive portion, let the property be sold in accordance with the Rules of Court for the
release of the mortgage debt and the issuance of title to the purchaser.
"SO ORDERED." 3
The decision became final and executory. Spouses Ricardo and Erlinda Rosales, judgment
debtors and herein petitioners, failed to comply with paragraph 2 quoted above, i.e., to
deposit with the Clerk of Court, within 90 days from finality of the Decision, P65,000.00,
etc., to be paid to Felicisimo Macaspac and Elena Jiao. This prompted Macaspac, as
judgment creditor, to file with the trial court a motion for execution.
Petitioners opposed the motion for being premature, asserting that the decision has not
yet attained finality. On March 5, 1998, they filed a manifestation and motion informing
the court of their difficulty in paying Macaspac as there is no correct computation of the
judgment debt.
On February 23, 1998, Macaspac filed a supplemental motion for execution stating that
the amount due him is P243,864.08.
execution ordering the sale of the property subject of litigation for the satisfaction of the
judgment.
On May 15, 1998, an auction sale of the property was held wherein petitioners
participated. However, the property was sold for P285,000.00 to spouses Alfonso and
Lourdes Suba, herein respondents, being the highest bidders. On July 15, 1998, the trial
court issued an order confirming the sale of the property and directing the sheriff to issue
a final deed of sale in their favor.
On July 28, 1998, Macaspac filed a motion praying for the release to him of the amount of
P 176,176.06 from the proceeds of the auction sale, prompting petitioners to file a motion
praying that an independent certified public accountant be appointed to settle the exact
amount due to movant Macaspac.
Meanwhile, on August 3, 1998, the Register of Deeds of Manila issued a new Transfer
Certificate of Title over the subject property in the names of respondents.
On August 18, 1998, respondents filed with the trial court a motion for a writ of
possession, contending that the confirmation of the sale "effectively cut off petitioners
equity of redemption." Petitioners on the other hand, filed a motion for reconsideration of
the order dated July 15, 1998 confirming the sale of the property to respondents.
On October 19, 1998, the trial court, acting upon both motions, issued an order (1)
granting respondents prayer for a writ of possession and (2) denying petitioners motion
for reconsideration. The trial court ruled that petitioners have no right to redeem the
property since the case is for judicial foreclosure of mortgage under Rule 68 of the 1997
Rules of Civil Procedure, as amended. Hence, Respondents, as purchasers of the
property, are entitled to its possession as a matter of right.
Forthwith, petitioners filed with the Court of Appeals a petition for certiorari, docketed as
CA-G.R. SP No. 49634, alleging that the trial court committed grave abuse of discretion
amounting to lack or excess of jurisdiction in issuing a writ of possession to respondents
and in denying their motion for reconsideration of the order dated July 15, 1998
confirming the sale of the property to said respondents.
On November 25, 1998, the CA dismissed outright the petition for lack of merit, holding
that there is no right of redemption in case of judicial foreclosure of mortgage. Petitioners
motion for reconsideration was also denied.
Hence this petition.
In the main, petitioners fault the Appellate Court in applying the rules on judicial
foreclosure of mortgage. They contend that their loan with Macaspac is unsecured, hence,
its payment entails an execution of judgment for money under Section 9 in relation to
Section 25, Rule 39 of the 1997 Rules of Civil Procedure, as amended, 4 allowing the
judgment debtor one (1) year from the date of registration of the certificate of sale within
which to redeem the foreclosed property.
Respondents, upon the other hand, insist that petitioners are actually questioning the
decision of the trial court dated June 13, 1997 which has long become final and
executory; and that the latter have no right to redeem a mortgaged property which has
been judicially foreclosed.
Petitioners contention lacks merit. The decision of the trial court, which is final and
executory, declared the transaction between petitioners and Macaspac an equitable
mortgage. In Matanguihan v. Court of Appeals, 5 this Court defined an equitable
mortgage 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." An equitable mortgage is not different from a real estate mortgage, and the lien
created thereby ought not to be defeated by requiring compliance with the formalities
necessary to the validity of a voluntary real estate mortgage. 6 Since the parties
transaction is an equitable mortgage and that the trial court ordered its foreclosure,
execution of judgment is governed by Sections 2 and 3, Rule 68 of the 1997 Rules of Civil
Procedure, as amended, quoted as follows:chanrob1es virtual 1aw library
SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action
the court shall find the facts set forth in the complaint to be true, it shall ascertain the
amount due to the plaintiff upon the mortgage debt or obligation, including interest and
other charges as approved by the court, and costs, and shall render judgment for the
sum so found due and order that the same be paid to the court or to the judgment
obligee within a period of not less that ninety (90) days nor more than one hundred
twenty (120) days from the entry of judgment, and that in default of such payment the
property shall be sold at public auction to satisfy the judgment.
SEC. 3. Sale of mortgaged property, effect. When the defendant, after being directed
to do so as provided in the next preceding section, fails to pay the amount of the
judgment within the period specified therein, the court, upon motion, shall order the
property to be sold in the manner and under the provisions of Rule 39 and other
regulations governing sales of real estate under execution. Such sale shall not effect the
rights of persons holding prior encumbrances upon the property or a part thereof, and
when confirmed by an order of the court, also upon motion, it shall operate to divest the
rights in the property of all the parties to the action and to vest their rights in the
purchaser, subject to such rights of redemption as may be allowed by law.
x x x."cralaw virtua1aw library
In Huerta Alba Resort, Inc. v. Court of Appeals, 7 we held that the right of redemption is
not recognized in a judicial foreclosure, thus:jgc:chanrobles.com.ph
of the defendant mortgagor to extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90-day period after the judgment
becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to
its confirmation.
x x x
"This is the mortgagors equity (not right) of redemption which, as above stated, may be
exercised by him even beyond the 90-day period from the date of service of the order,
and even after the foreclosure sale itself, provided it be before the order of confirmation
of the sale. After such order of confirmation, no redemption can be effected any longer."
(Italics supplied)
Clearly, as a general rule, there is no right of redemption in a judicial foreclosure of
mortgage. The only exemption is when the mortgagee is the Philippine National Bank or a
bank or a banking institution. Since the mortgagee in this case is not one of those
mentioned, no right of redemption exists in favor of petitioners. They merely have an
equity of redemption, which, to reiterate, is simply their right, as mortgagor, to
extinguish the mortgage and retain ownership of the property by paying the secured debt
prior to the confirmation of the foreclosure sale. However, instead of exercising this
equity of redemption, petitioners chose to delay the proceedings by filing several
manifestations with the trial court. Thus, they only have themselves to blame for the
consequent loss of their property.
WHEREFORE, the petition is DENIED. The Resolutions of the Court of Appeals dated
November 25, 1998 and February 26, 1999 in CA G.R. SP No. 49634 are
AFFIRMED.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.

"The right of redemption in relation to a mortgage-understood in the sense of a

prerogative to re-acquire mortgaged property after registration of the foreclosure sale-
exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the mortgagee is the Philippine
National bank or a bank or a banking institution.

"Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the
right of redemption within one (1) year from the registration of the sheriffs certificate of
foreclosure sale.

"Where the foreclosure is judicially effected, however, no equivalent right of redemption

exists. The law declares that a judicial foreclosure sale, when confirmed by an order of
the court, . . . shall operate to divest the rights of all the parties to the action and to vest
their rights in the purchaser, subject to such rights of redemption as may be allowed by
law. Such rights exceptionally allowed by law (i.e., even after the confirmation by an
order of the court) are those granted by the charter of the Philippine National Bank (Act
Nos. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the
mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right
to redeem the property sold on foreclosureafter confirmation by the court of the
foreclosure salewhich right may be exercised within a period of one (1) year, counted
from the date of registration of the certificate of sale in the Registry of Property.

"But, to repeat, no such right of redemption exists in case of judicial foreclosure of a

mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a
case, the foreclosure sale, when confirmed by an order of the court, . . . shall operate to
divest the rights of all the parties to the action and to vest their rights in the purchaser.
There then exists only what is known as the equity of redemption. This is simply the right
SECOND DIVISION
[G.R. No. 138292. April 10, 2002]
KOREA EXCHANGE BANK, petitioner, vs. FILKOR BUSINESS INTEGRATED, INC.,
KIM EUNG JOE, and LEE HAN SANG, respondents.
DECISION
QUISUMBING, J.:
This petition assails the order[1] dated April 16, 1999 of the Regional Trial Court of Cavite
City, Branch 88, in Civil Case No. N-6689. Said order denied petitioners partial motion for
reconsideration of the trial courts order[2] dated March 12, 1999 whereby respondents
were ordered to pay petitioner various sums of U.S. dollars as payment of the formers
various loans with interest but omitted to state that the property mortgaged as security
for said loans be foreclosed and sold at public auction in case respondents fail to pay their
obligations to petitioner ninety days from entry of judgment.
The facts are summarized from the findings of the trial court.
On January 9, 1997, respondent Filkor Business Integrated, Inc. (Filkor), borrowed
US$140,000 from petitioner Korea Exchange Bank, payable on July 9, 1997. Of this
amount, only US$40,000 was paid by Filkor.[3]
In addition, Filkor executed nine trust receipts in favor of petitioner, from June 26, 1997
to September 11, 1997. However, Filkor failed to turn over to petitioner the proceeds
from the sale of the goods, or the goods themselves as required by the trust receipts in
case Filkor could not sell them.[4]
In the period from June 9, 1997 to October 1, 1997, Filkor also negotiated to petitioner
the proceeds of seventeen letters of credit issued by the Republic Bank of New York and
the Banque Leumi France, S.A. to pay for goods which Filkor sold to Segerman
International, Inc. and Davyco, S.A. When petitioner tried to collect the proceeds of the
letters of credit by presenting the bills of exchange drawn to collect the proceeds, they
were dishonored because of discrepancies.[5]
Prior to all the foregoing, in order to secure payment of all its obligations, Filkor executed
a Real Estate Mortgage on February 9, 1996. It mortgaged to petitioner the
improvements belonging to it constructed on the lot it was leasing at the Cavite Export
Processing Zone Authority.[6] Respondents Kim Eung Joe and Lee Han Sang also executed
Continuing Suretyships binding themselves jointly and severally with respondent Filkor to
pay for the latters obligations to petitioner.[7]
As respondents failed to make good on their obligations, petitioner filed Civil Case No. N-
6689 in the Regional Trial Court of Cavite City, docketed as Korea Exchange Bank vs.
Filkor Business Integrated, Inc. In its complaint, petitioner prayed that (a) it be paid by
respondents under its twenty-seven causes of action; (b) the property mortgaged be
foreclosed and sold at public auction in case respondents failed to pay petitioner within
ninety days from entry of judgment; and (c) other reliefs just and equitable be granted.[8]
Petitioner moved for summary judgment pursuant to Section 1, Rule 35 of the 1997 Rules
of Civil Procedure. On March 12, 1999, the trial court rendered its order granting
petitioners motion, reasoning as follows:
xxx
It appears that the only reason defendants deny all the material allegations in the
complaint is because the documents attached thereto are mere photocopies and not the
originals thereof. Section 7, Rule 8 of the Rules of Court allows copies of documents to be
attached to the pleading as an exhibit. Defendants are, therefore, deemed to have
admitted the genuineness and due execution of all actionable documents attached to the
complaint inasmuch as they were not specifically denied, pursuant to Section 8 of the
Rule 8 of the Rules of Court.
In the case at bar, there is clearly no substantial triable issue, hence, the motion for
summary judgment filed by plaintiff is proper.
A summary of judgment is one granted by the court upon motion by a party for an
expeditious settlement of the case, there appearing from the pleadings, depositions,
admissions and affidavits that there are no important questions or issues of fact involved
(except as to the amount of damages) and that, therefore, the moving party is entitled to
a judgment as a matter of law (Sections 1, 2, 3, Rule 35, 1997 Rules of Civil Procedure).
The court having taken into account the pleadings of the parties as well as the affidavits
attached to the motion for summary judgment and having found that there is indeed no
genuine issue as to any material fact and that plaintiff is entitled to a summary of
judgment as a matter of law, hereby renders judgment for the plaintiff and against the
defendants, ordering said defendants jointly and severally to pay plaintiff, as follows[9]
The trial court then rendered judgment in favor of petitioner, granting its prayers under
all its twenty-seven causes of action. It, however, failed to order that the property
mortgaged by respondent Filkor be foreclosed and sold at public auction in the event that
Filkor fails to pay its obligations to petitioner.
Petitioner filed a motion for partial reconsideration of the trial courts order, praying that
the aforesaid relief of foreclosure and sale at public auction be granted. In an order dated
April 16, 1999, the trial court denied petitioners motion, ruling as follows:
Plaintiff, in opting to file a civil action for the collection of defendants obligations, has
abandoned its mortgage lien on the property subject of the real estate mortgage.
The issue has already been resolved in Danao vs. Court of Appeals, 154 SCRA 446, citing
Manila Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448, where the Supreme Court
ruled that:
The rule is now settled that a mortgage creditor may elect to waive his security and bring,
instead, an ordinary action to recover the indebtedness with the right to execute a
judgment thereon on all the properties of the debtor including the subject matter of the
mortgage, subject to the qualification that if he fails in the remedy by him elected, he
cannot pursue further the remedy he has waived.
WHEREFORE, the Partial Motion for Reconsideration filed by the plaintiff of the Courts
Order dated March 12, 1999 is hereby denied for lack of merit.
SO ORDERED.[10]
Hence, the present petition, where petitioner ascribes the following error to the trial
court.
THE REGIONAL TRIAL COURT OF CAVITE CITY ERRED IN RULING THAT PETITIONER HAD
ABANDONED THE REAL ESTATE MORTGAGE IN ITS FAVOR, BECAUSE IT FILED A SIMPLE
COLLECTION CASE.[11]
The resultant issue is whether or not petitioners complaint before the trial court was an
action for foreclosure of a real estate mortgage, or an action for collection of a sum of
money. In addition, we must also determine if the present appeal was correctly lodged
before us rather than with the Court of Appeals.
In petitioners complaint before the trial court, Paragraph 183 thereof alleges:
183. To secure payment of the obligations of defendant Corporation under the First to the
Twenty-Seventh Cause of Action, on February 9, 1996, defendant Corporation executed a
Real Estate Mortgage by virtue of which it mortgaged to plaintiff the improvements
standing on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, belonging to
defendant Corporation covered by Tax Declaration No. 5906-1 and consisting of a one-
story building called warehouse and spooling area, the guardhouse, the cutting/sewing
area building and the packing area building. (A copy of the Real Estate Mortgage is
attached hereto as Annex SS and made an integral part hereof.)[12]
This allegation satisfies in part the requirements of Section 1, Rule 68 of the 1997 Rules
of Civil Procedure on foreclosure of real estate mortgage, which provides:
SECTION 1. Complaint in action for foreclosure. In an action for the foreclosure of a
mortgage or other encumbrance upon real estate, the complaint shall set forth the date
and due execution of the mortgage; its assignments, if any; the names and residences of
the mortgagor and the mortgagee; a description of the mortgaged property; a statement
of the date of the note or other documentary evidence of the obligation secured by the
mortgage, the amount claimed to be unpaid thereon; and the names and residences of all
persons having or claiming an interest in the property subordinate in right to that of the
holder of the mortgage, all of whom shall be made defendants in the action.
In Paragraph 183 above, the date and due execution of the real estate mortgage are
alleged. The properties mortgaged are stated and described therein as well. In addition,
the names and residences of respondent Filkor, as mortgagor, and of petitioner, as
mortgagee, are alleged in paragraphs 1 and 2 of the complaint.[13] The dates of the
obligations secured by the mortgage and the amounts unpaid thereon are alleged in
petitioners first to twenty-seventh causes of action.[14] Moreover, the very prayer of the
complaint before the trial court reads as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered:
xxx
2. Ordering that the property mortgaged be foreclosed and sold at public auction in case
defendants fail to pay plaintiff within ninety (90) days from entry of judgment.
x x x[15]
Petitioners allegations in its complaint, and its prayer that the mortgaged property be
foreclosed and sold at public auction, indicate that petitioners action was one for
foreclosure of real estate mortgage. We have consistently ruled that what determines the
nature of an action, as well as which court or body has jurisdiction over it, are the
allegations of the complaint and the character of the relief sought.[16] In addition, we find
no indication whatsoever that petitioner had waived its rights under the real estate
mortgage executed in its favor. Thus, the trial court erred in concluding that petitioner
had abandoned its mortgage lien on Filkors property, and that what it had filed was an
action for collection of a sum of money.
Petitioners action being one for foreclosure of real estate mortgage, it was incumbent
upon the trial court to order that the mortgaged property be foreclosed and sold at public
auction in the event that respondent Filkor fails to pay its outstanding obligations. This is
pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure, which provides:
SEC. 2. Judgment on foreclosure for payment or sale.- If upon the trial in such action the
court shall find the facts set forth in the complaint to be true, it shall ascertain the
amount due to the plaintiff upon the mortgage debt or obligation, including interest and
other charges as approved by the court, and costs, and shall render judgment for the
sum so found due and order that the same be paid to the court or to the judgment
obligee within a period of not less than ninety (90) days nor more than one hundred
twenty (120) days from entry of judgment, and that in default of such payment the
property shall be sold at public auction to satisfy the judgment. (Italics supplied.)
Accordingly, the dispositive portion of the decision of the trial court dated March 12,
1999, must be modified to comply with the provisions of Section 2 of Rule 68 of the 1997
Rules of Civil Procedure. This modification is subject to any appeal filed by respondents of
said decision.
On the propriety of the present appeal, we note that what petitioner impugns is the
determination by the trial court of the nature of action filed by petitioner, based on the
allegations in the complaint. Such a determination as to the correctness of the
conclusions drawn from the pleadings undoubtedly involves a question of law.[17] As the
present appeal involves a question of law, petitioner appropriately filed it with this Court,
pursuant to Section 1 of Rule 45 of the 1997 Rules of Civil Procedure, which provides:
SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari
from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may
file with the Supreme Court a verified petition for review on certiorari. The petition shall
raise only questions of law which must be distinctly set forth. (Italics supplied).
There is no dispute with respect to the fact that when an appeal raises only pure
questions of law, this Court has jurisdiction to entertain the same.[18]
WHEREFORE, the petition is GRANTED. The Order dated March 12, 1999, of the Regional
Trial Court of Cavite City, Branch 88, in Civil Case No. N-6689 is hereby MODIFIED, to
state that the mortgaged property of respondent Filkor be ordered foreclosed and sold at
public auction in the event said respondent fails to pay its obligations to petitioner within
ninety (90) days from entry of judgment.
No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION G.R. No. 183984 April 13, 2011
ARTURO SARTE FLORES vs. SPOUSES ENRICO L. LINDO, JR. and EDNA C. LINDO
CARPIO, J.: The Case Before the Court is a petition for review1 assailing the 30 May
2008 Decision2 and the 4 August 2008 Resolution3 of the Court of Appeals in CA-G.R. SP
No. 94003.
The Antecedent Facts The facts, as gleaned from the Court of Appeals Decision, are as
follows: On 31 October 1995, Edna Lindo (Edna) obtained a loan from Arturo Flores
(petitioner) amounting to 400,000 payable on 1 December 1995 with 3% compounded
monthly interest and 3% surcharge in case of late payment. To secure the loan, Edna
executed a Deed of Real Estate Mortgage4 (the Deed) covering a property in the name of
Edna and her husband Enrico (Enrico) Lindo, Jr. (collectively, respondents). Edna also
signed a Promissory Note5and the Deed for herself and for Enrico as his attorney-in-fact.
Edna issued three checks as partial payments for the loan. All checks were dishonored for
insufficiency of funds, prompting petitioner to file a Complaint for Foreclosure of Mortgage
with Damages against respondents. The case was raffled to the Regional Trial Court of
Manila, Branch 33 (RTC, Branch 33) and docketed as Civil Case No. 00-97942.
In its 30 September 2003 Decision,6 the RTC, Branch 33 ruled that petitioner was not
entitled to judicial foreclosure of the mortgage. The RTC, Branch 33 found that the Deed
was executed by Edna without the consent and authority of Enrico. The RTC, Branch 33
noted that the Deed was executed on 31 October 1995 while the Special Power of
Attorney (SPA) executed by Enrico was only dated 4 November 1995.
The RTC, Branch 33 further ruled that petitioner was not precluded from recovering the
loan from Edna as he could file a personal action against her. However, the RTC, Branch
33 ruled that it had no jurisdiction over the personal action which should be filed in the
place where the plaintiff or the defendant resides in accordance with Section 2, Rule 4 of
the Revised Rules on Civil Procedure.
Petitioner filed a motion for reconsideration. In its Order7 dated 8 January 2004, the RTC,
Branch 33 denied the motion for lack of merit.
On 8 September 2004, petitioner filed a Complaint for Sum of Money with Damages
against respondents. It was raffled to Branch 42 (RTC, Branch 42) of the Regional Trial
Court of Manila, and docketed as Civil Case No. 04-110858.
Respondents filed their Answer with Affirmative Defenses and Counterclaims where they
admitted the loan but stated that it only amounted to 340,000. Respondents further
alleged that Enrico was not a party to the loan because it was contracted by Edna without
Enricos signature. Respondents prayed for the dismissal of the case on the grounds of
improper venue, res judicata and forum-shopping, invoking the Decision of the RTC,
Branch 33. On 7 March 2005, respondents also filed a Motion to Dismiss on the grounds
of res judicata and lack of cause of action.
The Decision of the Trial Court
On 22 July 2005, the RTC, Branch 42 issued an Order8 denying the motion to dismiss. The
RTC, Branch 42 ruled that res judicata will not apply to rights, claims or demands which,
although growing out of the same subject matter, constitute separate or distinct causes of
action and were not put in issue in the former action. Respondents filed a motion for
reconsideration. In its Order9 dated 8 February 2006, the RTC, Branch 42 denied
respondents motion. The RTC, Branch 42 ruled that the RTC, Branch 33 expressly stated
that its decision did not mean that petitioner could no longer recover the loan petitioner
extended to Edna.
Respondents filed a Petition for Certiorari and Mandamus with Prayer for a Writ of
Preliminary Injunction and/or Temporary Restraining Order before the Court of Appeals.
The Decision of the Court of Appeals
In its 30 May 2008 Decision, the Court of Appeals set aside the 22 July 2005 and 8
February 2006 Orders of the RTC, Branch 42 for having been issued with grave abuse of
discretion.
The Court of Appeals ruled that while the general rule is that a motion to dismiss is
interlocutory and not appealable, the rule admits of exceptions. The Court of Appeals
ruled that the RTC, Branch 42 acted with grave abuse of discretion in denying
respondents motion to dismiss.
The Court of Appeals ruled that under Section 3, Rule 2 of the 1997 Rules of Civil
Procedure, a party may not institute more than one suit for a single cause of action. If
two or more suits are instituted on the basis of the same cause of action, the filing of one
on a judgment upon the merits in any one is available ground for the dismissal of the
others. The Court of Appeals ruled that on a nonpayment of a note secured by a
mortgage, the creditor has a single cause of action against the debtor, that is recovery of
the credit with execution of the suit. Thus, the creditor may institute two alternative
remedies: either a personal action for the collection of debt or a real action to foreclose
the mortgage, but not both. The Court of Appeals ruled that petitioner had only one cause
of action against Edna for her failure to pay her obligation and he could not split the
single cause of action by filing separately a foreclosure proceeding and a collection case.
By filing a petition for foreclosure of the real estate mortgage, the Court of Appeals held
that petitioner had already waived his personal action to recover the amount covered by
the promissory note.
Petitioner filed a motion for reconsideration. In its 4 August 2008 Resolution, the Court of
Appeals denied the motion.
Hence, the petition before this Court.
The Issue
The sole issue in this case is whether the Court of Appeals committed a reversible error in
dismissing the complaint for collection of sum of money on the ground of multiplicity of
suits.
The Ruling of this Court The petition has merit.
The rule is that a mortgage-creditor has a single cause of action against a mortgagor-
debtor, that is, to recover the debt.10 The mortgage-creditor has the option of either filing
a personal action for collection of sum of money or instituting a real action to foreclose on
the mortgage security.11 An election of the first bars recourse to the second, otherwise
there would be multiplicity of suits in which the debtor would be tossed from one venue to
another depending on the location of the mortgaged properties and the residence of the
parties.12
The two remedies are alternative and each remedy is complete by itself. 13 If the
mortgagee opts to foreclose the real estate mortgage, he waives the action for the
collection of the debt, and vice versa.14 The Court explained:
x x x in the absence of express statutory provisions, a mortgage creditor may institute
against the mortgage debtor either a personal action for debt or a real action to foreclose
the mortgage. In other words, he may pursue either of the two remedies, but not both.
By such election, his cause of action can by no means be impaired, for each of the two
remedies is complete in itself. Thus, an election to bring a personal action will leave open
to him all the properties of the debtor for attachment and execution, even including the
mortgaged property itself. And, if he waives such personal action and pursues his remedy
against the mortgaged property, an unsatisfied judgment thereon would still give him the
right to sue for deficiency judgment, in which case, all the properties of the defendant,
other than the mortgaged property, are again open to him for the satisfaction of the
deficiency. In either case, his remedy is complete, his cause of action undiminished, and
any advantages attendant to the pursuit of one or the other remedy are purely accidental
and are all under his right of election. On the other hand, a rule that would authorize the
plaintiff to bring a personal action against the debtor and simultaneously or successively
another action against the mortgaged property, would result not only in multiplicity of
suits so offensive to justice (Soriano v. Enriques, 24 Phil. 584) and obnoxious to law and
equity (Osorio v. San Agustin, 25 Phil. 404), but also in subjecting the defendant to the
vexation of being sued in the place of his residence or of the residence of the plaintiff,
and then again in the place where the property lies.15
The Court has ruled that if a creditor is allowed to file his separate complaints
simultaneously or successively, one to recover his credit and another to foreclose his
mortgage, he will, in effect, be authorized plural redress for a single breach of contract at
so much costs to the court and with so much vexation and oppressiveness to the
debtor.16
In this case, however, there are circumstances that the Court takes into consideration.
Petitioner filed an action for foreclosure of mortgage. The RTC, Branch 33 ruled that
petitioner was not entitled to judicial foreclosure because the Deed of Real Estate
Mortgage was executed without Enricos consent. The RTC, Branch 33 stated:
All these circumstances certainly conspired against the plaintiff who has the burden of
proving his cause of action. On the other hand, said circumstances tend to support the
claim of defendant Edna Lindo that her husband did not consent to the mortgage of their
conjugal property and that the loan application was her personal decision.
Accordingly, since the Deed of Real Estate Mortgage was executed by defendant Edna
Lindo lacks the consent or authority of her husband Enrico Lindo, the Deed of Real Estate
Mortgage is void pursuant to Article 96 of the Family Code.
This does not mean, however, that the plaintiff cannot recover the 400,000 loan plus
interest which he extended to defendant Edna Lindo. He can institute a personal action
against the defendant for the amount due which should be filed in the place where the
plaintiff resides, or where the defendant or any of the principal defendants resides at the
election of the plaintiff in accordance with Section 2, Rule 4 of the Revised Rules on Civil
Procedure. This Court has no jurisdiction to try such personal action.17
Edna did not deny before the RTC, Branch 33 that she obtained the loan. She claimed,
however, that her husband did not give his consent and that he was not aware of the
transaction.18 Hence, the RTC, Branch 33 held that petitioner could still recover the
amount due from Edna through a personal action over which it had no jurisdiction.
Edna also filed an action for declaratory relief before the RTC, Branch 93 of San Pedro
Laguna (RTC, Branch 93), which ruled:
At issue in this case is the validity of the promissory note and the Real Estate Mortgage
executed by Edna Lindo without the consent of her husband.
The real estate mortgage executed by petition Edna Lindo over their conjugal property is
undoubtedly an act of strict dominion and must be consented to by her husband to be
effective. In the instant case, the real estate mortgage, absent the authority or consent of
the husband, is necessarily void. Indeed, the real estate mortgage is this case was
executed on October 31, 1995 and the subsequent special power of attorney dated
November 4, 1995 cannot be made to retroact to October 31, 1995 to validate the
mortgage previously made by petitioner.
The liability of Edna Lindo on the principal contract of the loan however subsists
notwithstanding the illegality of the mortgage. Indeed, where a mortgage is not valid, the
principal obligation which it guarantees is not thereby rendered null and void. That
obligation matures and becomes demandable in accordance with the stipulation pertaining
to it. Under the foregoing circumstances, what is lost is merely the right to foreclose the
mortgage as a special remedy for satisfying or settling the indebtedness which is the
principal obligation. In case of nullity, the mortgage deed remains as evidence or proof of
a personal obligation of the debtor and the amount due to the creditor may be enforced in
an ordinary action.
In view of the foregoing, judgment is hereby rendered declaring the deed of real estate
mortgage as void in the absence of the authority or consent of petitioners spouse
therein. The liability of petitioner on the principal contract of loan however subsists
notwithstanding the illegality of the real estate mortgage.19
The RTC, Branch 93 also ruled that Ednas liability is not affected by the illegality of the
real estate mortgage.
Both the RTC, Branch 33 and the RTC, Branch 93 misapplied the rules.
Article 124 of the Family Code provides:
Art. 124. The administration and enjoyment of the conjugal partnership property shall
belong to both spouses jointly. In case of disagreement, the husbands decision shall
prevail, subject to recourse to the court by the wife for proper remedy, which must be
availed of within five years from the date of contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other spouse may assume sole powers of
administration. These powers do not include disposition or encumbrance without authority
of the court or the written consent of the other spouse. In the absence of such authority
or consent the disposition or encumbrance shall be void. However, the transaction
shall be construed as a continuing offer on the part of the consenting spouse
and the third person, and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court before the offer is
withdrawn by either or both offerors. (Emphasis supplied)
Article 124 of the Family Code of which applies to conjugal partnership property, is a
reproduction of Article 96 of the Family Code which applies to community property.
Both Article 96 and Article 127 of the Family Code provide that the powers do not include
disposition or encumbrance without the written consent of the other spouse. Any
disposition or encumbrance without the written consent shall be void. However, both
provisions also state that "the transaction shall be construed as a continuing offer on the
part of the consenting spouse and the third person, and may be perfected as a
binding contract upon the acceptance by the other spouse x x x before the offer is
withdrawn by either or both offerors."
In this case, the Promissory Note and the Deed of Real Estate Mortgage were executed on
31 October 1995. The Special Power of Attorney was executed on 4 November 1995. The
execution of the SPA is the acceptance by the other spouse that perfected the
continuing offer as a binding contract between the parties, making the Deed of
Real Estate Mortgage a valid contract.
However, as the Court of Appeals noted, petitioner allowed the decisions of the RTC,
Branch 33 and the RTC, Branch 93 to become final and executory without asking the
courts for an alternative relief. The Court of Appeals stated that petitioner merely relied
on the declarations of these courts that he could file a separate personal action and thus
failed to observe the rules and settled jurisprudence on multiplicity of suits, closing
petitioners avenue for recovery of the loan.
Nevertheless, petitioner still has a remedy under the law.
In Chieng v. Santos,20 this Court ruled that a mortgage-creditor may institute against the
mortgage-debtor either a personal action for debt or a real action to foreclose the
mortgage. The Court ruled that the remedies are alternative and not cumulative and held
that the filing of a criminal action for violation of Batas Pambansa Blg. 22 was in effect a
collection suit or a suit for the recovery of the mortgage-debt.21 In that case, however,
this Court pro hac vice, ruled that respondents could still be held liable for the balance of
the loan, applying the principle that no person may unjustly enrich himself at the expense
of another.22
The principle of unjust enrichment is provided under Article 22 of the Civil Code which
provides:
Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.
There is unjust enrichment "when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience."23 The principle of unjust enrichment
requires two conditions: (1) that a person is benefited without a valid basis or
justification, and (2) that such benefit is derived at the expense of another.241avvphi1
The main objective of the principle against unjust enrichment is to prevent one from
enriching himself at the expense of another without just cause or consideration.25 The
principle is applicable in this case considering that Edna admitted obtaining a loan from
petitioners, and the same has not been fully paid without just cause. The Deed was
declared void erroneously at the instance of Edna, first when she raised it as a defense
before the RTC, Branch 33 and second, when she filed an action for declaratory relief
before the RTC, Branch 93. Petitioner could not be expected to ask the RTC, Branch 33
for an alternative remedy, as what the Court of Appeals ruled that he should have done,
because the RTC, Branch 33 already stated that it had no jurisdiction over any personal
action that petitioner might have against Edna.
Considering the circumstances of this case, the principle against unjust enrichment, being
a substantive law, should prevail over the procedural rule on multiplicity of suits. The
Court of Appeals, in the assailed decision, found that Edna admitted the loan, except that
she claimed it only amounted to 340,000. Edna should not be allowed to unjustly enrich
herself because of the erroneous decisions of the two trial courts when she questioned the
validity of the Deed. Moreover, Edna still has an opportunity to submit her defenses
before the RTC, Branch 42 on her claim as to the amount of her indebtedness.
WHEREFORE, the 30 May 2008 Decision and the 4 August 2008 Resolution of the Court
of Appeals in CA-G.R. SP No. 94003 are SET ASIDE. The Regional Trial Court of Manila,
Branch 42 is directed to proceed with the trial of Civil Case No. 04-110858.
 Metrobank issued various checks in favor of petitioners totaling P12,194,443.23,[11] the last one of which was
FIRST DIVISION dated July 24, 1991.[12]

Subsequently, SRBII and the Suico spouses were unable to pay their obligations prompting Metrobank to extra-
Suico Rattan & Buri Interiors, G.R. No. 138145 judicially foreclose the four mortgages constituted over the subject properties. Metrobank, being the lone and
Inc. and Spouses Esmeraldo highest bidder, acquired the said properties during the auction sale. A Certificate of Sale dated November 18,
and Elizabeth D. Suico Present: 1992 was then issued in its favor.[13]
Petitioners,
PANGANIBAN, CJ., Chairperson, On November 5, 1992, Metrobank filed an action for the recovery of a sum of money arising from the
YNARES-SANTIAGO, obligations of SRBII and the Suico spouses on their export bills purchases incurred between June and July,
- versus - AUSTRIA-MARTINEZ, 1991.[14] SRBII and the Suico spouses filed their Answer contending that their indebtedness are secured by a real
CALLEJO, SR. and estate mortgage and that the value of the mortgaged properties is more than enough to answer for all their
CHICO-NAZARIO, JJ. obligations to Metrobank.[15]
Court of Appeals and
Metropolitan Bank and Trust Promulgated: On June 8, 1993, the RTC issued a pre-trial order enumerating the parties claims, testimonial and documentary
Co., Inc., evidence to be presented and the issues raised.[16] Thereafter, trial ensued.
Respondents. June 15, 2006
x------------------------------------------------x After trial, the RTC rendered judgment on September 26, 1994 with the following dispositive portion:

WHEREFORE, foregoing premises considered, the Complaint is hereby dismissed. All obligations of defendants
to plaintiffs incurred by the former either as principal, surety or guarantor, which matured and had become due
DECISION and demandable on the date of the foreclosure of the Real Estate Mortgage are hereby declared already fully
paid by the mortgage security.

SO ORDERED.[17]
AUSTRIA-MARTINEZ, J.:
Aggrieved by the decision of the RTC, Metrobank filed an appeal with the CA.

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
Decision[1] of the Court of Appeals (CA) dated January 14, 1999 in CA-G.R. CV No. 48320, which reversed and set
aside the Decision[2] of the Regional Trial Court (RTC) of Cebu in Civil Case No. CEB-13156; and the CA Resolution
dated April 6, 1999, denying petitioners motion for reconsideration.[3]
The facts of the case are as follows:
Suico Rattan & Buri Interiors, Inc. (SRBII) is a domestic corporation engaged in the business of export of rattan
and buri products. Spouses Esmeraldo and Elizabeth Suico (Suico spouses) are officers of SRBII. On the other
hand, Metropolitan Bank and Trust Co., Inc. (Metrobank) is a commercial banking corporation duly organized
and existing under the laws of the Philippines.
In the course of its business, SRBII applied for a credit line with Metrobank. On September 5, 1991, SRBII and
Metrobank, Mandaue branch, entered into a Credit Line Agreement (Agreement) wherein the latter granted the
former a discounting line amounting to P7,000,000.00 and an export bills purchase or draft against payment line
(EBP/DP line) P10,000,000.00 for a maximum aggregate principal amount of P17,000,000.00.[4] As provided for
under the Agreement, drawings on the credit line are secured by a Continuing Surety Agreement for the sum
of P17,500,000.00 executed by the Suico spouses,[5] a Real Estate Mortgage executed on September 5, 1991 by
SRBII and the Suico spouses over properties located at Brgy. Tabok, Mandaue City, Cebu and covered by
Transfer Certificate of Title (TCT) Nos. 21663 and 21665, and Fire Insurance policies over the properties duly
endorsed in favor of Metrobank. The Agreement expressly provides that the EBP/DP line is clean.[6]
Previous to the execution of the Agreement, the Suico spouses had already incurred loan obligations from
Metrobank which are secured by separate Real Estate Mortgages executed on May 8, 1986,[7] March 23,
1987[8] and August 24, 1987[9] over the same properties which are the subject of the Real Estate Mortgage
executed on September 5, 1991. Between June 13, 1991 and July 11, 1991, SRBII also incurred obligations with
Metrobank by entering into twelve negotiations for the purchase of export bills by the former from the
latter. These obligations are evidenced by drafts drawn by SRBII in favor of Metrobank for a sum amounting to
US$441,279.25 which has a peso equivalent of P12,218,866.23.[10] As a consequence of these negotiations,
On January 14, 1999, the CA rendered a Decision disposing as follows:
WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE, and a new one rendered ordering
appellees, jointly and severally, to pay appellant the sum of P16,585,286.27 representing the principal
obligations and interests as of October 31, 1992, plus interest on the principal sum of P12,218,866.23 at the
rate of P26% per annum from November 1, 1992 until the said amounts are fully paid, the sum equivalent to
two percent (2%) of the total amount due as and for attorneys fees, and to pay the costs.
SO ORDERED.[18]
While the CA affirmed the trial courts ruling that under the provisions of the real estate mortgage contracts
executed by herein petitioners, the clear intent of the contracting parties is that the mortgages shall not be
limited to the amount secured under the said contracts but shall extend to other obligations that they may
obtain from Metrobank, including renewals or extensions thereof, the CA ruled that since the proceeds from
the foreclosure sale of the mortgaged properties amounted only to P10,383,141.63, the same is not sufficient to
answer for the entire obligation of petitioners to Metrobank and that the latter may still recover the deficiency
ofP16,585,286.27 representing the value of the export bills purchased by herein petitioners.
SRBII and the Suico spouses filed a Motion for Reconsideration but the same was denied by the CA through its
Resolution issued on April 6, 1999.[19]
Hence, the present petition with the following Assignment of Errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE REAL ESTATE MORTGAGE
DATED SEPTEMBER 5, 1991 SERVED AS THE COLLATERAL FOR ALL THE OBLIGATIONS OF THE PETITIONERS.
II
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECIDING THE CASE BASED ON AN ISSUE
NOT RAISED IN THE PLEADINGS OR ADMISSIONS OF THE PARTIES.
III
THE RESPONDENT COURT OF APPEALS ERRED IN NOT TAKING COGNIZANCE THAT RES JUDICATA HAD ALREADY
SET IN, IN VIEW OF THE TERMINATION OF THE PROCEEDINGS IN EXTRAJUDICIAL FORECLOSURE SALE.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN ORDERING THE PETITIONERS TO PAY SOLIDARILY THE AMOUNT
OF P16,585,286.27 REPRESENTING THE PRINCIPAL OBLIGATION AND INTEREST AS OF OCTOBER 31, 1992 AND
TO PAY AN INTEREST ON THE PRINCIPAL SUM OF P12,218,866,23 AT THE RATE OF 26% PER ANNUM FROM
NOVEMBER 1, 1992 UNTIL THE SAID AMOUNTS ARE FULLY PAID.
V attorneys fees by the CA is contrary to the general rule that attorneys fees cannot be recovered as part of
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS SUICO SPOUSES ARE SOLIDARILY
LIABLE WITH PETITIONER CORPORATION FOR PAYMENT OF INTEREST PRIOR TO THE FILING OF THE COMPLAINT.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN ORDERING PETITIONERS TO PAY THE SUM EQUIVALENT TO
TWO PERCENT (2%) OF THE TOTAL AMOUNT DUE AS AND FOR ATTORNEYS FEES AND TO PAY THE COSTS.[20]
As to the first assigned error, petitioners claim that the Real Estate Mortgage executed on September 5,
1991 answered for all their obligations to Metrobank. Petitioners contend that the language of the subject
mortgage contract is explicit in that it shall secure all other obligations of petitioners of whatever kind or nature,
whether direct or indirect, principal or secondary and whether said obligations have been contracted before,
during or after the execution of the said mortgage contract. Petitioners also contend that the secured
obligations shall include those which were incurred by petitioners from other branches of Metrobank because
the properties covered by the subject mortgage contract had earlier been mortgaged to the other branches of
Metrobank. Petitioners argue that despite the existence of prior mortgages, Metrobanks acceptance of the
mortgaged properties as collateral for their Credit Line Agreement only means that the value of the said
properties is sufficient to answer for the previous and present obligations of petitioners and that Metrobank
accepts the said properties as continuing collaterals. Petitioners argue that Metrobank is now estopped from
claiming that the subject mortgage contract does not answer for all of petitioners obligations in its favor.
With respect to the second assigned error, petitioners contend that the CA erred in ruling that the banks cause
of action is based on its claim for a deficiency judgment arising from insufficient proceeds of the foreclosure sale
of the mortgaged properties; Metrobanks cause of action is for a sum of money; at the time of the filing of the
complaint, there is no deficiency judgment to speak of because the complaint was filed on November 5, 1992
while the foreclosure sale was only held on November 18, 1992; the complaint was not amended to include
recovery of the deficiency as part of its cause of action.
Anent the third assignment of error, petitioners assert that Metrobank is guilty of splitting a single cause of
action when it filed its complaint for a sum of money on November 5, 1992 and, thereafter, on November 18,
1992, foreclosed the properties subject matter of the mortgage. Petitioners contend that in the event that a
mortgage debtor fails to pay his obligation, the mortgage creditor has the option to file an action to collect the
indebtedness or to foreclose the property subject matter of the mortgage. However, the creditor may not
pursue both remedies. Petitioners contend that the present action for a sum of money is already barred
by resjudicata by reason of the extrajudicial foreclosure sale of the mortgaged properties, as evidenced by the
execution of the Definite Deed of Sale in favor of Metrobank on January 21, 1994.
As to the fourth assigned error, petitioners contend that the CA erred in holding that they are still liable to pay
the deficiency in their obligation which was not covered by the proceeds of the sale of the foreclosed
mortgaged properties. Petitioners assert that in bidding and in subsequently buying the subject mortgaged
properties during the foreclosure sale for a price which is much lower than their market value, Metrobank
effectively prevented petitioners from paying their entire obligation. Petitioners claim that they are not
interested in the redemption of the foreclosed properties, rather they are more concerned with the payment of
their obligation considering that these properties are the only ones with which they expect to settle their
indebtedness. Hence, since Metrobank, in buying the foreclosed properties at a very low price, prevented
petitioners from paying their entire obligation, it is already barred by the principle of estoppel, equity and fair
play from recovering the remaining balance of petitioners obligation to it.
With respect to the fifth assigned error, the Suico spouses contend that the CA committed error in holding them
solidarily liable with SRBII for the payment of the remaining balance of the latters obligation plus interest on the
ground that they are mere sureties and as such they can only be held liable if the principal does not pay. Absent
any showing that SRBII cannot pay, petitioners contend that they are not liable to pay. The Suico spouses also
contend that, as sureties, they are liable to pay interest only at the time of the filing of the complaint.
As to the last assigned error, petitioners contend that the CA erred in awarding attorneys fees equivalent to 2%
of the total amount due because petitioners did not act in bad faith nor did they willfully refuse to pay their
obligation, which allegedly prompted Metrobank to litigate. Moreover, petitioners argue that the award of
damages because of the policy that no premium should be placed on the right to litigate.
In its Comment, respondent bank contends that the export bills purchases made by petitioners are not secured
by any real estate mortgage. To support its argument respondent bank cites the stipulation contained in the
Credit Line Agreement that the export bills purchases are clean or unsecured. Respondent bank further argues
that the export bills purchases were availed of by petitioners through the banks Cebu Downtown Center Branch
(otherwise referred to in the records as the Plaridel Branch) while the other loan obligations of petitioners,
which were secured by real estate mortgages, were obtained from its Mandaue City Branch. Moreover,
respondent bank asserts that petitioners obligations with the formers Mandaue City Branch are evidenced by
documents which are distinct and separate from the documents representing petitioners export bills purchases
with the Metrobank Cebu Downtown Center Branch. In any case, respondent bank contends that even if the
real estate mortgage contracts executed by petitioners be considered as securing all of the latters obligations,
including their export bills purchases, the fact remains that the foreclosure of the mortgaged properties
generated an amount which is insufficient to answer for all the obligations of petitioners to respondent
bank. Respondent bank contends that under the law, it is not prevented from claiming the balance of
petitioners obligation which was not covered by the proceeds of the foreclosure sale. Respondent bank also
argues that it is erroneous for petitioners to claim that just because it (Metrobank) did not require petitioners
to put up additional security when they availed of subsequent loans, the previous mortgages are already
sufficient to secure all their subsequent obligations.
Respondent bank further contends that the CA is correct in ruling that it (Metrobank) is entitled to deficiency
judgment considering that petitioners themselves raised the issue that the real estate mortgages they executed
secured all their obligations with respondent bank. Respondent argues that the issue on deficiency judgment
necessarily arose because the proceeds of the foreclosure sale are not sufficient to answer for all the obligations
of petitioners to respondent bank. In any case, respondent bank contends that the CA is clothed with ample
authority to resolve an issue even if it is not raised if such resolution is necessary in arriving at a just decision.
Respondent bank asserts that there is no splitting of cause of action because the complaint it filed against
petitioners is simply for the purpose of collecting the balance of the latters obligation which was not covered by
the proceeds of the sale of the mortgaged properties.
Respondent bank also contends that the Suico spouses are solidarily liable with SRBII because by reason of their
execution of the Continuing Surety Agreement, the spouses liability became direct, primary and absolute.
As to the attorneys fees awarded by the CA, respondent bank counters that petitioners are guilty of fraud and
misrepresentation when they gave their assurance and warranty that documents such as letters of credit and
commercial invoices are valid and existing when, in fact, they are not, thereby inducing respondent bank to
grant and approve its transactions with petitioners involving the export bills purchases. By reason of such fraud
and misrepresentation, respondent bank contends that it was compelled to incur expenses to protect its
interest and enforce its claims.
The Court finds the petition partly meritorious.
The issues raised boil down to two basic questions: first, whether the mortgage contract executed on
September 5, 1991 serves as security for all the obligations of petitioners to respondent bank; and second,
whether the foreclosure of the mortgaged properties precludes respondent bank from claiming the sum
of P16,585,286.27 representing the amount covered by the export bills purchased by herein petitioners
between June and July 1991.
As to the first question, the Court agrees with petitioners that all their obligations, including their indebtedness
arising from their purchase of export bills, are secured by the Real Estate Mortgage contract executed
on September 5, 1991. We are not persuaded by respondent banks contention that the export bills purchases of
petitioners from June 13, 1991 to July 11, 1991 were not secured by any real estate mortgage because of the
stipulation in the Agreement that the export bill purchase/draft against payment (EBP/DP) line is clean, which
means that it is unsecured.
The following provisions appear in the Agreement:
WHEREAS, the CLIENT is desirous of obtaining credit accommodations from the BANK and the latter is willing to
extend such credit accommodations to the CLIENT upon the terms and conditions hereinafter stipulated.
NOW, THEREFORE, the CLIENT and the BANK, in consideration of the following terms and conditions have
agreed and covenanted as follows:
1. The BANK hereby grants and shall make available to the CLIENT a credit line up to the aggregate principal
amount of PESOS: SEVENTEEN MILLION ONLY (P17,000,000.00) PESOS in lawful currency of the Republic of the
Philippines, to be availed as follows:
P 7,000,000.00 - DISCOUNTING LINE (REM) for one (1)
year, interest at prevailing rate, available by way of PNs not more than 360 days, discounted.
10,000,000.00 - EBP/DP LINE (CLEAN) for one (1) year,
interest at prevailing rate.
2. Drawings on the line shall be secured by:
1. Continuing Suretyship of Spouses Esmeraldo Suico and Elizabeth D. Suico.
2. REM for P7.0 MM over TCT Nos. 21663 & 21665 w/ an aggregate area of 10,318 sq. m. and situated at
Brgy. Tabok, Mandaue City, for item 1 only
3. Fire Insurance policy(ies) duly endorsed in banks favor.
[21] (Emphasis supplied)
It is true that the terms contained in the Agreement provide that the EBP/DP LINE is clean and that it is only
those drawings made on the DISCOUNTING LINE which are secured by the mortgage constituted by petitioners
spouses Suico over the subject properties. However, a perusal of the entire Agreement shows that the credit
line extended to petitioners refers only to transactions that the latter may enter into after the execution of the
said Agreement. There is nothing in the said document which shows that the credit line covered the export bill
purchases incurred prior to the execution of the Agreement. In other words, the provision that the EBP/DP LINE
is clear or not covered by real estate mortgage simply refers to credit accommodations which petitioners may
avail from respondent bank subsequent to the execution of the Agreement. It does not, in any way, refer to
credit accommodations which were already extended by respondent bank to petitioners prior to September 5,
1991, the date the Agreement was constituted. The parties could not have intended that the Agreement shall
also pertain to the export bills purchases made by petitioners prior to its execution, that is, between June and
July 1991, considering that the maximum amount covered by the EBP/DP LINE under the Agreement is
only P10,000,000.00 while the outstanding obligation of petitioners for the export bills purchases as of July 1991
already totaled US$441,279.25 which, at the time of the transactions, had a peso equivalent of P12,218,866.23.
On the other hand, pertinent portions of the Real Estate Mortgage executed on the same date as the
Agreement provide as follows:
That for and in consideration of certain loans and other credit accommodations obtained from the
Mortgagee amounting to SIX MILLION TWO HUNDRED FIFTY THOUSAND (P6,250,000.00) PESOS ONLY Philippine
Currency, and to secure the payment of the same and those others that the Mortgagee may heretofore have
extended or hereafter extend to the Mortgagor and/or SUICO RATTAN & BURI INTERIORS, INC., a domestic
corporation with principal office and place of business at Tabok, Mandaue City, Philippines, hereinafter referred
to, regardless of number, as the Borrower, including interest at the rate specified in the promissory note(s) or
other evidence of indebtedness secured by this mortgage and expenses, and all other obligations of the
Mortgagor/Borrower to the Mortgagee of whatever kind or nature, whether direct or indirect, principal or
secondary, as appear in the accounts, books and records of the Mortgagee, whether such obligations have
been contracted before, during or after the constitution of this mortgage, the Mortgagor does hereby transfer
and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are
described in the list inserted at the back of this document, or in a supplementary list attached hereto, together
with all the buildings and improvements now existing or which may hereafter be erected or constructed
thereon and all easements, sugar quotas, agricultural or land indemnities, aids or subsidies, including all other
rights or benefits annexed to or inherent therein, now existing or which may hereafter exist, and also other
assets acquired with the proceeds of the loan hereby secured, all of which the Mortgagor declares that he is the
absolute owner free from all liens and encumbrances.
[22] (emphasis supplied)
From the language of the contract, it is clear that the mortgaged properties were intended to secure all loans,
credit accommodations and all other obligations of herein petitioners to Metrobank, whether such obligations
have been contracted before, during or after the constitution of the mortgage.
The Court finds no conflict between the provisions of the Agreement and the Real Estate Mortgage contract
both dated September 5, 1991, insofar as the export bills purchases from June 13, 1991 to July 11, 1991 are
concerned. The stipulations in the September 5, 1991 Agreement refer only to future export bill purchases, thus
excluding those purchases made in June and July, 1991; even as the provisions of the subject Real Estate
Mortgage pertain to all obligations of petitioners including those which were constituted even before the
execution of the said mortgage. Thus, although the Agreement does not refer to export bill purchases incurred
prior to the execution of said Agreement, the Real Estate Mortgage encompasses all obligations incurred by
petitioners, including the June and July 1991 export bill purchases but not the purchases made after September
5, 1991 under the Agreement.
Neither is the Court persuaded by respondent banks contention that petitioners obligations arising from their
purchase of export bills is separate and distinct from their other loan obligations with respondent bank because
the export bills purchases were availed by petitioners through the banks Cebu Downtown Center/Plaridel
branch while the other loan obligations of petitioners were obtained from its Mandaue City branch.
The Court quotes, with approval, the trial courts ratiocination on this matter:
It matters not that the EBP/DP line was availed of by defendants with the Plaridel branch, because the Credit
Line Agreement and the Real Estate Mortgages clearly indicate that defendants were indebted to plaintiff bank
and not to its Mandaue or Plaridel branch. This is clearly evident in the opening paragraph of the Credit Line
Agreement and the Real Estate Mortgages when plaintiff defines itself as a Commercial Banking Corporation
organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal offices
and places of business at Metrobank Plaza, Gil. J. Puyat Avenue, Makati, Metro Manila. Clearly therefore,
defendants were deemed to be indebted to plaintiff with main office in Makati and not with its Mandaue or
Plaridel branch.
[23]
It bears to note that the complaint for a sum of money was filed in the name of Metrobank alone, without
impleading its Plaridel or Mandaue branches. By not impleading either of these branches, it only goes to show
that respondent bank, itself, insofar as the present case is concerned, considers the whole
Metrobank corporation as the aggrieved party. Hence, it is now estopped from claiming that the mortagaged
properties secure only those transactions entered into with its Mandaue branch simply because the mortgage
contracts were entered into through the said branch. It does not matter that the export bills purchases of
petitioners were entered into through the facility of respondent banks Plaridel branch and evidenced by
separate and distinct documents because in all these transactions there is only one creditor, which is the
corporate entity known as Metrobank.
On the other hand, the Court is not persuaded by petitioners claim that the foreclosed properties command a
market price of P50,000,000.00 at the time of the foreclosure sale. No evidence appears on record to prove this
allegation. Granting that the mortgaged properties were sold during the auction for an amount which is way
below their market price, the same does not place the petitioners at a disadvantage. On the contrary, the low
price works to their advantage because it would be easier for them to redeem the property sold. The Court
agrees with the CA when it cited the case of Prudential Bank v. Martinez where the Court held as follows:
Moreover, the fact that the mortgaged property is sold at an amount less than its actual market value should
not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the
contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When
there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may
reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by
the reason of the price obtained at the auction sale. (De Leon v. Salvador, L-30871, December 28, 1970 and
Bernabe v. Cruz, et. al., L-31603, December 28, 1970; 36 SCRA 567). Generally, in forced sales, low prices are
usually offered and the mere inadequacy of the price obtained at the sheriffs sale unless shocking to the
conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a
better price can be obtained (Ponce de Leon v. Rehabilitation Finance Corporation, L-24571, December 18,
1970, 36 SCRA 289).[24]
Hence, it is wrong for petitioners to conclude that when respondent bank supposedly bought the foreclosed
properties at a very low price, the latter effectively prevented the former from satisfying their whole
obligation. Petitioners still had the option of either redeeming the properties and, thereafter, selling the same
for a price which corresponds to what they claim as the properties actual market value or by simply selling their
right to redeem for a price which is equivalent to the difference between the supposed market value of the said
properties and the price obtained during the foreclosure sale. In either case, petitioners will be able to recoup
the loss they claim to have suffered by reason of the inadequate price obtained at the auction sale and, thus,
enable them to settle their obligation with respondent bank. Moreover, petitioners are not justified in
concluding that they should be considered as having paid their obligations in full since respondent bank was the
one who acquired the mortgaged properties and that the price it paid was very inadequate. The fact that it is
respondent bank, as the mortgagee, which eventually acquired the mortgaged properties and that the bid price
was low is not a valid reason for petitioners to refuse to pay the remaining balance of their obligation. Settled is
the rule that a mortgage is simply a security and not a satisfaction of indebtedness.[25]
As to petitioners contention that they are not liable to pay since there is no showing that the principal debtor
cannot pay, the time-honored rule is that the surety obligates himself to pay the debt if the principal debtor will
not pay, regardless of whether or not the latter is financially capable to fulfill his obligation.[26] Thus, a creditor
can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand
is made on the principal debtor.[27] Although a surety contract is secondary to the principal obligation, the
liability of the surety is direct, primary and absolute; or equivalent to that of a regular party to the
undertaking.[28] A surety is considered in law to be on the same footing as the principal debtor in relation to
whatever is adjudged against the latter.[29]
Equally settled is the principle that contracts have the force of law between the parties and are to be complied
with in good faith.[30] From the moment the contract is perfected, the parties are bound to comply with what is
expressly stipulated as well as with what is required by the nature of the obligation in keeping with good faith,
usage and the law.[31] In the present case, it is clear from the Continuing Surety Agreement[32] executed by the
Suico spouses that they hold themselves solidarily liable with SRBII in the payment of the latters obligations to
respondent bank to the extent of P17,500,000.00, plus interests and other incidental charges such as penalties,
costs and expenses in collecting their obligation. The same principle applies with respect to the payment of
interest. It is clear from the various letters executed by SRBII in favor of respondent bank that it agreed to pay
interest in favor of respondent bank at the rate of 26% per annum based on the value of the draft, the same to
be reckoned after twelve days from the date of purchase or from the date of dishonor, whichever is earlier, up
to the date of final payment.[33] Since the Suico spouses obligated themselves to be solidarily bound with SRBII,
it follows that they are also liable to pay interest as stipulated in the above-cited letters.
Having settled that the mortgaged properties served as security for all the petitioners obligations to Metrobank
and that the formers liability is solidary, the next question to be resolved is whether, under the facts and
circumstances obtaining in the present case, the respondent bank is precluded from recovering the amount
representing the value of the export bills purchased by petitioners from it in June and July, 1991.
The rule is settled that a mortgage creditor may, in the recovery of a debt secured by a real estate mortgage,
institute against the mortgage debtor either a personal action for debt or a real action to foreclose the
mortgage.[34] These remedies available to the mortgage creditor are deemed alternative and not cumulative. An
election of one remedy operates as a waiver of the other.[35] In sustaining the rule that prohibits mortgage
creditors from pursuing both the remedies of a personal action for debt or a real action to foreclose the
mortgage, the Court held in the case of Bachrach Motor Co., Inc. v. Esteban Icarangal, et al. that a rule which
would authorize the plaintiff to bring a personal action against the debtor and simultaneously or successively
another action against the mortgaged property, would result not only in multiplicity of suits so offensive to
justice and obnoxious to law and equity, but also in subjecting the defendant to the vexation of being sued in
the place of his residence or of the residence of the plaintiff, and then again in the place where the property
lies.[36] Hence, a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the
complaint in an action for foreclosure of mortgage, pursuant to the provisions of Rule 68 of the Rules of
Court.[37] As to extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of
the petition not with any court of justice but with the office of the sheriff of the province where the sale is to be
made, in accordance with the provisions of Act No. 3135, as amended by Act No. 4118.[38]
Records show that the complaint for a sum of money was filed with the RTC on November 5, 1992. On the other
hand, there is no direct evidence to show when respondent bank filed a petition with the provincial sheriff
of Cebu for the extrajudicial foreclosure of the mortgaged properties. The petition for extrajudicial foreclosure
of the mortgaged properties was not presented in evidence. What appears on record is that the auction sale of
the foreclosed properties was conducted on November 17, 1992. However, as mentioned earlier, the remedy of
extrajudicial foreclosure is deemed chosen not on the date of foreclosure sale but upon the filing of the petition
for foreclosure with the office of the sheriff of the province where the sale is to be made. Hence, for purposes
of determining which remedy was first elected the personal action for debt or the real action for foreclosure
there is a need to determine when the respondent bank filed a petition for extrajudicial foreclosure.
The Certificate of Sale executed by the Ex-Officio Provincial Sheriff indicates that the extrajudicial foreclosure
sale was conducted on November 17, 1992.[39] In the absence of evidence to the contrary, the Court presumes
that the sheriff regularly performed his duties and that the ordinary course of business had been followed in the
conduct of the auction sale.[40] Section 3 of Act No. 3135, as amended by Act No. 4118 provides:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public
places of the municipality or city where the property is situated and if such property is worth more than four
hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city. (Emphasis supplied)
Hence, it is reasonable to assume that the requirements regarding notice and publication prior to the conduct
of the sale have been complied with. Going back 20 days from November 17, 1992, which was the date the
auction sale was conducted, the petition for extrajudicial foreclosure could have been filed by respondent bank
not later than October 27, 1992. Considering that the complaint for a sum of money was only filed
on November 5, 1992, the only conclusion that can be arrived at is that respondent bank first elected to avail of
the remedy of extrajudicial foreclosure. Thus, by availing of such remedy it is deemed to have waived its right to
file an ordinary case for collection.
The question that remains then is: may the complaint for a sum of money filed by respondent bank be
considered as a suit for the recovery of deficiency in petitioners obligation?
The Court rules in the negative.
It is undisputed that the suit filed by respondent bank with the trial court was a personal action for the
collection of a sum of money. The complaint was premised on the refusal of herein petitioners buyers to pay
and accept the value of the drafts or bills of exchange and the subsequent failure of petitioners to answer for
the value of the said drafts plus interest upon notice and demand sent by respondent bank. There was no
mention, either in the body of the complaint or in the prayer, for the recovery of the balance of petitioners
obligations which were not covered by the foreclosure sale. In fact, the foreclosure sale was not even
mentioned. In other words, in filing the complaint with the RTC, respondent bank was not suing for any
deficiency. Understandably, the respondent bank could not have claimed such deficiency because, as correctly
observed by petitioners, at the time of the filing of the complaint on November 5, 1992, the foreclosure sale is
yet to be conducted. Hence, the complaint cannot, in any way, be construed as an action for the recovery of
deficiency in petitioners obligation. It is actually an ordinary action for collection which is barred by reason of
respondents prior election of the remedy of foreclosure. Thus, the Court is left with no recourse but to sustain
the dismissal of the complaint by the RTC subject to the right of Metrobank to recover the alleged deficiency, as
will be discussed forthwith. It must be emphasized that as aptly observed by petitioners, Metrobank did not
amend its complaint accordingly.

Given the fact that the proceeds of the auction sale were not sufficient to answer for the entire obligation of
petitioners to respondent bank, the latter still has the right to recover the balance due it after applying the
proceeds of the sale. We agree with the CA that where the mortgage creditor chooses the remedy of
foreclosure and the proceeds of the foreclosure sale are insufficient to cover the debt, the mortgagee is entitled
to claim the deficiency from the debtor.[41] The law gives the mortgagee the right to claim for the deficiency
resulting from the price obtained in the sale of the property at public auction and the outstanding obligation at
the time of the foreclosure proceedings.[42] This rule is based on the principle earlier mentioned that the
mortgage is only a security and not a satisfaction of the mortgagors entire obligation. Moreover, unlike in
pledge[43] and chattel mortgage on a thing sold on installment,[44] where the Civil Code expressly forecloses the
right of creditors to sue for any deficiency resulting from the sale of the property given as a security for the
obligation, there is nothing in Act. No. 3135,[45] the law governing extrajudicial foreclosures, which expressly or
impliedly prohibits the recovery of such deficiency. If the legislature had intended to deny the creditor the right
to sue for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law
would expressly so provide.[46] Absent such a provision in Act. No. 3135, as amended, the creditor is not
precluded from taking action to recover any unpaid balance on the principal obligation simply because he chose
to extrajudicially foreclose the real estate mortgage.[47] Hence, in the present case, the Courts dismissal of the
complaint should be without prejudice to the filing of another action for the recovery of the balance left in
petitioners obligation after the foreclosure sale of the mortgaged properties.

The CA or this Court has no jurisdiction to rule on the amount of deficiency that is yet to be claimed and proved
in the proper forum by Metrobank.

WHEREFORE, the petition is partially GRANTED. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 48320 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Cebu, Branch 8
in Civil Case No. CEB-13156 is REINSTATED with MODIFICATION to the effect that the portion of the RTC
Decision, declaring that all obligations of defendants to plaintiffs incurred by the former either as principal,
surety or guarantor, which matured and had become due and demandable on the date of the foreclosure of the
Real Estate Mortgage are considered fully paid by the mortgage security, is DELETED subject to the right of
Metropolitan Bank and Trust Co., Inc. to recover the amount of deficiency in a proper action in the proper court.

No pronouncement as to cost.

SO ORDERED.
THIRD DIVISION amount, which is in the custody of Atty. Luna as Branch Clerk of Court, should be turned over to them pursuant
to Section 4, Rule 68 of the Revised Rules of Civil Procedure. Thus, respondents pray in their Petition for
Injunction for a judgment (1) finding Monzon liable to the spouses Perez in the amount of P1,215,000.00 and to
TERESITA MONZON, G.R. No. 171827 the spouses Relova in the amount of P385,000.00; (2) ordering Atty. Luna to deliver said amounts to
Petitioner, respondents; and (3) restraining Atty. Luna from delivering any amount to Monzon pending such delivery in
Present: number (2).
- versus -
YNARES-SANTIAGO, J., Monzon, in her Answer, claimed that the Petition for Injunction should be dismissed for failure to state a cause
SPS. JAMES & MARIA ROSA NIEVES RELOVA and Chairperson, of action.
SPS. BIENVENIDO & EUFRACIA PEREZ, AUSTRIA-MARTINEZ,
Respondents. CHICO-NAZARIO, Monzon likewise claimed that respondents could no longer ask for the enforcement of the two promissory
NACHURA, and notes because she had already performed her obligation to them by dacion en pago as evidenced by the Deed
- versus - REYES, JJ. of Conditional Sale and the Deed of Absolute Sale. She claimed that petitioners could still claim the portions
sold to them if they would only file the proper civil cases. As regards the fund in the custody of Atty. Luna,
ADDIO PROPERTIES, INC., respondents cannot acquire the same without a writ of preliminary attachment or a writ of garnishment in
Intervenor. Promulgated: accordance with the provisions of Rule 57 and Section 9(c), Rule 39 of the Revised Rules of Civil Procedure.

September 17, 2008 On 5 December 2001, the RTC, citing the absence of petitioner and her counsel on said hearing date despite due
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x notice, granted an oral Motion by the respondents by issuing an Order allowing the ex parte presentation of
evidence by respondents.[2]

DECISION On 1 April 2002, the RTC rendered a Decision in favor of respondents. The pertinent portions of the Decision are
as follows:

CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari assailing the Decision[1] of the Court of Appeals dated 27 September
2005 and its Resolution dated 7 March 2006 in CA-G.R. CV No. 83507 affirming the Decision of the Regional Trial
Court (RTC) of TagaytayCity, Branch 18.
The factual and procedural antecedents of this case are as follows:
On 18 October 2000, the spouses James and Maria Rosa Nieves Relova and the spouses Bienvenido and Eufracia
Perez, respondents before this Court, filed against Atty. Ana Liza Luna, Clerk of Court of Branch 18 of the RTC of
Tagaytay City, and herein petitioner Teresita Monzon an initiatory pleading captioned as a Petition for
Injunction. The case, which was filed before the same Branch 18 of the RTC of Tagaytay City, was docketed as
Civil Case No. TG-2069.
In their Petition for Injunction, respondents alleged that on 28 December 1998, Monzon executed a promissory
note in favor of the spouses Perez for the amount of P600,000.00, with interest of five percent per month,
payable on or before 28 December 1999.This was secured by a 300-square meter lot in Barangay
Kaybagal, Tagaytay City. Denominated as Lot No. 2A, this lot is a portion of Psu-232001, covered by Tax
Declaration No. 98-008-1793. On 31 December 1998, Monzon executed a Deed of Absolute Sale over the said
parcel of land in favor of the spouses Perez.
Respondents also claim in their Petition for Injunction that on 29 March 1999, Monzon executed another
promissory note, this time in favor of the spouses Relova for the amount of P200,000.00 with interest of five
percent per month payable on or before 31 December 1999. This loan was secured by a 200 square meter lot,
denominated as Lot No. 2B, another portion of the aforementioned Psu-232001 covered by Tax Declaration No.
98-008-1793. On 27 December 1999, Monzon executed a Deed of Conditional Sale over said parcel of land in
favor of the spouses Relova.
On 23 October 1999, the Coastal Lending Corporation extrajudicially foreclosed the entire 9,967-square meter
property covered by Psu-232001, including the portions mortgaged and subsequently sold to
respondents. According to the Petition for Injunction, Monzon was indebted to the Coastal Lending Corporation
in the total amount of P3,398,832.35. The winning bidder in the extrajudicial foreclosure, Addio Properties Inc.,
paid the amount of P5,001,127.00, thus leaving a P1,602,393.65 residue. According to respondents, this residue
That [petitioner] Teresita Monzon owes [herein respondents] certain sums of money is indisputable. Even
[Monzon] have admitted to this in her Answer. [Respondents] therefore are given every right to get back and
collect whatever amount they gave [Monzon] together with the stipulated rate of interest.
Likewise, it has been established that [petitioner] Teresita Monzon has the amount of P1,602,393.65 in the
possession of the Clerk of Court, Atty. Ana Liza M. Luna. This amount, as is heretofore stated, represented the
balance of the foreclosure sale of [Monzons] properties.
By way of this petition, [respondents] would want to get said amount so that the same can be applied as full
payment of [petitioners] obligation. That the amount should be divided between the [respondents] in the
amount they have agreed between themselves; [respondent] spouses Relova to receive the amount
of P400.00.00, while the spouses Perez shall get the rest.
WHEREFORE, judgment is hereby rendered ordering the x x x Clerk of Court, Atty. Ana Liza M. Luna, to deliver
unto [herein respondents] the amount of P1,602,393.65 plus whatever interest she may received if and when
the said amount has been deposited in any banking institution.[3]
The Decision also mentioned that the Order allowing the ex parte presentation of evidence by respondents was
due to the continuous and incessant absences of petitioner and counsel.[4]
On 25 April 2002, Monzon filed a Notice of Appeal, which was approved by the trial court. Monzon claims that
the RTC gravely erred in rendering its Decision immediately after respondents presented their evidence ex
parte without giving her a chance to present her evidence, thereby violating her right to due process of law.
On 14 June 2002, Addio Properties, Inc. filed before the trial court a Motion for Intervention, which was granted
by the same court on 12 July 2002.
On 27 September 2005, the Court of Appeals rendered the assailed Decision dismissing the appeal. According to
the Court of Appeals, Monzon showed tepid interest in having the case resolved with dispatch. She, thus,
cannot now complain that she was denied due process when she was given ample opportunity to defend and
assert her interests in the case. The Court of Appeals reminded Monzon that the essence of due process is
reasonable opportunity to be heard and submit evidence in support of ones defense. What the law proscribes is
lack of opportunity to be heard. Monzons Motion for Reconsideration was denied in a Resolution dated 7 March
2006.
On 27 March 2006, Monzon filed the instant Petition for Review on Certiorari under Rule 45 of the Rules of
Court.
Monzon claims anew that it was a violation of her right to due process of law for the RTC to render its Decision
immediately after respondents presented their evidence ex parte without giving her a chance to present her
evidence. Monzon stresses that she was never declared in default by the trial court. The trial court should have,
thus, set the case for hearing for the reception of the evidence of the defense. She claims that she never waived
her right to present evidence.
Monzon argues that had she been given the opportunity to present her evidence, she would have proven that
(1) respondents Exhibit A (mortgage of land to the spouses Relova) had been novated by respondents Exhibit B
(sale of the mortgage land to the spouses Relova); (2) respondents Exhibit C (mortgage of land to the spouses
Perez) had been novated by respondents Exhibit B (sale of the mortgage land to the spouses Perez); and (3)
having executed Exhibits B and D, Monzon no longer had any obligation towards respondents.
The Order by the trial court which allowed respondents to present their evidence ex parte states:
In view of the absence of [Monzon] as well as her counsel despite due notice, as prayed for by counsel for by
[respondents herein], let the reception of [respondents] evidence in this case be held ex-parte before a
commissioner who is the clerk of court of this Court, with orders upon her to submit her report immediately
upon completion thereof.[5]
It can be seen that despite the fact that Monzon was not declared in default by the RTC, the RTC nevertheless
applied the effects of a default order upon petitioner under Section 3, Rule 9 of the Rules of Court:
SEC. 3. Default; declaration of.If the defending party fails to answer within the time allowed therefor, the court
shall, upon motion of the claiming party with notice to the defending party, and proof of such failure, declare
the defending party in default. Thereupon, the court shall proceed to render judgment granting the claimant
such relief as his pleading may warrant, unless the court in its discretion requires the claimant to submit
evidence. Such reception of evidence may be delegated to the clerk of court.
(a) Effect of order of default.A party in default shall be entitled to notice of subsequent proceedings but not to
take part in the trial.
In his book on remedial law, former Justice Florenz D. Regalado writes that failure to appear in hearings is not a
ground for the declaration of a defendant in default:
Failure to file a responsive pleading within the reglementary period, and not failure to appear at the hearing, is
the sole ground for an order of default (Rosario, et al. vs. Alonzo, et al., L-17320, June 29, 1963), except the
failure to appear at a pre-trial conference wherein the effects of a default on the part of the defendant are
followed, that is, the plaintiff shall be allowed to present evidence ex parte and a judgment based thereon may
be rendered against the defendant (Section 5, Rule 18).[6] Also, a default judgment may be rendered, even if the
defendant had filed his answer, under the circumstance in Sec. 3(c), Rule 29.[7]
Hence, according to Justice Regalado, the effects of default are followed only in three instances: (1) when there
is an actual default for failure to file a responsive pleading; (2) failure to appear in the pre-trial conference; and
(3) refusal to comply with modes of discovery under the circumstance in Sec. 3(c), Rule 29.
In Philippine National Bank v. De Leon,[8] we held:
We have in the past admonished trial judges against issuing precipitate orders of default as these have the
effect of denying a litigant the chance to be heard, and increase the burden of needless litigations in the
appellate courts where time is needed for more important or complicated cases. While there are instances
when a party may be properly defaulted, these should be the exception rather than the rule, and should be
allowed only in clear cases of obstinate refusal or inordinate neglect to comply with the orders of the
court (Leyte vs. Cusi, Jr., 152 SCRA 496; Tropical Homes, Inc. vs. Hon. Villaluz, et al., G.R. No. L-40628, February
24, 1989).
It is even worse when the court issues an order not denominated as an order of default, but provides for the
application of effects of default. Such amounts to the circumvention of the rigid requirements of a default
order, to wit: (1) the court must have validly acquired jurisdiction over the person of the defendant either by
service of summons or voluntary appearance; (2) the defendant failed to file his answer within the time allowed
therefor; and (3) there must be a motion to declare the defendant in default with notice to the latter.[9] In the
case at bar, petitioner had not failed to file her answer. Neither was notice sent to petitioner that she would be
defaulted, or that the effects of default shall be imposed upon her. Mere non-appearance of defendants at an
ordinary hearing and to adduce evidence does not constitute default, when they have already filed their answer
to the complaint within the reglementary period. It is error to default a defendant after the answer had already
been filed. It should be borne in mind that the policy of the law is to have every litigants case tried on the merits
as much as possible; it is for this reason that judgments by default are frowned upon.[10]
Does this mean that defendants can get away with failing to attend hearings despite due notice? No, it will
not. We agree with petitioner that such failure to attend, when committed during hearing dates for the
presentation of the complainants evidence, would amount to the waiver of such defendants right to object to
the evidence presented during such hearing, and to cross-examine the witnesses presented therein. However, it
would not amount to a waiver of the defendants right to present evidence during the trial dates scheduled for
the reception of evidence for the defense. It would be an entirely different issue if the failure to attend of the
defendant was on a hearing date set for the presentation of the evidence of the defense, but such did not occur
in the case at bar.
In view of the foregoing, we are, therefore, inclined to remand the case to the trial court for reception of
evidence for the defense. Before we do so, however, we need to point out that the trial court had committed
another error which we should address to put the remand in its proper perspective. We refer to Monzons
argument as early as the Answer stage that respondents Petition for Injunction had failed to state a cause of
action.
Section 4, Rule 68 of the Rules of Court, which is the basis of respondents alleged cause of action entitling them
to the residue of the amount paid in the foreclosure sale, provides as follows:
SEC. 4. Disposition of proceeds of sale.The amount realized from the foreclosure sale of the mortgaged property
shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there
shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior
encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such
encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.
However, Rule 68 governs the judicial foreclosure of mortgages. Extra-judicial foreclosure of mortgages, which
was what transpired in the case at bar, is governed by Act No. 3135,[11] as amended by Act No. 4118,[12] Section
6 of Republic Act No. 7353, Section 18 of Republic Act No. 7906, and Section 47 of Republic Act No. 8791. A.M.
No. 99-10-05-0, issued on 14 December 1999, provides for the procedure to be observed in the conduct of an
extrajudicial foreclosure sale. Thus, we clarified the different types of sales in Supena v. Dela Rosa, [13] to wit:
Any judge, worthy of the robe he dons, or any lawyer, for that matter, worth his salt, ought to know that
different laws apply to different kinds of sales under our jurisdiction. We have three different types of sales,
namely: an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure sale. An ordinary
execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court on Execution, Satisfaction
and Effect of Judgments. Rule 68 of the Rules, captioned Foreclosure of Mortgage, governs judicial foreclosure
sales. On the other hand, Act No. 3135, as amended by Act No. 4118, otherwise known as "An Act to Regulate
the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages," applies in cases of properties, their remedy is to file the proper action to recover possession. If, pursuant to said rules, Addio
extrajudicial foreclosure sales of real estate mortgages. Properties, Inc. is entitled to the properties, respondents remedy is to file an action for damages against
Monzon.

Unlike Rule 68, which governs judicial foreclosure sales, neither Act No. 3135 as amended, nor A.M. No. 99-10-
05-0 grants to junior encumbrancers the right to receive the balance of the purchase price. The only right given
to second mortgagees in said issuances is the right to redeem the foreclosed property pursuant to Section 6 of
Act No. 3135, as amended by Act No. 4118, which provides:
Sec. 6. Redemption. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor,
or any person having a lien on the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one year from and after the date of the
sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four
hundred and sixty- six,[14] inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with
this Act.
Even if, for the sake of argument, Rule 68 is to be applied to extrajudicial foreclosure of mortgages, such right
can only be given to second mortgagees who are made parties to the (judicial) foreclosure. While a second
mortgagee is a proper and in a sense even a necessary party to a proceeding to foreclose a first mortgage on
real property, he is not an indispensable party, because a valid decree may be made, as between the mortgagor
and the first mortgagee, without regard to the second mortgage; but the consequence of a failure to make the
second mortgagee a party to the proceeding is that the lien of the second mortgagee on the equity of
redemption is not affected by the decree of foreclosure.[15]
A cause of action is the act or omission by which a party violates the right of another.[16] A cause of action exists
if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever
law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such
right; and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a
breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of
damages.[17] In view of the foregoing discussions, we find that respondents do not have a cause of action against
Atty. Ana Liza Luna for the delivery of the subject amounts on the basis of Section 4, Rule 68 of the Rules of
Court, for the reason that the foregoing Rule does not apply to extrajudicial foreclosure of mortgages.
If respondents answer in the negative, the case shall be dismissed, without prejudice to the exercise of
respondents rights as mortgage creditors. If respondents mortgage contract was executed before the execution
of the mortgage contract with Addio Properties, Inc., respondents would be the first mortgagors. Pursuant to
Article 2126[20] of the Civil Code, they would be entitled to foreclose the property as against any subsequent
possessor thereof. If respondents mortgage contract was executed after the execution of the mortgage contract
with Addio Properties, Inc., respondents would be the second mortgagors. As such, they are entitled to a right
of redemption pursuant to Section 6 of Act No. 3135, as amended by Act No. 4118.
WHEREFORE, the Decision of the Court of Appeals dated 27 September 2005 and its Resolution dated 7 March
2006 are REVERSED and SET ASIDE. The Petition for Injunction in Civil Case No. TG-2069 is hereby
ordered DISMISSED insofar as Atty. Ana Liza Luna is concerned. The Petition for Injunction in Civil Case No. TG-
2069, insofar as petitioner Teresita Monzon is concerned, is ordered REMANDED to
the Regional Trial Court of Tagaytay City for further proceedings. Upon such remand,
the Regional Trial Court of Tagaytay City shall issue an Order to respondents, the spouses James and Maria Rosa
Nieves Relova and the spouses Bienvenido and Eufracia Perez, to manifest whether the Petition for Injunction
should be treated as a complaint for the collection of a sum of money.
If respondents answer in the affirmative, the Regional Trial Court shall set the case for hearing for the
presentation of the evidence for the defense. If respondents answer in the negative, the case shall be dismissed,
without prejudice to the exercise of respondents rights as mortgage creditors. No costs.
SO ORDERED.

In Katon v. Palanca, Jr.,[18] we held that where prescription, lack of jurisdiction or failure to state a cause of
action clearly appears from the complaint filed with the trial court, the action may be dismissed motu proprio,
even if the case has been elevated for review on different grounds. However, while the case should indeed be
dismissed insofar as Atty. Luna is concerned, the same is not necessarily true with respect to Monzon. Other
than respondents prayer that the amount due to respondents be delivered by Atty. Luna to them, they also pray
for a judgment declaring Monzon liable for such amounts. Said prayer, as argued by Monzon herself, may
constitute a cause of action for collection of sum of money against Monzon.

The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary
action to recover the indebtedness with the right to execute a judgment thereon on all the properties of the
debtor including the subject matter of the mortgage, subject to the qualification that if he fails in the remedy
elected by him, he cannot pursue further the remedy he has waived.[19]

However, due to the fact that construing respondents Petition for Injunction to be one for a collection of sum of
money would entail a waiver by the respondents of the mortgage executed over the subject properties, we
should proceed with caution before making such construction. We, therefore, resolve that upon the remand of
this case to the trial court, respondents should be ordered to manifest whether the Petition for Injunction
should be treated as a complaint for the collection of a sum of money.

If respondents answer in the affirmative, then the case shall proceed with the presentation of the evidence for
the defense. If Monzon would be successful in proving her defense of dacion en pago, there would, in effect, be
a double sale of the mortgaged properties: the same properties were sold to both respondents and to herein
intervenor Addio Properties, Inc. If, pursuant to the rules on double sales, respondents are entitled to the
FIRST DIVISION
G.R. No. 169568, October 22, 2014
ROLANDO ROBLES, REPRESENTED BY ATTY. CLARA C. ESPIRITU, Petitioner, v. FERNANDO FIDEL YAPCINCO,
PATROCINIO B. YAPCINCO, MARIA CORAZON B. YAPCINCO, AND MARIA ASUNCION B. YAPCINCO-
FRONDA, Respondents.
DECISION
BERSAMIN, J.:
The dispute involves the ownership of a judicially-foreclosed parcel of land sold at a public auction, but which
sale was not judicially confirmed. On one side is the petitioner, the successor in interest of the purchaser in the
public auction, and, on the other, the heirs of the mortgagor, who never manifested interest in redeeming the
property from the time of the foreclosure.
The Case
Assailed herein are the decision and resolution of the Court of Appeals (CA) respectively promulgated on
February 24, 2005 and September 12, 2005 in CA-G.R. No. 79824 entitled Rolando Robles, represented by Atty.
Clara C. Espiritu v. Fernando Fidel Yapcinco, et al.,1 reversing and setting aside the decision rendered on July 7,
2003 by the Regional Trial Court, Branch 63, in Tarlac City (RTC).2
Antecedents
The property in litis was originally registered under Transfer Certificate (TCT) No. 20458 of the Registry of Deeds
of Tarlac in the name of Fernando F. Yapcinco, married to Maxima Alcedo.3 In May 4,1944, Yapcinco constituted
a mortgage on the property in favor of Jose C. Marcelo to secure the performance of his obligation. In turn,
Marcelo transferred his rights as the mortgagee to Apolinario Cruz on October 24, 1944.4 When Yapcinco did
not pay the obligation, Apolinario Cruz brought an action for judicial foreclosure of the mortgage in the Court of
First Instance (CFI) of Tarlac, which rendered its decision on July 27, 1956 ordering Patrocinio Y. Kelly, the
administratrix of the estate of Yapcinco, who died during the pendency of the action, to pay Apolinario Cruz the
indebtedness secured by the mortgage plus interest; and in case of the failure to pay after 90 days from the
date of the decision, the property would be sold at a public auction,5 to wit:ChanRoblesVirtualawlibrary
IN VIEW OF THE FOREGOING, the Court renders decision to the following effect:
A. Ordering the defendant Patrocinio Y. Kelly, as judicial administratrix of the intestate estate of Fernando
Yapcinco, to pay to Apolinario Cruz the total amount of P6,000.00, representing the mortgage indebtedness of
the defendant in favor of plaintiff, together with interest thereon at the rate of 8% per annum payable from
May 4, 1944, until all payment thereof; and if after ninety (90) days from the date of this decision shall have
become final and executory the defendant shall not have paid the obligation herein ordered paid, the
properties mortgaged shall be sold by the Provincial Sheriff at Public Auction, and the proceeds thereof to be
applied and disposed of in accordance with law.
B. Dismissing the third-party complaint of defendant Fernando Yapcinco against Jose C. Marcelo; and
C. Ordering the defendant to pay the costs of this suit.
SO ORDERED.
Apolinario Cruz was adjudged the highest bidder in the public auction held on March 18, 1959. In his favor was
then issued the certificate of absolute sale,6 and he took possession of the property in due course. However, he
did not register the certificate of sale; nor was a judicial confirmation of sale issued.
On September 5, 1972, Apolinario Cruz donated the property to his grandchildren, namely: Carlos C. de la Rosa,
Apolinario Bernabe, Ferdinand Cruz, and petitioner Rolando Robles.7 On August 29, 1991, however, Apolinario
Bernabe falsified a deed of absolute sale, whereby he made it appear that Yapcinco had sold the property to
him, Ma. Teresita Escopete, Orlando Santos and Oliver Puzon.8 As a consequence, the Register of Deeds
cancelled Yapcinco's TCT No. 20458 and issued TCT No. 243719 in their names as co-vendees.9 The sale was
annotated on TCT No. 20458. It appears that another instrument dated August 28, 1991 was annotated on TCT
No. 20458 purportedly releasing and cancelling the mortgage. Both instruments were annotated on February
11, 1992.10
On February 3, 1993, Carlos C. dela Rosa and Ferdinand Cruz, the other donees, filed a complaint for the
nullification of the contract of sale, cancellation of title and reconveyance against Apolinario Bernabe and his
co-vendees, but the case was not aggressively pursued inasmuch as the parties were first degree cousins.11
On January 2, 2000, the respondents, all heirs of the Spouses Yapcinco, instituted an action against Apolinario
Bernabe and his co-vendees in the Regional Trial Court (RTC) in Tarlae City for the annulment of TCT No.
243719, document restoration, reconveyance and damages. They claimed that although the property had been
mortgaged, the mortgage had not been foreclosed, judicially or extra-judicially;12 that the property was released
from the mortgage per Entry No. 32-2182 in the Memorandum of Incumbrances; and that the deed of absolute
sale between Fernando Yapcinco and Bemabe, et aL. was void and ineffectual because the Spouses Yapcinco
had already been dead as of the date of the sale.13
Defendants Apolinario Bernabe and his co-vendees were declared in default.
On September 13, 2001, the RTC, Branch 64, in Tarlae City rendered its judgment declaring TCT No. 243719 and
the deed of absolute sale dated
August 28, 1991 null and void. As a consequence, TCT No. 243719 was cancelled, and TCT No. 20458 in the
name of Yapcinco was restored.14
On December 17, 2002, the petitioner filed an action for the nullification of document, cancellation of title,
reconveyance and damages against the respondents (Civil Case No. 9436).15 He averred that the heirs of
Yapcinco had acted in bad faith in causing the issuance of TCT No. 354061 because they had known fully well
that the property had long been excluded from the estate of Yapcinco by virtue of the CFI decision dated July
27, 1956, and which the CA affirmed on April 25, 1958; that a certificate of absolute sale was issued in the name
of Apolinario Cruz as early as 1959; and that he had a vested right in the property pursuant to the deed of
donation executed on September 5, 1972 by Apolinario Cruz in his favor, among others.
The respondents countered that TCT No. 20458 contained an annotation to the effect that the property had
been released from the mortgage by virtue of an instrument dated August 28, 2001; and that, in any case, the
certificate of absolute sale and the deed of donation relied upon by the petitioner were not even inscribed in
TCT No. 20458.16
Ruling of the RTC
On July 7, 2003, the RTC rendered its judgment, disposing thusly:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby rendered in favor of the plaintiff by declaring the subject land covered by TCT
No. 354067 to be owned by the late Apolinario Cruz and is part of his estate; and
1. declaring null and void TCT No. 354067 and that a new title be issued to Apolinario Cruz. Defendants
should deliver to plaintiff or to this Court the owner's copy of TCT No. 354067; if they will not do so
after finality of this judgment, the Registry of Deeds is nevertheless authorized to cancel TCT NO.
354067 and issue a new one in name [the] of Apolinario Cruz, even without the surrender of the
owner's copy;chanrobleslaw
2. declaring as null and void the extra-judicial settlement of the estate of late the Fernando Yapcinco
as far as the subject land is concerned;chanrobleslaw
3. claim for damages of both parties are denied.
SO ORDERED.17
The RTC opined that the respondents could not claim to have no knowledge that the property in litis was no
longer part of the estate of the late Fernando F. Yapcinco; that one of them had substituted the late Fernando F.
Yapcinco in the judicial foreclosure proceedings, and even appealed the adverse decision to the CA; that they
could not argue that they were not bound by the foreclosure of the mortgage due to the nonregistration of the
certificate of sale because as between the parties registration was not a requisite for the validity of the
foreclosure; and that they did not redeem the property until the present.18
Decision of the CA
The respondents appealed to the CA, insisting that the RTC erred, as follows: (1) in declaring TCT No. 354061 as
null and void, and issuing a new one to Apohnario Cruz and including the subject land in his estate; (2) in holding
that res judicata applied; (3) in not honoring that the TCT No. 20458 was free from any lien and encumbrances;
(4) in finding that they were aware of the proceedings in Civil Case No. CA-G.R. No. 19332-R; (5) in not
considering prescription, laches and estoppels to bar the action; and (6) in not considering that they had the
better right to the property.19
On February 24, 2005, the CA promulgated its assailed decision,20 reversing the judgment of the RTC, and
holding that due to the nonregistration of the certificate of sale, the period of redemption did not commence to
run. It also held that Apolinario Cruz never acquired title to the property and could not have conveyed and
transferred ownership over the same to his grandchildren through the deed of donation;21 and that contrary to
the RTC's finding, Patrocinio Yapcinco's knowledge of Apolinario Cruz' interest over the subject property was
not tantamount to registration. It found that Patrocinio Yapcinco Kelly, the administratrix of the estate of
Fernando F. Yapcinco, and Patrocinio B. Yapcinco, one of the respondents, were two different persons, such
that it could not be concluded that the respondents had knowledge of the sale. Accordingly, it concluded that
the heirs of Fernando F. Yapcinco had the right to include the property as the asset of the estate of Fernando F.
Yapcinco.22
The petitioner moved for reconsideration, but on September 12, 2005, the CA denied his motion for
reconsideration, observing that there had been no order confirming the auction sale; hence, the respondents
were never divested of their rights and interest in the property.23
Issues
In this appeal, the petitioner posits the following issues:ChanRoblesVirtualawlibrary
I incumbrances upon the property or a part thereof, and when confirmed by an order of the court, it shall
THE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT APOLINARIO CRUZ, AS PURCHASER IN A JUDICIAL
FORECLOSURE OF SALE, NEVER ACQUIRED TITLE TO THE SUBJECT PROPERTY BY THE MERE OMISSION TO
REGISTER THE CERTIFICATE OF SALE.
II
THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT RESPONDENTS HAD NO KNOWLEDGE OF, AND
THUS COULD NOT BE BOUND BY, THE FORECLOSURE OF MORTGAGE THAT WAS EARLIER CONDUCTED AS THE
SAME WAS NOT SUPPORTED BY THE REAL FACTS AND CIRCUMSTANCES ATTENDANT TO THE INSTANT CASE.
Ill
THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT WHATEVER RIGHTS BEING CLAIMED BY THE
RESPONDENTS IN THE INSTANT CASE ARE ALREADY BARRED BY LACHES. 24chanRoblesvirtualLawlibrary
The petitioner insists that the rules and principles relied upon by the CA were applicable only to extra-judicial
foreclosure, not to a judicial foreclosure like the one herein; that the importance of registration of the
certificate of sale was true only in extrajudicial sale where it would be the reckoning point for the exercise of
the right of redemption;25cralawred that the respondents were aware of the auction sale and even actually
participated in the proceedings leading to the foreclosure, but they never tried to exercise their equity of
redemption, before or even after the foreclosure sale;26 that the family of Apolinario Cruz had been occupying
the property for more than 40 years from the time of the foreclosure sale; and that the respondents should not
be allowed to recover the lot on the basis of the non-registration of the certificate of sale.
The petitioner argues that the non-registration of the certificate of sale did not affect the title acquired by
Apolinario Cruz as the purchaser in the judicial foreclosure of mortgage;27 that the respondents' actual
knowledge of the judicial foreclosure was equivalent to automatic registration; that the doctrine of
indefeasibility of Torrens title was not absolute, and should yield to the right of another person based on
equitable principles of laches;28 that the finality of the judgment rendered in the judicial action for foreclosure
of mortgage was valid and binding on the respondents as the successors-in-interest of the judgment debtor;
and that whether or not respondent Patrocinio Yapcinco and Patrocinio Yapcinco Kelly were the same persons,
or whether Patrocinio Yapcinco was only the daughter of the latter who was the administratrix was irrelevant
because the respondents remained charged with knowledge of the foreclosure sale by virtue of their being the
successors-in-interest of the mortgagor.29
In contrast, the respondents maintain that they were lawfully entitled to the property in litis because there was
no registration of the certificate of sale or confirmation from the court;30 that even the deed of donation
executed by Apolinario Cruz was not registered;31 that the issue revolved on whether or not there was a valid
transfer of ownership;32 and that with the release of mortgage being validly registered in the Office of Registry
of Deeds of Tarlac on February 11, 1992, thereby rendering the title free from any lien and encumbrances, they
already had the right to transfer the property in their names.33
Ruling of the Court
The petition for review is meritorious.
Before anything more, the Court clarifies that the failure of Apolinario Cruz to register the certificate of sale was
of no consequence in this adjudication. The registration of the sale is required only in extra-judicial foreclosure
sale because the date of the registration is the reckoning point for the exercise of the right of redemption. In
contrast, the registration of the sale is superfluous in judicial foreclosure because only the equity of redemption
is granted to the mortgagor, except in mortgages with banking institutions.34 The equity of redemption is the
right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying
the secured debt within the 90-day period after the judgment becomes final, or even after the foreclosure sale
but prior to the confirmation of the sale.35In this light, it was patent error for the CA to declare that: "By
Apolinario Cruz's failure to register the 18 March 1958 Certificate of Absolute Sale in the Office of the Register of
Deeds, the period of redemption did not commence to run."36
The applicable rule on March 18, 1959, the date of the foreclosure sale, was Section 3, Rule 7037 of the Rules of
Court, which relevantly provided that: "Such sale shall not affect the rights of persons holding prior
operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to
such rights of redemption as may be allowed by law." The records show that no judicial confirmation of the sale
was made despite the lapse of more than 40 years since the date of the sale. Hence, it cannot be said that title
was fully vested in Apolinario Cruz.
However, the Court will not be dispensing true and effective justice if it denies the petition for review on the
basis alone of the absence of the judicial confirmation of the sale. Although procedural rules are not to be
belittled or disregarded considering that they insure an orderly and speedy administration of justice, it is equally
true that litigation is not a game of technicalities. Law and jurisprudence grant to the courts the prerogative to
relax compliance with procedural rules of even the most mandatory character, mindful of the duty to reconcile
both the need to speedily put an end to litigation and the parties' right to an opportunity to be
heard.38 The Rules of Court itself calls for a liberal construction of its rules with the view of promoting their
objective of securing a just, speedy and inexpensive disposition of every action and proceeding.39
To better serve the ends of justice, the Court holds that the real issue to consider and resolve is who between
the parties had the better right to the property, not whether there was a valid transfer of ownership to
Apolinario Cruz.
It was not denied that Fernando F. Yapcinco, as the mortgagor, did not pay his obligation, and that his default
led to the filing of the action for judicial foreclosure against him, in which he actively participated in the
proceedings, and upon his death was substituted by the administratrix of his estate. In the end, the decision in
the action for judicial foreclosure called for the holding of the public sale of the mortgaged property. Due to the
subsequent failure of the estate of Fernando F. Yapcinco to exercise the equity of redemption, the property was
sold at the public sale, and Apolinario Cruz was declared the highest bidder. Under the circumstances, the
respondents as the successors-in-interest of Fernando F. Yapcinco were fully bound by that decision and by the
result of the ensuing foreclosure sale.
In this regard, determining whether Patrocinio Yapcinco Kelly, the adminsitratrix of the estate, and respondent
Patrocinio Yapcinco were one and the same person was not necessary. Even if they were not one and the same
person, they were both bound by the foreclosure proceedings by virtue of their being both successors-in-
interest of Fernando F. Yapcinco.
Although the respondents admitted the existence of the mortgage, they somehow denied knowledge of its
foreclosure. Yet, in asserting their superior right to the property, they relied on and cited the entry dated
February 11, 1992 concerning the release of mortgage inscribed on TCT No. 20458. This duplicity the Court
cannot countenance. Being the heirs and successors-in-interest of the late Fernando F. Yapcinco, they could not
repudiate the foreclosure sale and its consequences, and escape such consequences that bound and concluded
their predecessor-in-interest whose shoes they only stepped into.40 Given their position on the lack of judicial
confirmation of the sale in favor of Apolinario Cruz, they should have extinguished the mortgage by exercising
their equity of redemption through paying the secured debt. They did not do so, and, instead, they sought the
annulment of TCT No. 243719 and caused the issuance of another title in their name.

Even assuming that there was no foreclosure of the mortgage, such that the respondents did not need to
exercise the equity of redemption, the legal obligation to pay off the mortgage indebtedness in favor of
Apolinario Cruz nonetheless devolved on them and the estate of Fernando F. Yapcinco. They could not sincerely
rely on the entry about the release or cancellation of the mortgage in TCT No. 20458, because such entry
appeared to be unfounded in the face of the lack of any showing by them that either they or the estate of
Fernando F. Yapcinco had settled the obligation.

The petitioner did not tender any explanation for the failure of Apolinario Cruz to secure the judicial
confirmation of the sale. Fie reminds only that Apolinario Cruz and his successors-in-interest and
representatives have been in actual, notorious, public and uninterrupted possession of the property from the
time of his purchase at the foreclosure sale until the present.

The effect of the failure of Apolinario Cruz to obtain the judicial confirmation was only to prevent the title to the
property from being transferred to him. For sure, such failure did not give rise to any right in favor of the
mortgagor or the respondents as his successors-in-interest to take back the property already validly sold
through public auction. Nor did such failure invalidate the foreclosure proceedings. To maintain otherwise
would render nugatory the judicial foreclosure and foreclosure sale, thus unduly disturbing judicial stability. The
non-transfer of the title notwithstanding, Apolinario Cruz as the purchaser should not be deprived of the
property purchased at the foreclosure sale. With the respondents having been fully aware of the mortgage, and
being legally bound by the judicial foreclosure and consequent public sale, and in view of the unquestioned
possession by Apolinario Cruz and his successors-in-interest (including the petitioner) from the time of the
foreclosure sale until the present, the respondents could not assert any better right to the property. It would be
the height of inequity to still permit them to regain the property on the basis alone of the lack of judicial
confirmation of the sale. After all, under the applicable rule earlier cited, the judicial confirmation operated only
"to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such
rights of redemption as may be allowed by law."

Consequently, the late Fernando F. Yapcinco and the respondents as his successors-in-interest were divested of
their right in the property, for they did not duly exercise the equity of redemption decreed in the decision of the
trial court. With Yapcinco having thereby effectively ceased to be the owner of the property sold, the property
was taken out of the mass of the assets of Yapcinco upon the expiration of the equity of redemption.

WHEREFORE, the Court REVERSES and SETS ASIDE decision promulgated on February 24, 2005 by the Court of
Appeals; REINSTATES the decision rendered on July 7, 2003 by the Regional Trial Court, Branch 63, in Tarlac
City; and ORDERS the respondents to pay the costs of suit.

SO ORDERED.cralawlawlibrary

Sereno, C.J., Leonardo-De Castro, *Villarama, Jr., and Perez, JJ., concu