SECOND DIVISION
that assuming arguendo that there was a flaw in its title, DBP can not be held
G.R. No. 110053 October 16, 1995
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, CELEBRADA MANGUBAT and ABNER
MANGUBAT, respondents.
This appeal by certiorari sprouted from the judgment of respondent Court of
Appeals promulgated on September 9, 1992 in CA-G.R. CV No. 28311, and its
resolution dated April 7, 1993 denying petitioner's motion for
reconsideration.1 Said adjudgments, in turn, were rooted in the factual
groundwork of this case which is laid out hereunder.
On July 20, 1981, herein petitioner Development Bank of the Philippines (DBP)
executed a "Deed of Absolute Sale" in favor of respondent spouses Celebrada
and Abner Mangubat over a parcel of unregistered land identified as Lot 1,
PSU-142380, situated in the Barrio of Toytoy, Municipality of Garchitorena,
Province of Camarines Sur, containing an area of 55.5057 hectares, more or
less. The land, covered only by a tax declaration, is known to have been
originally owned by one Presentacion Cordovez, who, on February 4, 1937,
donated it to Luciano Sarmiento. On June 8, 1964, Luciano Sarmiento sold the
land to Pacifico Chica.
On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of
P6,000.00. However, he defaulted in the payment of the loan, hence DBP
caused the extrajudicial foreclosure of the mortgage. In the auction sale held
on September 9, 1970, DBP acquired the property as the highest bidder and
was issued a certificate of sale on September 17, 1970 by the sheriff. The
certificate of sale was entered in the Book of Unregistered Property on
September 23, 1970. Pacifico Chica failed to redeem the property, and DBP
consolidated its ownership over the same.
On October 14, 1980, respondent spouses offered to buy the property for
P18,599.99. DBP made a counter-offer of P25,500.00 which was accepted by
respondent spouses. The parties further agreed that payment was to be made
within six months thereafter for it to be considered as cash payment. On July
20, 1981, the deed of absolute sale, which is now being assailed herein, was
executed by DBP in favor of respondent spouses. Said document contained a
waiver of the seller's warranty against eviction.2
Thereafter, respondent spouses applied for an industrial tree planting loan
with DBP. The latter required the former to submit a certification from the
Bureau of Forest Development that the land is alienable and disposable.
However, on October 29, 1981, said office issued a certificate attesting to the
fact that the said property was classified as timberland, hence not subject to
disposition.3
The loan application of respondent spouses was nevertheless eventually
approved by DBP in the sum of P140,000.00, despite the aforesaid certification
of the bureau, on the understanding of the parties that DBP would work for
the release of the land by the former Ministry of Natural Resources. To secure
payment of the loan, respondent spouses executed a real estate mortgage
over the land on March 17, 1982, which document was registered in the
Registry of Deeds pursuant to Act No. 3344. The loan was then released to
respondent spouses on a staggered basis. After a substantial sum of
P118,540.00 had been received by private respondents, they asked for the
release of the remaining amount of the loan. It does not appear that their
request was acted upon by DBP, ostensibly because the release of the land
from the then Ministry of Natural Resources had not been obtained.
On July 7, 1983, respondent spouses, as plaintiffs, filed a complaint against
DBP in the trial court4 seeking the annulment of the subject deed of absolute
sale on the ground that the object thereof was verified to be timberland and,
therefore, is in law an inalienable part of the public domain. They also alleged
that petitioner, as defendant therein, acted fraudulently and in bad faith by
misrepresenting itself as the absolute owner of the land and in incorporating
the waiver of warranty against eviction in the deed of sale.5
In its answer, DBP contended that it was actually the absolute owner of the
land, having purchased it for value at an auction sale pursuant to an
extrajudicial foreclosure of mortgage; that there was neither malice nor fraud
in the sale of the land under the terms mutually agreed upon by the parties;
liable for anything inasmuch as respondent spouses had full knowledge of the
extent and nature of DBP's rights, title and interest over the land. It further
averred that the annulment of the sale and the return of the purchase price to
respondent spouses would redound to their benefit but would result in
petitioner's prejudice, since it had already released P118,540.00 to the former
while it would be left without any security for the P140,000.00 loan; and that
in the remote possibility that the land is reverted to the public domain,
respondent spouses should be made to immediately pay, jointly and severally,
the total amount of P118,540.00 with interest at 15% per annum, plus charges
and other expenses.6
On May 25, 1990, the trial court rendered judgment annulling the subject deed
of absolute sale and ordering DBP to return the P25,500.00 purchase price,
plus interest; to reimburse to respondent spouses the taxes paid by them, the
cost of the relocation survey, incidental expenses and other damages in the
amount of P50,000.00; and to further pay them attorney's fees and litigation
expenses in the amount of P10,000.00, and the costs of suit.7
In its recourse to the Court of Appeals, DBP raised the following assignment of
errors:
1. The trial court erred in declaring the deed of absolute sale executed
between the parties canceled and annulled on the ground that therein
defendant-appellant had no title over the property subject of the sale.
2. The trial court erred in finding that defendant-appellant DBP acted
fraudulently and in bad faith or that it had misrepresented facts since it had
prior knowledge that subject property was part of the public domain at the
time of sale to therein plaintiffs-appellees.
3. The trial court erred in finding said plaintiffs-appellees' waiver of warranty
against eviction void.
4. The trial court erred awarding to therein plaintiffs-appellees damages
arising from an alleged breach of contract.
5. The trial court erred in not ordering said plaintiffs-appellees to pay their
loan obligation to defendant-appellant DBP in the amount of P118,540. 8
As substantially stated at the outset, respondent Court of Appeals rendered
judgment modifying the disposition of the court below by deleting the award
for damages, attorney's fees, litigation expenses and the costs, but affirming
the same in all its other aspects.9 On April 7, 1993, said appellate court also
denied petitioner's motion for reconsideration. 10
Not satisfied therewith, DBP interposed the instant petition for review
on certiorari, raising the following issues:
1. Whether or not private respondent spouses Celebrada and Abner Mangubat
should be ordered to pay petitioner DBP their loan obligation due under the
mortgage contract executed between them and DBP; and
2. Whether or not petitioner should reimburse respondent spouses the
purchase price of the property and the amount of P11,980.00 for taxes and
expenses for the relocation Survey. 11
Considering that neither party questioned the legality and correctness of the
judgment of the court a quo, as affirmed by respondent court, ordering the
annulment of the deed of absolute sale, such decreed nullification of the
document has already achieved finality. We only need
The Court of Appeals, after an extensive discussion, found that there had been
no bad faith on the part of either party, and this r, therefore, to dwell on the
effects of that declaration of nullity.emains uncontroverted as a fact in the
case at bar. Correspondingly, respondent court correctly applied the rule that
if both parties have no fault or are not guilty, the restoration of what was
given by each of them to the other is consequently in order. 12 This is because
the declaration of nullity of a contract which is void ab initio operates to
restore things to the state and condition in which they were found before the
execution thereof. 13
1
We also find ample support for said propositions in American jurisprudence.
The effect of an application of the aforequoted rule with respect to the right of
a party to recover the amount given as consideration has been passed upon in
the case of Leather Manufacturers National Bank vs. Merchants National
Bank 14 where it was held that: "Whenever money is paid upon the
representation of the receiver that he has either a certain title in property
transferred in consideration of the payment or a certain authority to receive
the money paid, when in fact he has no such title or authority, then, although
there be no fraud or intentional misrepresentation on his part, yet there is no
consideration for the payment, the money remains, in equity and good
conscience, the property of the payer and may be recovered back by him."
Therefore, the purchaser is entitled to recover the money paid by him where
the contract is set aside by reason of the mutual material mistake of the
parties as to the identity or quantity of the land sold. 15 And where a
purchaser recovers the purchase money from a vendor who fails or refuses to
deliver the title, he is entitled as a general rule to interest on the money paid
from the time of payment. 16
A contract which the law denounces as void is necessarily no contract
whatever, and the acts of the parties in an effort to create one can in no wise
bring about a change of their legal status. The parties and the subject matter
of the contract remain in all particulars just as they did before any act was
performed in relation thereto. 17 An action for money had and received lies to
recover back money paid on a contract, the consideration of which has
failed. 18 As a general rule, if one buys the land of another, to which the latter
is supposed to have a good title, and, in consequence of facts unknown alike to
both parties, he has no title at all, equity will cancel the transaction and cause
the purchase money to be restored to the buyer, putting both parties in status
quo. 19 Thus, on both local and foreign legal principles, the return by DBP to
respondent spouses of the purchase price, plus corresponding interest
thereon, is ineluctably called for.
Petitioner likewise contends that the trial court and respondent Court of
Appeals erred in ordering the reimbursement of taxes and the cost of the
relocation survey, there being no factual or legal basis therefor. It argues that
private respondents merely submitted a "list of damages" allegedly incurred
by them, and not official receipts of expenses for taxes and said survey.
Furthermore, the same list has allegedly not been identified or even presented
at any stage of the proceedings, since it was vigorously objected to by DBP.
Contrary to the claim of petitioner, the list of damages was presented in the
trial court and was correspondingly marked as "Exhibit P." 20 The said exhibit
was, thereafter, admitted by the trial court but only as part of the testimonial
evidence for private respondents, as stated in its Order dated August 16,
1988.21
However, despite that admission of the said list of damages as evidence, we
agree with petitioner that the same cannot constitute sufficient legal basis for
an award of P4,000.00 and P7,980.00 as reimbursement for land taxes and
expenses for the relocation survey, respectively. The list of damages was
prepared extrajudicially by respondent spouses by themselves without any
supporting receipts as bases thereof or to substantiate the same. That list, per
se, is necessarily self-serving and, on that account, should have been declared
inadmissible in evidence as thefactum probans.
In order that damages may be recovered, the best evidence obtainable by the
injured party must be presented. Actual or compensatory damages cannot be
presumed, but must be duly proved, and so proved with a reasonable degree
of certainty. A court cannot rely on speculation, conjecture or guesswork as to
the fact and amount of damages, but must depend upon competent proof that
they have been suffered and on evidence of the actual amount thereof. If the
proof is flimsy and unsubstantial, no damages will be awarded. 22
Turning now to the issue of whether or not private respondents should be
made to pay petitioner their loan obligation amounting to P118,540.00, we
answer in the affirmative.
In its legal context, the contract of loan executed between the parties is
entirely different and discrete from the deed of sale they entered into. The
annulment of the sale will not have an effect on the existence and
demandability of the loan. One who has received money as a loan is bound to
pay to the creditor an equal amount of the same kind and quality. 23
The fact that the annulment of the sale will also result in the invalidity of the
mortgage does not have an effect on the validity and efficacy of the principal
obligation, for even an obligation that is unsupported by any security of the
debtor may also be enforced by means of an ordinary action. Where a
mortgage is not valid, as where it is executed by one who is not the owner of
the
property, 24 or the consideration of the contract is simulated 25 or
false, 26 the principal obligation which it guarantees is not thereby rendered
null and void. That obligation matures and becomes demandable in
accordance with the stipulations pertaining to it.
Under the foregoing circumstances, what is lost is only 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 personal action. 27
It was likewise incorrect for the Court of Appeals to deny the claim of
petitioner for payment of the loan on the ground that it failed to present the
promissory note therefor. While respondent court also made the concession
that its judgment was accordingly without prejudice to the filing by petitioner
of a separate action for the collection of that amount, this does not detract
from the adverse effects of that erroneous ruling on the proper course of
action in this case.
The fact is that a reading of the mortgage contract 28 executed by respondent
spouses in favor of petitioner, dated March 17, 1982, will readily show that it
embodies not only the mortgage but the complete terms and conditions of the
loan agreement as well. The provisions of said contract, specifically paragraphs
16 and 28 thereof, are so precise and clear as to thereby render unnecessary
the introduction of the promissory note which would merely serve the same
purpose.
Furthermore, respondent Celebrada Mangubat expressly acknowledged in her
testimony that she and her husband are indebted to petitioner in the amount
of P118,000.00, more or less. 29 Admissions made by the parties in the
pleadings or in the course of the trial or other proceedings do not require
proof and can not be contradicted unless previously shown to have been made
through palpable mistake. 30
Thus, the mortgage contract which embodies the terms and conditions of the
loan obligation of respondent spouses, as well as respondent Celebrada
Mangubat's admission in open court, are more than adequate evidence to
sustain petitioner's claim for payment of private respondents' aforestated
indebtedness and for the adjudication of DBP's claim therefor in the very same
action now before us.
It is also worth noting that the adjustment and allowance of petitioner's
demand by counterclaim or set-off in the present action, rather than by
another independent action, is favored or encouraged by law. Such a practice
serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense,
and unwarranted consumption of the time of the court. The trend of judicial
decisions is toward a liberal extension of the right to avail of counterclaims or
set-offs. 31
The rules on counterclaim are designed to achieve the disposition of a whole
controversy of the conflicting claims of interested parties at one time and in
one action, provided all parties can be brought before the court and the
matter decided without prejudicing the rights of any party. 32
WHEREFORE, the judgment appealed from is hereby MODIFIED, by deleting
the award of P11,980.00 as reimbursement for taxes and expenses for the
relocation survey, and ordering respondent spouses Celebrada and Abner
Mangubat to pay petitioner Development Bank of the Philippines the amount
of P118,540.00, representing the total amount of the loan released to them,
with interest of 15% per annum plus charges and other expenses in
accordance with their mortgage contract. In all other respects, the said
judgment of respondent Court of Appeals is AFFIRMED.
SO ORDERED.
FIRST DIVISION
2
[G.R. No. 156295. September 23, 2003]
MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA
GALIT, respondents.
DECISION
YNARES-SANTIAGO, J.:
Petitioner was issued a writ of possession in Civil Case No. 6643[1] for Sum of
Money by the Regional Trial Court of Balanga, Bataan, Branch 1. The writ of
possession was, however, nullified by the Court of Appeals in CA-G.R. SP No.
65891[2] because it included a parcel of land which was not among those
explicitly enumerated in the Certificate of Sale issued by the Deputy Sheriff,
but on which stand the immovables covered by the said Certificate. Petitioner
contends that the sale of these immovables necessarily encompasses the land
on which they stand.
Dissatisfied, petitioner filed the instant petition for review on certiorari.
Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano,
in the total sum of P480,000.00, evidenced by four promissory notes in the
amount of P120,000.00 each dated August 2, 1996;[3] August 15,
1996;[4] September 4, 1996[5] and September 14, 1996.[6] This loan was
secured by a real estate mortgage over a parcel of land covered by Original
Certificate of Title No. 569.[7] After he failed to pay his obligation, Soriano filed
a complaint for sum of money against him with
the Regional Trial Court of Balanga City, Branch 1, which was docketed as Civil
Case No. 6643.[8]
Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their
answer. Hence, upon motion of Marcelo Soriano, the trial court declared the
spouses in default and proceeded to receive evidence for
petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered
judgment[9] in favor of petitioner Soriano, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendant ordering the latter to pay:
1. the plaintiff the amount of P350,000.00 plus 12% interest to be computed
from the dates of maturity of the promissory notes until the same are fully
paid;
2. the plaintiff P20,000.00, as attorneys fees; and
3. the costs of suit.
SO ORDERED.[10]
The judgment became final and executory. Accordingly, the trial court issued a
writ of execution in due course, by virtue of which, Deputy Sheriff Renato E.
Robles levied on the following real properties of the Galit spouses:
1. A parcel of land covered by Original Certificate of Title No. T-569
(Homestead Patent No. 14692) situated in the Bo.
of Tapulac, Orani, Bataan. Bounded on the SW, along line 1-2 by Lot No. 3,
Cad. 145; containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED
FIFTY NINE (35,759) SQUARE METERS, more or less x x x;
2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong materials G.I.
roofing situated at Centro I, Orani, Bataan, x x x containing an area of 30 sq.
meters, more or less x x x(constructed on TCT No. T40785);
3. BODEGA constructed on Lot 1103, made of strong materials, G.I. roofing,
situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more
or less x x x.[11]
At the sale of the above-enumerated properties at public auction held
on December 23, 1998, petitioner was the highest and only bidder with a bid
price of P483,000.00. Accordingly, on February 4, 1999, Deputy Sheriff Robles
issued a Certificate of Sale of Execution of Real Property,[12] which reads:
CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY
TO ALL WHO MAY SEE THESE PRESENTS:
GREETINGS:
I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998,
issued in the above-entitled case by the HON. BENJAMIN T. VIANZON, ordering
the Provincial Sheriff of Bataan or her authorized Deputy Sheriff to cause to be
made (sic) the sum of P350,000.00 plus 12% interest to be computed from the
date of maturity of the promissory notes until the same are fully paid;
P20,000.00 as attorneys fees plus legal expenses in the implementation of the
writ of execution, the undersigned Deputy Sheriff sold at public auction on
December 23, 1998 the rights and interests of defendants Sps. Ricardo and
Rosalina Galit, to the plaintiff Marcelo Soriano, the highest and only bidder for
the amount of FOUR HNDRED EIGHTY THREE THOUSAND PESOS (P483,000.00,
Philippine Currency), the following real estate properties more particularly
described as follows :
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692) situated in the Bo.
of Tapulac, Orani, Bataan, x x x. Bounded on the SW., along line 1-2 by Lot No.
3, Cad. 145, containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED
FIFTY NINE (35,759) SQUARE METERS, more or less x x x
TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02
STOREHOUSE constructed on Lot 1103, made of strong materials G.I. roofing
situated at Centro I, Orani, Bataan x x x containing an area of 30 sq. meters,
more or less x x (constructed on TCT No. 40785)
TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02
BODEGA constructed on Lot 1103, made of strong materials G.I. roofing
situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more
or less x x x
IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder,
Marcelo Soriano, being the plaintiff did not pay to the Provincial Sheriff
of Bataan the amount of P483,000.00, the sale price of the above-described
property which amount was credited to partial/full satisfaction of the
judgment embodied in the writ of execution.
The period of redemption of the above described real properties together with
all the improvements thereon will expire One (1) year from and after the
registration of this Certificate of Sale with the Register of Deeds.
This Certificate of Sheriffs Sale is issued to the highest and lone bidder,
Marcelo Soriano, under guarantees prescribed by law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration of the Certificate of Sale
on Execution of Real Property with the Registry of Deeds.
The said Certificate of Sale registered with the Register of Deeds includes at
the dorsal portion thereof the following entry, not found in the Certificate of
Sale on file with Deputy Sheriff Renato E. Robles:[13]
ORIGINAL CERTIFICATE OF TITLE NO. T-40785
A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the
improvements thereon, situated in the Municipality of Orani, Bounded on the
NE; by Calle P. Gomez; on the E. by Lot No. 1104; on the SE
by Calle Washington; and on the W. by Lot 4102, containing an area of ONE
HUNDRED THIRTY NINE (139) SQUARE METERS, more or less. All points
referred to are indicated on the plan; bearing true; declination 0 deg. 40E.,
date of survey, February 191-March 1920.
3
On February 23, 2001, ten months from the time the Certificate of Sale on
Execution was registered with the Registry of Deeds, petitioner moved[14] for
the issuance of a writ of possession. He averred that the one-year period of
redemption had elapsed without the respondents having redeemed the
properties sold at public auction; thus, the sale of said properties had already
become final. He also argued that after the lapse of the redemption period,
the titles to the properties should be considered, for all legal intents and
purposes, in his name and favor.[15]
On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted the
motion for issuance of writ of possession.[16] Subsequently, on July 18, 2001,
a writ of possession[17]was issued in petitioners favor which reads:
WRIT OF POSSESSION
Mr. Renato E. Robles
Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings :
WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the
Issuance of Writ of Possession;
WHEREAS on June 4, 2001, this court issued an order granting the issuance of
the Writ of Possession;
WHEREFORE, you are hereby commanded to place the herein plaintiff
Marcelo Soriano in possession of the property involved in this case situated
(sic) more particularly described as:
1. STORE HOUSE constructed on Lot No. 1103 situated at Centro
1, Orani, Bataan covered by TCT No. 40785;
2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square meters
under Tax Declaration No. 86 situated at Centro 1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an area of 134 square meters
known as Lot No. 1103 of the Cadastral Survey of Orani
against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit,
her (sic) heirs, successors, assigns and all persons claiming rights and interests
adverse to the petitioner and make a return of this writ every thirty (30) days
from receipt hereof together with all the proceedings thereon until the same
has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this
18th day of July 2001, at Balanga City.
(Sgd) GILBERT S. ARGONZA
OIC
Respondents filed a petition for certiorari with the Court of Appeals, which
was docketed as CA-G.R. SP No. 65891, assailing the inclusion of the parcel of
land covered by Transfer Certificate of Title No. T-40785 among the list of real
properties in the writ of possession.[18] Respondents argued that said
property was not among those sold on execution by Deputy Sheriff Renato E.
Robles as reflected in the Certificate of Sale on Execution of Real Property.
In opposition, petitioner prayed for the dismissal of the petition because
respondent spouses failed to move for the reconsideration of the assailed
order prior to the filing of the petition.Moreover, the proper remedy against
the assailed order of the trial court is an appeal, or a motion to quash the writ
of possession.
On May 13, 2002, the Court of Appeals rendered judgment as follows:
WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of
possession issued by the Regional Trial Court of Balanga City, Branch 1, on 18
July 2001 is declared NULL and VOID.
In the event that the questioned writ of possession has already been
implemented, the Deputy Sheriff of the Regional Trial Court of Balanga City,
Branch 1, and private respondent Marcelo Soriano are hereby ordered to
cause the redelivery of Transfer Certificate of Title No. T-40785 to the
petitioners.
SO ORDERED.[19]
Aggrieved, petitioner now comes to this Court maintaining that
1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS NOT THE
PLAIN, SPEEDY AND ADEQUATE REMEDY OF THE RESPONDENTS IN ASSAILING
THE WRIT OF POSSESSION ISSUED BY THE LOWER COURT BUT THERE WERE
STILL OTHER REMEDIES AVAILABLE TO THEM AND WHICH WERE NOT
RESORTED TO LIKE THE FILING OF A MOTION FOR RECONSIDERATION OR
MOTION TO QUASH OR EVEN APPEAL.
2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DECLARAING THE
CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY AS NULL AND VOID
AND SUBSEQUENTLY THE WRIT OF POSSESSION BECAUSE THE SAME IS A
PUBLIC DOCUMENT WHICH ENJOYS THE PRESUMPTION OF REGULARITY AND
IT CANNOT BE OVERCOME BY A MERE STRANGE FEELING THAT SOMETHING IS
AMISS ON ITS SURFACE SIMPLY BECAUSE THE TYPEWRITTEN WORDS ON THE
FRONT PAGE AND AT THE DORSAL PORTION THEREOF IS DIFFERENT OR THAT
IT IS UNLIKELY FOR THE SHERIFF TO USE THE DORSAL PORTION OF THE FIRST
PAGE BECAUSE THE SECOND PAGE IS MERELY HALF FILLED AND THE
NOTATION ON THE DORSAL PORTION COULD STILL BE MADE AT THE SECOND
PAGE.
On the first ground, petitioner contends that respondents were not without
remedy before the trial court. He points out that respondents could have filed
a motion for reconsideration of the Order dated June 4, 1999, but they did not
do so. Respondents could also have filed an appeal but they, likewise, did not
do so. When the writ of possession was issued, respondents could have filed a
motion to quash the writ. Again they did not. Respondents cannot now avail of
the special civil action for certiorari as a substitute for these remedies. They
should suffer the consequences for sleeping on their rights.
We disagree.
Concededly, those who seek to avail of the procedural remedies provided by
the rules must adhere to the requirements thereof, failing which the right to
do so is lost. It is, however, equally settled that the Rules of Court seek to
eliminate undue reliance on technical rules and to make litigation as
inexpensive as practicable and as convenient as can be done.[20] This is in
accordance with the primary purpose of the 1997 Rules of Civil Procedure as
provided in Rule 1, Section 6, which reads:
Section 6. Construction. These rules shall be liberally construed in order to
promote their objective of securing a just, speedy and inexpensive
determination of every action and proceeding.[21]
The rules of procedure are not to be applied in a very rigid, technical sense and
are used only to help secure substantial justice. If a technical and rigid
enforcement of the rules is made, their aim would be defeated.[22] They
should be liberally construed so that litigants can have ample opportunity to
prove their claims and thus prevent a denial of justice due to
technicalities.[23] Thus, in China Banking Corporation v. Members of the Board
of Trustees of Home Development Mutual Fund,[24] it was held:
while certiorari as a remedy may not be used as a substitute for an appeal,
especially for a lost appeal, this rule should not be strictly enforced if the
petition is genuinely meritorious.[25] It has been said that where the rigid
application of the rules would frustrate substantial justice, or bar the
vindication of a legitimate grievance, the courts are justified in exempting a
particular case from the operation of the rules.[26] (Emphasis ours)
Indeed, well-known is the rule that departures from procedure may be
forgiven where they do not appear to have impaired the substantial rights of
the parties.[27] Apropos in this regard is Cometa v. CA,[28] where we said that
There is no question that petitioners were remiss in attending with dispatch to
the protection of their interests as regards the subject lots, and for that reason
4
the case in the lower court was dismissed on a technicality and no definitive
pronouncement on the inadequacy of the price paid for the levied properties
was ever made. In this regard, it bears stressing that procedural rules are not
to be belittled or dismissed simply because their non-observance may have
resulted in prejudice to a partys substantive rights as in this case. Like all rules,
they are required to be followed except when only for the most persuasive of
reasons they may be relaxed to relieve a litigant of an injustice not
commensurate with the degree of his thoughtlessness in not complying with
the procedure prescribed.[29] (emphasis and italics supplied.)
In short, since rules of procedure are mere tools designed to facilitate the
attainment of justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial justice
must always be avoided.[30] Technicality should not be allowed to stand in the
way of equitably and completely resolving the rights and obligations of the
parties.[31]
Eschewing, therefore, the procedural objections raised by petitioner, it
behooves us to address the issue of whether or not the questioned writ of
possession is in fact a nullity considering that it includes real property not
expressly mentioned in the Certificate of Sale of Real Property.
Petitioner, in sum, dwells on the general proposition that since the certificate
of sale is a public document, it enjoys the presumption of regularity and all
entries therein are presumed to be done in the performance of regular
functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of Sale on Execution of Real
Properties issued on February 4, 1999 involved, namely: (a) copy which is on
file with the deputy sheriff; and (b) copy registered with the Registry of Deeds.
The object of scrutiny, however, is not the copy of the Certificate of Sale on
Execution of Real Properties issued by the deputy sheriff on February 4,
1999,[32] but the copy thereof subsequently registered by petitioner with the
Registry of Deeds on April 23, 1999,[33] which included an entry on the dorsal
portion of the first pagethereof describing a parcel of land covered by OCT No.
T-40785 not found in the Certificate of Sale of Real Properties on file with the
sheriff.
True, public documents by themselves may be adequate to establish the
presumption of their validity. However, their probative weight must be
evaluated not in isolation but in conjunction with other evidence adduced by
the parties in the controversy, much more so in this case where
the contents of a copy thereof subsequently registered for documentation
purposes is being contested. No reason has been offered how and why the
questioned entry was subsequently intercalated in the copy of the certificate
of sale subsequently registered with the Registry of Deeds. Absent any
satisfactory explanation as to why said entry was belatedly inserted, the
surreptitiousness of its inclusion coupled with the furtive manner of its
intercalation casts serious doubt on the authenticity of petitioners copy of the
Certificate of Sale. Thus, it has been held that while a public document like a
notarized deed of sale is vested with the presumption of regularity, this is not
a guarantee of the validity of its contents.[34]
It must be pointed out in this regard that the issuance of a Certificate of Sale is
an end result of judicial foreclosure where statutory requirements are strictly
adhered to; where even the slightest deviations therefrom will invalidate the
proceeding[35] and the sale.[36] Among these requirements is an explicit
enumeration and correct description of what properties are to be sold stated
in the notice. The stringence in the observance of these requirements is such
that an incorrect title number together with a correct technical description of
the property to be sold and vice versa is deemed a substantial and fatal error
which results in the invalidation of the sale.[37]
The certificate of sale is an accurate record of what properties were actually
sold to satisfy the debt. The strictness in the observance of accuracy and
correctness in the description of the properties renders the enumeration in
the certificate exclusive. Thus, subsequently including properties which have
not been explicitly mentioned therein for registration purposes under
suspicious circumstances smacks of fraud. The explanation that the land on
which the properties sold is necessarily included and, hence, was belatedly
typed on the dorsal portion of the copy of the certificate subsequently
registered is at best a lame excuse unworthy of belief.
The appellate court correctly observed that there was a marked difference in
the appearance of the typewritten words appearing on the first page of the
copy of the Certificate of Sale registered with the Registry of Deeds[38] and
those appearing at the dorsal portion thereof. Underscoring the irregularity of
the intercalation is the clearly devious attempt to let such an insertion pass
unnoticed by typing the same at the back of the first page instead of on the
second page which was merely half-filled and could accommodate the entry
with room to spare.
The argument that the land on which the buildings levied upon in execution is
necessarily included is, likewise, tenuous. Article 415 of the Civil Code
provides:
ART. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil.
xxxxxxxxx
(3) Everything attached to an immovable in a fixed manner, in such a way that
it cannot be separated therefrom without breaking them material or
deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed
in buildings or on lands by the owner of the immovable in such a manner that
it reveals the intention to attach them permanently to the tenements;
(5) Machinery, receptacles, instruments or implements intended by the owner
of the tenement for an industry or works which may be carried on in a building
or on a piece of land, and which tend directly to meet the needs of the said
industry or works;
(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of
similar nature, in case their owner has placed them or preserves them with the
intention to have them permanently attached to the land, and forming a
permanent part of it; the animals in these places are also included;
xxxxxxxxx
(9) Docks and structures which, though floating, are intended by their nature
and object to remain at a fixed place on a river, lake or coast;
x x x x x x x x x.
The foregoing provision of the Civil Code enumerates land and
buildings separately. This can only mean that a building is, by itself, considered
immovable.[39] Thus, it has been held that
. . . while it is true that a mortgage of land necessarily includes, in the absence
of stipulation of the improvements thereon, buildings, still a building by itself
may be mortgaged apart from the land on which it has been built. Such
mortgage would be still a real estate mortgage for the building would still be
considered immovable property even if dealt with separately and apart from
the land.[40] (emphasis and italics supplied)
In this case, considering that what was sold by virtue of the writ of execution
issued by the trial court was merely the storehouse and bodega constructed
on the parcel of land covered by Transfer Certificate of Title No. T-40785,
which by themselves are real properties of respondents spouses, the same
should be regarded as separate and distinct from the conveyance of the lot on
which they stand.
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for
lack of merit. The Decision dated May 13, 2002 of the Court of Appeals in CA-
G.R. SP No. 65891, which declared the writ of possession issued by
the Regional Trial Court of Balanga City, Branch 1, on July 18, 2001, null and
void, is AFFIRMED in toto.
SO ORDERED.
5
SECOND DIVISION
[G.R. No. 116710. June 25, 2001]
DANILO D. MENDOZA, also doing business under the name and style of
ATLANTIC EXCHANGE PHILIPPINES, petitioner, vs. COURT OF APPEALS,
PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG, JR., RICARDO G.
DECEPIDA and BAYANI A. BAUTISTA, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] dated August
8, 1994 of the respondent Court of Appeals (Tenth Division) in CA-G.R. CV No.
38036 reversing the judgment[2] of the Regional Trial Court (RTC) and
dismissing the complaint therein.
Petitioner Danilo D. Mendoza is engaged in the domestic and international
trading of raw materials and chemicals. He operates under the business name
Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with
the Department of Trade and Industry (DTI). Sometime in 1978 he was granted
by respondent Philippine National Bank (PNB) a Five Hundred Thousand Pesos
(P500,000.00) credit line and a One Million Pesos (P1,000,000.00) Letter of
Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which may
thereinafter be granted, petitioner mortgaged to respondent PNB the
following: 1) three (3) parcels of land[3] with improvements in F. Pasco
Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3) several
pieces of machinery and equipment in his Pasig coco-chemical plant.
The real estate mortgage[4] provided the following escalation clause:
(f) The rate of interest charged on the obligation secured by this mortgage as
well as the interest on the amount which may have been advanced by the
Mortgagee in accordance with paragraph (d) of the conditions herein
stipulated shall be subject during the life of this contract to such increase
within the rates allowed by law, as the Board of Directors of the Mortgagee
may prescribe for its debtors.
Petitioner executed in favor of respondent PNB three (3) promissory notes
covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one
dated March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00);
another dated March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the
last dated September 27, 1979 for One Hundred Fifty Thousand Pesos
(P150,000.00). The said 1979 promissory notes uniformly stipulated: "with
interest thereon at the rate of 12% per annum, until paid, which interest rate
the Bank may, at any time, without notice, raise within the limits allowed by
law xxx."[5]
Petitioner made use of his LC/TR line to purchase raw materials from foreign
importers. He signed a total of eleven (11) documents denominated as
"Application and Agreement for Commercial Letter of Credit,"[6] on various
dates from February 8 to September 11, 1979, which uniformly contained the
following clause: "Interest shall be at the rate of 9% per annum from the
date(s) of the draft(s) to the date(s) of arrival of payment therefor in New
York. The Bank, however, reserves the right to raise the interest charges at any
time depending on whatever policy it may follow in the future."[7]
In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon
Jr., respondent PNB advised petitioner Mendoza that effective December 1,
1979, the bank raised its interest rates to 14% per annum, in line with Central
Bank's Monetary Board Resolution No. 2126 dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting for the
restructuring of his past due accounts into a five-year term loan and for an
additional LC/TR line of Two Million Pesos (P2,000,000.00).[8] According to the
letter, because of the shut-down of his end-user companies and the huge
amount spent for the expansion of his business, petitioner failed to pay to
respondent bank his LC/TR accounts as they became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of
the respondent bank and required petitioner to submit the following
documents before the bank would act on his request: 1) Audited Financial
Statements for 1979 and 1980; 2) Projected cash flow (cash in - cash out) for
five (5) years detailed yearly; and 3) List of additional machinery and
equipment and proof of ownership thereof. Cura also suggested that
petitioner reduce his total loan obligations to Three Million Pesos
(P3,000,000.00) "to give us more justification in recommending a plan of
payment or restructuring of your accounts to higher authorities of the
Bank."[9]
On September 25, 1981, petitioner sent another letter addressed to PNB Vice-
President Jose Salvador, regarding his request for restructuring of his loans. He
offered respondent PNB the following proposals: 1) the disposal of some of
the mortgaged properties, more particularly, his house and lot and a vacant lot
in order to pay the overdue trust receipts; 2) capitalization and conversion of
the balance into a 5-year term loan payable semi-annually or on annual
installments; 3) a new Two Million Pesos (P2,000,000.00) LC/TR line in order to
enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment
of all his receivables to PNB from all domestic and export sales generated by
the LC/TR line; and 5) maintenance of the existing Five Hundred Thousand
Pesos (P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong Branch found his
proposal favorable and recommended the implementation of the
agreement. However, Fernando Maramag, PNB Executive Vice-President,
disapproved the proposed release of the mortgaged properties and reduced
the proposed new LC/TR line to One Million Pesos
(P1,000,000.00).[10] Petitioner claimed he was forced to agree to these
changes and that he was required to submit a new formal proposal and to sign
two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following revised
proposals to respondent bank: 1) the restructuring of past due accounts
including interests and penalties into a 5-year term loan, payable semi-
annually with one year grace period on the principal; 2) payment of Four
Hundred Thousand Pesos (P400,000.00) upon the approval of the proposal; 3)
reduction of penalty from 3% to 1%; 4) capitalization of the interest
component with interest rate at 16% per annum; 5) establishment of a One
Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties; 6)
assignment of all his export proceeds to respondent bank to guarantee
payment of his loans.
According to petitioner, respondent PNB approved his proposal. He further
claimed that he and his wife were asked to sign two (2) blank promissory note
forms. According to petitioner, they were made to believe that the blank
promissory notes were to be filled out by respondent PNB to conform with the
5-year restructuring plan allegedly agreed upon. The first Promissory
Note,[11] No. 127/82, covered the principal while the second Promissory
Note,[12] No. 128/82, represented the accrued interest.
Petitioner testified that respondent PNB allegedly contravened their verbal
agreement by 1) affixing dates on the two (2) subject promissory notes to
make them mature in two (2) years instead of five (5) years as supposedly
agreed upon; 2) inserting in the first Promissory Note No. 127/82 an interest
rate of 21% instead of 18%; 3) inserting in the second Promissory Note No.
128/82, the amount stated therein representing the accrued interest as One
Million Five Hundred Thirty Six Thousand Four Hundred Ninety Eight Pesos and
Seventy Three Centavos (P1,536,498.73) when it should only be Seven
Hundred Sixty Thousand Three Hundred Ninety Eight Pesos and Twenty Three
Centavos (P760,398.23) and pegging the interest rate thereon at 18% instead
of 12%.
The subject Promissory Notes Nos. 127/82 and 128/82 both dated December
29, 1982 in the principal amounts of Two Million Six Hundred Fifty One
Thousand One Hundred Eighteen Pesos and Eighty Six Centavos
(P2,651,118.86) and One Million Five Hundred Thirty Six Thousand Seven
Hundred Ninety Eight and Seventy Three Centavos (P1,536,798.73)
respectively and marked Exhibits BB and CC respectively, were payable on
equal semi-annual amortization and contained the following escalation clause:
x x x which interest rate the BANK may increase within the limits allowed by
law at any time depending on whatever policy it may adopt in the future;
6
Provided, that, the interest rate on this note shall be correspondingly
decreased in the event that the applicable maximum interest rate is reduced
by law or by the Monetary Board. In either case, the adjustment in the interest
rate agreed upon shall take effect on the effectivity date of the increase or
decrease in the maximum interest rate. x x x
It appears from the record that the subject Promissory Notes Nos. 127/82 and
128/82 superseded and novated the three (3) 1979 promissory notes and the
eleven (11) 1979 Application and Agreement for Commercial Letter of Credit
which the petitioner executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new PNB
Mandaluyong Branch Manager Bayani A. Bautista suggested that he sell the
coco-chemical plant so that he could keep up with the semi-annual
amortizations. On three (3) occasions, Bautista even showed up at the plant
with some unidentified persons who claimed that they were interested in
buying the plant.
Petitioner testified that when he confronted the PNB management about the
two (2) Promissory Notes Nos. 127/82 and 128/82 (marked Exhibits BB and CC
respectively) which he claimed were improperly filled out, Bautista and
Maramag assured him that the five-year restructuring agreement would be
implemented on the condition that he assigns 10% of his export earnings to
the Bank.[13] In a letter dated August 22, 1983, petitioner Mendoza consented
to assign 10% of the net export proceeds of a Letter of Credit covering goods
amounting to One Hundred Fourteen Thousand Dollars
($114,000.00).[14] However, petitioner claimed that respondent PNB
subsequently debited 14% instead of 10% from his export proceeds.[15]
Pursuant to the escalation clauses of the subject two (2) promissory notes, the
interest rate on the principal amount in Promissory Note No. 127/82 was
increased from 21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while
the interest rate on the accrued interest per Promissory Note No. 128/82 was
increased from 18% to 29% on May 28, 1984, and to 32% on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and
128/82 (Exhibits BB and CC) as they fell due. Respondent PNB extra-judicially
foreclosed the real and chattel mortgages, and the mortgaged properties were
sold at public auction to respondent PNB, as highest bidder, for a total of
Three Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen
Pesos and Fifty Centavos (P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint for specific
performance, nullification of the extra-judicial foreclosure and damages
against respondents PNB, Fernando Maramag Jr., Ricardo C. Decepida, Vice-
President for Metropolitan Branches, and Bayani A. Bautista. He alleged that
the Extrajudicial Foreclosure Sale of the mortgaged properties was null and
void since his loans were restructured to a five-year term loan; hence, it was
not yet due and demandable; that the escalation clauses in the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were null and void, that the total
amount presented by PNB as basis of the foreclosure sale did not reflect the
actual loan obligations of the plaintiff to PNB; that Bautista purposely delayed
payments on his exports and caused delays in the shipment of materials; that
PNB withheld certain personal properties not covered by the chattel
mortgage; and that the foreclosure of his mortgages was premature so that he
was unable to service his foreign clients, resulting in actual damages
amounting to Two Million Four Thousand Four Hundred Sixty One Pesos
(P2,004,461.00).
On March 16, 1992, the trial court rendered judgment in favor of the
petitioner and ordered the nullification of the extrajudicial foreclosure of the
real estate mortgage, the Sheriffs sale of the mortgaged real properties by
virtue of consolidation thereof and the cancellation of the new titles issued to
PNB; that PNB vacate the subject premises in Pasig and turn the same over to
the petitioner; and also the nullification of the extrajudicial foreclosure and
sheriff's sale of the mortgaged chattels, and that the chattels be returned to
petitioner Mendoza if they were removed from his Pasig premises or be paid
for if they were lost or rendered unserviceable.
The trial court also ordered respondent PNB to restructure to five-years
petitioner's principal loan of Two Million Six Hundred Fifty One Thousand One
Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and the
accumulated capitalized interest on the same in the amount of Seven Hundred
Sixty Thousand Three Hundred Eighty Nine Pesos and Twenty Three Centavos
(P760,389.23) as of December 1982, and that respondent PNB should compute
the additional interest from January 1983 up to October 15, 1984 only when
respondent PNB took possession of the said properties, at the rate of 12% and
9% respectively.
The trial court also ordered respondent PNB to grant petitioner Mendoza an
additional Two Million Pesos (P2,000,000.00) loan in order for him to have the
necessary capital to resume operation. It also ordered respondents PNB,
Bayani A. Bautista and Ricardo C. Decepida to pay to petitioner actual damages
in the amount of Two Million One Hundred Thirteen Thousand Nine Hundred
Sixty One Pesos (P2,113,961.00) and the peso equivalent of Six Thousand Two
Hundred Fifteen Dollars ($6,215.00) at the prevailing foreign exchange rate on
October 11, 1983; and exemplary damages in the amount of Two Hundred
Thousand Pesos (P200,000.00).
Respondent PNB appealed this decision of the trial court to the Court of
Appeals. And the Court of Appeals reversed the decision of the trial court and
dismissed the complaint. Hence, this petition.
It is the petitioners contention that the PNB management restructured his
existing loan obligations to a five-year term loan and granted him another Two
Million Pesos (P2,000,000.00) LC/TR line; that the Promissory Notes Nos.
127/82 and 128/82 evidencing a 2-year restructuring period or with the due
maturity date December 29, 1984 were filled out fraudulently by respondent
PNB, and contrary to his verbal agreement with respondent PNB; hence, his
indebtedness to respondent PNB was not yet due and the extrajudicial
foreclosure of his real estate and chattel mortgages was premature. On the
other hand, respondent PNB denies that petitioner's loan obligations were
restructured to five (5) years and maintains that the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were filled out regularly and
became due as of December 29, 1984 as shown on the face thereof.
Respondent Court of Appeals held that there is no evidence of a promise from
respondent PNB, admittedly a banking corporation, that it had accepted the
proposals of the petitioner to have a five-year restructuring of his overdue
loan obligations. It found and held, on the basis of the evidence adduced, that
"appellee's (Mendoza) communications were mere proposals while the bank's
responses were not categorical that the appellee's request had been favorably
accepted by the bank."
Contending that respondent PNB had allegedly approved his proposed five-
year restructuring plan, petitioner presented three (3) documents executed by
respondent PNB officials. The first document is a letter dated March 16, 1981
addressed to the petitioner and signed by Ceferino D. Cura, Branch Manager of
PNB Mandaluyong, which states:
x x x In order to study intelligently the feasibility of your above request, please
submit the following documents/papers within thirty (30) days from the date
thereof, viz:
1. Audited Financial Statements for 1979 and 1980;
2. Projected cash flow (cash in - cash out) for five years detailed yearly; and
3. List of additional machinery and equipment and proof of ownership thereof.
We would strongly suggest, however, that you reduce your total obligations to
at least P3 million (principal and interest and other charges) to give us more
justification in recommending a plan of payment or restructuring of your
accounts to higher authorities of this bank.
The second document is a letter dated May 11, 1981 addressed to Mr. S. Pe
Benito, Jr., Managing Director of the Technological Resources Center and
signed by said PNB Branch Manager, Ceferino D. Cura. According to petitioner,
this letter showed that respondent PNB seriously considered the restructuring
of his loan obligations to a five-year term loan, to wit:
xxx
At the request of our client, we would like to furnish you with the following
information pertinent to his accounts with us:
7
xxx
We are currently evaluating the proposal of the client to re-structure his
accounts with us into a five-year plan.
We hope that the above information will guide you in evaluating the proposals
of Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981 addressed to petitioner and
signed by PNB Assistant Vice-President Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations were granted and carried in
the books of our Mandaluyong Branch, we would suggest that your requests
and proposals be directed to Ceferino Cura, Manager of our said Branch.
We feel certain that Mr. Cura will be pleased to discuss matters of mutual
interest with you.
xxx
Petitioner also presented a letter which he addressed to Mr. Jose Salvador,
Vice-President of the Metropolitan Branches of PNB, dated September 24,
1981, which reads:
Re: Restructuring of our Account into a 5-year Term Loan and Request for the
Establishment of a P2.0 Million LC/TR Line
Dear Sir:
In compliance with our discussion last September 17, we would like to
formalize our proposal to support our above requested assistance from the
Philippine National Bank.
xxx
Again we wish to express our sincere appreciation for your open-minded
approach towards the solution of this problem which we know and will be
beneficial and to the best interest of the bank and mutually advantageous to
your client.
xxx
Petitioner argues that he submitted the requirements according to the
instructions given to him and that upon submission thereof, his proposed five-
year restructuring plan was deemed automatically approved by respondent
PNB.
We disagree.
Nowhere in those letters is there a categorical statement that respondent PNB
had approved the petitioners proposed five-year restructuring plan. It is
stretching the imagination to construe them as evidence that his proposed
five-year restructuring plan has been approved by the respondent PNB which
is admittedly a banking corporation. Only an absolute and unqualified
acceptance of a definite offer manifests the consent necessary to perfect a
contract.[16] If anything, those correspondences only prove that the parties
had not gone beyond the preparation stage, which is the period from the start
of the negotiations until the moment just before the agreement of the
parties.[17]
There is nothing in the record that even suggests that respondent PNB
assented to the alleged five-year restructure of petitioners overdue loan
obligations to PNB. However, the trial court ruled in favor of petitioner
Mendoza, holding that since petitioner has complied with the conditions of the
alleged oral contract, the latter may not renege on its obligation to honor the
five-year restructuring period, under the rule of promissory
estoppel. Citing Ramos v. Central Bank,[18] the trial court said:
The broad general rule to the effect that a promise to do or not to do
something in the future does not work an estoppel must be qualified, since
there are numerous cases in which an estoppel has been predicated on
promises or assurances as to future conduct. The doctrine of promissory
estoppel is by no means new, although the name has been adopted only in
comparatively recent years. According to that doctrine, an estoppel may arise
from the making of a promise, even though without consideration, if it was
intended that the promise should be relied upon and in fact it was relied upon,
and if a refusal to enforce it would be virtually to sanction the perpetration of
fraud or would result in other injustice. In this respect, the reliance by the
promisee is generally evidenced by action or forbearance on his part, and the
idea has been expressed that such action or forbearance would reasonably
have been expected by the promissor. xxx
The doctrine of promissory estoppel is an exception to the general rule that a
promise of future conduct does not constitute an estoppel. In some
jurisdictions, in order to make out a claim of promissory estoppel, a party
bears the burden of establishing the following elements: (1) a promise
reasonably expected to induce action or forebearance; (2) such promise did in
fact induce such action or forebearance, and (3) the party suffered detriment
as a result.[19]
It is clear from the forgoing that the doctrine of promissory estoppel
presupposes the existence of a promise on the part of one against whom
estoppel is claimed. The promise must be plain and unambiguous and
sufficiently specific so that the Judiciary can understand the obligation
assumed and enforce the promise according to its terms.[20] For petitioner to
claim that respondent PNB is estopped to deny the five-year restructuring
plan, he must first prove that respondent PNB had promised to approve the
plan in exchange for the submission of the proposal. As discussed earlier, no
such promise was proven, therefore, the doctrine does not apply to the case at
bar. A cause of action for promissory estoppel does not lie where an alleged
oral promise was conditional, so that reliance upon it was not
reasonable.[21] It does not operate to create liability where it does not
otherwise exist.[22]
Since there is no basis to rule that petitioner's overdue loan obligations were
restructured to mature in a period of five (5) years, we see no other option but
to respect the two-year period as contained in the two (2) subject Promissory
Notes Nos. 127/82 and 128/82, marked as Exhibits BB and CC respectively
which superseded and novated all prior loan documents signed by petitioner
in favor of respondent PNB. Petitioner argues, in his memorandum, that
"respondent Court of Appeals had no basis in saying that the acceptance of the
five-year restructuring is totally absent from the record."[23] On the contrary,
the subject Promissory Notes Nos. 127/82 and 128/82 are clear on their face
that they were due on December 29, 1984 or two (2) years from the date of
the signing of the said notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory Notes Nos. 127/82 and
128/82 were signed by him in blank with the understanding that they were to
be subsequently filled out to conform with his alleged oral agreements with
PNB officials, among which is that they were to become due only after five (5)
years. If petitioner were to be believed, the PNB officials concerned committed
a fraudulent act in filling out the subject two (2) promissory notes in
question. Private transactions are presumed to be fair and regular.[24] The
burden of presenting evidence to overcome this presumption falls upon
petitioner.Considering that petitioner imputes a serious act of fraud on
respondent PNB, which is a banking corporation, this court will not be satisfied
with anything but the most convincing evidence. However, apart from
petitioner's self-serving verbal declarations, we find no sufficient proof that
the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were completed
irregularly. Therefore, we rule that the presumption has not been rebutted.
Besides, it could be gleaned from the record that the petitioner is an astute
businessman who took care to reduce in writing his business proposals to the
respondent bank. It is unthinkable that the same person would commit the
careless mistake of leaving his subject two (2) promissory notes in blank in the
hands of other persons. As the respondent Court of Appeals correctly pointed
out:
Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant (p. 3 TSN, January
9, 1990) will insist that the details of the two promissory notes he and his wife
executed in 1982 should be specific to enable them to make the precise
8
computation in the event of default as in the case at bench. In fact, his alleged
omission as a C.P.A. and a Tax Consultant to insist that the two promissory
notes be filled up on important details like the rates of interest is inconsistent
with the legal presumption of a person who takes ordinary care of his concerns
(Section 3 (c), Rule 131, Revised Rules on Evidence).
As pointed out by the Court of Appeals, Orlando Montecillo, Chief, Loans and
Discounts, PNB Mandaluyong Branch, testified that the said Promissory Notes
Nos. 127/82 and 128/82 were completely filled out when Danilo Mendoza
signed them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan restructuring theory, petitioner
contends that respondent PNB's action of withholding 10% from his export
proceeds is proof that his proposal had been accepted and the contract had
been partially executed. He claims that he would not have consented to the
additional burden if there were no corresponding benefit. This contention is
not well taken. There is no credible proof that the 10% assignment of his
export proceeds was not part of the conditions of the two-year restructuring
deal. Considering that the resulting amount obtained from this assignment of
export proceeds was not even enough to cover the interest for the
corresponding month,[25] we are hard-pressed to construe it as the required
proof that respondent PNB allegedly approved the proposed five-year
restructuring of petitioners overdue loan obligations.
It is interesting to note that in his Complaint, petitioner made no mention that
the assignment of his export proceeds was a condition for the alleged approval
of his proposed five-year loan restructuring plan. The Complaint merely
alleged that "plaintiff in a sincere effort to make payments on his obligations
agreed to assign 10% of his export proceeds to defendant PNB." This curious
omission leads the court to believe that the alleged link between the
petitioners assignment of export proceeds and the alleged five-year
restructuring of his overdue loans was more contrived than real.
It appears that respondent bank increased the interest rates on the two (2)
subject Promissory Notes Nos. 127/82 and 128/82 without the prior consent of
the petitioner. The petitioner did not agree to the increase in the stipulated
interest rate of 21% per annum on Promissory Note No. 127/82 and 18% per
annum on Promissory Note No. 128/82. As held in several cases, the unilateral
determination and imposition of increased interest rates by respondent bank
is violative of the principle of mutuality of contracts ordained in Article 1308 of
the Civil Code.[26] As held in one case:[27]
It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is
wanting on the part of one who contracts, his act has no more efficacy than if
it had been done under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that the rate of
interest is always a vital component, for it can make or break a capital venture.
It has been held that no one receiving a proposal to change a contract to which
he is a party is obliged to answer the proposal, and his silence per se cannot be
construed as an acceptance.[28] Estoppel will not lie against the petitioner
regarding the increase in the stipulated interest on the subject Promissory
Notes Nos. 127/82 and 128/82 inasmuch as he was not even informed
beforehand by respondent bank of the change in the stipulated interest
rates. However, we also note that the said two (2) subject Promissory Notes
Nos. 127/82 and 128/82 expressly provide for a penalty charge of 3% per
annum to be imposed on any unpaid amount when due.
Petitioner prays for the release of some of his movables[29] being withheld by
respondent PNB, alleging that they were not included among the chattels he
mortgaged to respondent bank. However, petitioner did not present any proof
as to when he acquired the subject movables and hence, we are not disposed
to believe that the same were after-acquired chattels not covered by the
chattel and real estate mortgages.
In asserting its rights over the subject movables, respondent PNB relies on a
common provision in the two (2) subject Promissory Notes Nos. 127/82 and
128/82 which states:
In the event that this note is not paid at maturity or when the same becomes
due under any of the provisions hereof, we hereby authorized the BANK at its
option and without notice, to apply to the payment of this note, any and all
moneys, securities and things of value which may be in its hands on deposit or
otherwise belonging to me/us and for this purpose. We hereby, jointly and
severally, irrevocably constitute and appoint the BANK to be our true
Attorney-in-Fact with full power and authority for us in our name and behalf
and without prior notice to negotiate, sell and transfer any moneys securities
and things of value which it may hold, by public or private sale and apply the
proceeds thereof to the payment of this note.
It is clear, however, from the above-quoted provision of the said promissory
notes that respondent bank is authorized, in case of default, to sell things of
value belonging to the mortgagor which may be on its hands for deposit or
otherwise belonging to me/us and for this purpose. Besides the petitioner
executed not only a chattel mortgage but also a real estate mortgage to secure
his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope and effect to after-acquired
property is valid and binding where the after-acquired property is in renewal
of, or in substitution for, goods on hand when the mortgage was executed, or
is purchased with the proceeds of the sale of such goods.[30] As earlier
pointed out, the petitioner did not present any proof as to when the subject
movables were acquired.
More importantly, respondent bank makes a valid argument for the retention
of the subject movables. Respondent PNB asserts that those movables were in
fact "immovables by destination" under Art. 415 (5) of the Civil Code.[31] It is
an established rule that a mortgage constituted on an immovable includes not
only the land but also the buildings, machinery and accessories installed at the
time the mortgage was constituted as well as the buildings, machinery and
accessories belonging to the mortgagor, installed after the constitution
thereof.[32]
Petitioner also contends that respondent PNBs bid prices for this foreclosed
properties in the total amount of Three Million Seven Hundred Ninety Eight
Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50),
were allegedly unconscionable and shocking to the conscience of men. He
claims that the fair market appraisal of his foreclosed plant site together with
the improvements thereon located in Pasig, Metro Manila amounted to Five
Million Four Hundred Forty One Thousand Six Hundred Fifty Pesos
(P5,441,650.00) while that of his house and lot in Quezon City amounted to
Seven Hundred Twenty Two Thousand Pesos (P722,000.00) per the appraisal
report dated September 20, 1990 of Cuervo Appraisers, Inc.[33] That
contention is not well taken considering that:
1. The total of the principal amounts alone of petitioners subject Promissory
Notes Nos. 127/82 and 128/82 which are both overdue amounted to Four
Million One Hundred Eighty Seven Thousand Nine Hundred Seventeen Pesos
and Fifty Nine Centavos (P4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in September
1990, the extrajudicial foreclosure of petitioners real estate and chattel
mortgages have been effected way back on October 15, 1984, October 23,
1984 and December 21, 1984.[34] Common experience shows that real estate
values especially in Metro Manila tend to go upward due to developments in
the locality.
3. In the public auction/foreclosure sales, respondent PNB, as mortgagee, was
not obliged to bid more than its claims or more than the amount of petitioners
loan obligations which are all overdue. The foreclosed real estate and chattel
mortgages which petitioner earlier executed are accessory contracts covering
the collaterals or security of his loans with respondent PNB. The principal
contracts are the Promissory Notes Nos. 127/82 and 128/82 which superseded
and novated the 1979 promissory notes and the 1979 eleven (11) Applications
and Agreements for Commercial Letter of Credit.
Finally, the record shows that petitioner did not even attempt to tender any
redemption price to respondent PNB, as highest bidder of the said foreclosed
real estate properties, during the one-year redemption period.
9
In view of all the foregoing, it is our view and we hold that the extrajudicial
foreclosure of petitioners real estate and chattel mortgages was not
premature and that it was in fact legal and valid.

WHEREFORE, the petition is hereby DENIED. The challenged Decision of the

Court of Appeals in CA-G.R. CV No. 38036 is AFFIRMED with modification that
the increase in the stipulated interest rates of 21% per annum and 18% per
annum appearing on Promissory Notes Nos. 127/82 and 128/82 respectively is
hereby declared null and void.

SO ORDERED.

10
 SECOND DIVISION from 03/31/98 to 02/23/02 P7,896,078.15

_____________________

SPOUSES LEOPOLDO S. VIOLA G.R. No. 177886 P14,024,623.22[3] (Underscoring supplied)

and MERCEDITA VIOLA,

Petitioners,
Present: Respondent thus extrajudicially foreclosed the mortgage before the Office of
the Clerk of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court
(RTC) of Marikina City. The mortgaged properties were sold on April 10,
2003 for P4,284,000.00 at public auction to respondent, after which a
QUISUMBING, J., Chairperson, Certificate of Sale dated April 21, 2003[4]was issued.
- versus -
CARPIO MORALES, More than five months later or on October 8, 2003, petitioners filed a
complaint[5] for annulment of foreclosure sale, accounting and damages
TINGA, before the Marikina RTC, docketed as Civil Case No. 2003-905-MK and raffled
to Branch 192. Petitioners alleged, inter alia, that they had made substantial
VELASCO, JR., and payments of P3,669,210.67 receipts of which were issued without respondent
specifying whether the payment was for interest, penalty or the principal
BRION, JJ. obligation; that based on respondents statement of account, not a single
EQUITABLE PCI BANK, INC., centavo of their payments was applied to the principal obligation; that every
time respondent sent them a statement of account and demand letters, they
Respondent. requested for a proper accounting for the purpose of determining their actual
Promulgated: obligation, but all their requests were unjustifiably ignored on account of
which they were forced to discontinue payment; that the foreclosure
November 27, 2008 proceedings and auction sale were not only irregularly and prematurely held
but were null and void because the mortgage debt is only P2,224,073.31 on
x--------------------------------------------------x the principal obligation and P1,455,137.36 on the interest, or a total of
only P3,679,210.67 as of April 15, 2003, but the mortgaged properties were
sold to satisfy an inflated and erroneous principal obligation of P4,783,254.69,
plus 3% penalty fee per month or 33% per year and 15% interest per year,
DECISION which amounted to P14,024,623.22 as of September 30, 2002; that the
parties never agreed and stipulated in the real estate mortgage contract that
the 15% interest per annum on the principal loan and the 3% penalty fee per
month on the outstanding amount would be covered or secured by the
Via a contract denominated as CREDIT LINE AND REAL ESTATE MORTGAGE mortgage; that assuming respondent could impose such interest and penalty
AGREEMENT FOR PROPERTY LINE[1] (Credit Line Agreement) executed on fee, the same are exorbitant, unreasonable, iniquitous and unconscionable,
March 31, 1997, Leo-Mers Commercial, Inc., as the Client, and its officers hence, must be reduced; and that respondent is only allowed to impose the
spouses Leopoldo and Mercedita Viola (petitioners) obtained a loan through a legal rate of interest of 12% per annum on the principal loan absent any
credit line facility in the maximum amount of P4,700,000.00 from the stipulation thereon.[6]
Philippine Commercial International Bank (PCI Bank), which was later merged
with Equitable Bank and became known as Equitable PCI Bank, In its Answer, respondent denied petitioners assertions, contending, inter alia,
Inc. (respondent). that the absence of stipulation in the mortgage contract securing the payment
of 15% interest per annum on the principal loan, as well as the 3% penalty fee
The Credit Line Agreement stipulated that the loan would bear interest at the per month on the outstanding amount, is immaterial since the mortgage
prevailing PCIBank lending rate per annum on the principal obligation and a contract is a mere accessory contract which must take its bearings from the
penalty fee of three percent (3%) per month on the outstanding amount. principal Credit Line Agreement.[7]

To secure the payment of the loan, petitioners executed also on March 31,
1997 a Real Estate Mortgage[2] in favor of PCIBank over their two parcels of
land covered by Transfer Certificates of Title No. N-113861 (consisting of 300
square meters, more or less ) and N-129036 (consisting of 446 square meters,
more or less) of the Registry of Deeds of Marikina.
During the pre-trial conference, the parties defined as sole issue in the case
whether the mortgage contract also secured the payment of 15% interest per
annum on the principal loan of P4,700,000.00 and the 3% penalty fee per
month on the outstanding amount, which interest and penalty fee are
stipulated only in the Credit Line Agreement.[8]

Petitioners availed of the full amount of the loan. Subsequently, they made
partial payments which totaled P3,669,210.67. By respondents claim,
petitioner had since November 24, 2000 made no further payments and
despite demand, they failed to pay their outstanding obligation which, as
of September 30, 2002, totaled P14,024,623.22, broken down as follows:
By Decision[9] of September 14, 2005, the trial court sustained respondents
affirmative position on the issue but found the questioned interest and
penalty fee excessive and exorbitant. Thus, it equitably reduced the interest on
the principal loan from 15% to 12% per annum and the penalty fee per month
on the outstanding amount from 3% to 1.5% per month.

(a) Principal obligation P4,783,254.69 Accordingly, the court nullified the foreclosure proceedings and the Certificate
of Sale subsequently issued, without prejudice to the holding anew of
(b) Past due interest from foreclosure proceedings based on the re-computed amount of the
indebtedness, if the circumstances so warrant.
11/24/00 to 09/30/02
The dispositive portion of the trial courts Decision reads:
at 15% interest P1,345,290.38
WHEREFORE, judgment is hereby rendered as follows:

1) The interest on the principal loan in the amount of Four Million Seven
(c) Penalty at 3% per month Hundred Thousand (P4,700,000.00) Pesos should
be recomputed at 12% per annum;

11
2) The 3% per month penalty on delinquent account as stipulated by the
parties in the Credit Line Contract dated March 31, 1997 is
hereby REDUCED to 1.5% per month;
3) The foreclosure sale conducted on April 10, 2003 by the Clerk of Court and
Ex-Officio Sheriff of Marikina, to satisfy the plaintiffs mortgage
indebtedness, and the Certificate of Saleissued as a consequence of the said
proceedings, are declared NULL and VOID, without prejudice to the conduct of
another foreclosure proceedings on the basis of the re-
computed amount ofthe plaintiffs indebtedness, if the circumstances so warra
nt.
No pronouncement as to costs.
SO ORDERED. (Underscoring supplied)
Petitioners filed a Motion for Partial Reconsideration,[10] contending that the
penalty fee per month on the outstanding amount should have been taken out
of the coverage of the mortgage contract as it was not stipulated therein. By
Order dated December 6, 2005, the trial court denied the motion.
On appeal by petitioners, the Court of Appeals, by Decision[11] of February 21,
2007, dismissed the same for lack of merit, holding that the Real Estate
Mortgage covers not only the principal amount [of P4,700,000.00] but also the
interest and bank charges, which [phrase bank charges] refers to the penalty
charges stipulated in the Credit Line Agreement.[12]
Petitioners Motion for Reconsideration having been denied by
Resolution[13] of May 16, 2007, they filed the present Petition for Review
on Certiorari, alleging that
THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
DECIDING THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS
OF THE SUPREME COURT BY RULING THAT THERE IS NO AMBIGUITY IN
CONSTRUING TOGETHER THE CREDIT LINE AND MORTGAGE CONTRACTS
WHICH PROVIDED CONFLICTING PROVISIONS AS TO INTEREST AND
PENALTY.[14]
The only issue is whether the mortgage contract also secured the penalty
fee per month on the outstanding amount as stipulated in the Credit Line
Agreement.
The Court holds not.
A mortgage must sufficiently describe the debt sought to be secured, which
description must not be such as to mislead or deceive, and an obligation is not
secured by a mortgage unless it comes fairly within the terms of the
mortgage.[15]
In the case at bar, the parties executed two separate documents on March 31,
1997 the Credit Line Agreement granting the Client a loan through a credit
facility in the maximum amount of P4,700,000.00, and the Real Estate
Mortgage contract securing the payment thereof. Undisputedly, both
contracts were prepared by respondent and written in fine print, single space.
The Credit Line Agreement contains the following stipulations on interest and
delinquency charges:
A. CREDIT FACILITY
9. INTEREST ON AVAILMENTS
The CLIENT shall pay the BANK interest on each availment against the Credit
Facility at the rate of:
PREVAILING PCIBANK LENDING RATE
for the first interest period as defined in A(10) hereof. x x x.
xxxx
15. DELINQUENCY
CLIENTs account shall be considered delinquent if the availments exceed the
amount of the line and/or in case the Account is debited for unpaid interest
and the Available Balance is insufficient to cover the amount debited. In such
cases, the Available Balance shall become negative and the CLIENT shall pay
the deficiency immediately in addition to collection expenses incurred by the
BANK and a penalty fee of three percent (3%) per month of the outstanding
amount to be computed from the day deficiency is incurred up to the date of
full payment thereon.
x x x x.[16] (Underscoring supplied)
The Real Estate Mortgage contract states its coverage, thus:
That for and in consideration of certain loans, credit and other banking
facilities obtained x x x from the Mortgagee, the principal amount of which is
PESOS FOUR MILLION SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00)
Philippine Currency, and for the purpose of securing the payment
thereof, including the interest and bank charges accruing thereon, the costs of
collecting the same and of taking possession of and keeping the mortgaged
propert[ies], and all other expenses to which the Mortgagee may be put in
connection with or as an incident to this mortgage, as well as the faithful
compliance with the terms and conditions of this agreement and of the
separate instruments under which the credits hereby secured were obtained,
the Mortgagor does hereby constitute in favor of the Mortgagee, its
successors or assigns, a mortgage on the real property particularly described,
and the location of which is set forth, in the list appearing at the back hereof
and/or appended hereto, of which the Mortgagor declare that he is the
absolute owner and the one in possession thereof, free and clear of any liens,
encumbrances and adverse claims.[17] (Emphasis and underscoring supplied)
The immediately-quoted provision of the mortgage contract does not
specifically mention that, aside from the principal loan obligation, it also
secures the payment of a penalty fee of three percent (3%) per month of the
outstanding amount to be computed from the day deficiency is incurred up to
the date of full payment thereon, which penalty as the above-quoted portion
of the Credit Line Agreement expressly stipulates.
Since an action to foreclose must be limited to the amount mentioned in the
mortgage[18] and the penalty fee of 3% per month of the outstanding
obligation is not mentioned in the mortgage, it must be excluded from the
computation of the amount secured by the mortgage.
The ruling of the Court of Appeals in its assailed Decision that the phrase
including the interest and bank charges in the mortgage contract refers to
the penalty charges stipulated in the Credit Line Agreement is unavailing.
Penalty fee is entirely different from bank charges. The phrase bank charges is
normally understood to refer to compensation for services. A penalty fee is
likened to a compensation for damages in case of breach of the
obligation. Being penal in nature, such fee must be specific and fixed by the
contracting parties, unlike in the present case which slaps
a 3% penalty fee per month of the outstanding amount of the obligation.
Moreover, the penalty fee does not belong to the species of obligation
enumerated in the mortgage contract, namely: loans, credit and other banking
12
facilities obtained x x x from the Mortgagee, . . . including the interest and
bank charges, . . . the costs of collecting the same and of taking possession of
and keeping the mortgaged properties, and all other expenses to which the
Mortgagee may be put in connection with or as an incident to this mortgage . .
. penalty.[20](Emphasis and underscoring supplied)
In Philippine Bank of Communications v. Court of Appeals[19] which raised a
similar issue, this Court held:
The sole issue in this case is whether, in the foreclosure of a real estate
mortgage, the penalties stipulated in two promissory notes secured by the
mortgage may be charged against the mortgagors as part of the sums secured,
although the mortgage contract does not mention the said penalties.
xxxx
We immediately discern that the mortgage contract does not at all mention
the penalties stipulated in the promissory notes. However, the petitioner
insists that the penalties are covered by the following provision of the
mortgage contract:
This mortgage is given as security for the payment to the MORTGAGEE on
demand or at maturity, as the case may be, of all promissory notes, letters of
credit, trust receipts, bills of exchange, drafts, overdrafts and all other
obligations of every kind already incurred or which hereafter may be incurred.
xxxx
The Court is unconvinced, for the cases relied upon by the petitioner are
inapplicable. x x x.
xxxx
The mortgage contract is also one of adhesion as it was prepared solely by the
petitioner and the only participation of the other party was the affixing of his
signature or adhesion thereto. Being a contract of adhesion, the mortgage is to
be strictly construed against the petitioner, the party which prepared the
agreement.
A reading, not only of the earlier quoted provision, but of the entire mortgage
contract yields no mention of penalty charges. Construing this silence strictly
against the petitioner, it can fairly be concluded that the petitioner did not
intend to include the penalties on the promissory notes in the secured
amount. This explains the finding by the trial court, as affirmed by the Court of
Appeals, that penalties and charges are not due for want of stipulation in the
mortgage contract.
Indeed, a mortgage must sufficiently describe the debt sought to be secured,
which description must not be such as to mislead or deceive, and an obligation
is not secured by a mortgage unless it comes fairly within the terms of the
mortgage. In this case, the mortgage contract provides that it secures notes
and other evidences of indebtedness. Under the rule of ejusdem generis,
where a description of things of a particular class or kind is accompanied by
words of a generic character, the generic words will usually be limited to
things of a kindred nature with those particularly enumerated . . . A penalty
charge does not belong to the species of obligations enumerated in the
mortgage, hence, the said contract cannot be understood to secure the
Respondents contention that the absence in the mortgage contract of a
stipulation securing the payment of the 3% penalty fee per month on the
outstanding amount is of no consequence, the deed of mortgage being merely
an accessory contract that must take its bearings from the principal Credit Line
Agreement,[21] fails. Such absence is significant as it
creates an ambiguity between the two contracts, which ambiguity must be
resolved in favor of petitioners and against respondent who drafted the
contracts. Again, as stressed by the Court in Philippine Bank of
Communications:
There is also sufficient authority to declare that any ambiguity in a contract
whose terms are susceptible of different interpretations must be read against
the party who drafted it.
A mortgage and a note secured by it are deemed parts of one transaction and
are construed together, thus, an ambiguity is created when the notes provide
for the payment of a penalty but the mortgage contract does not. Construing
the ambiguity against the petitioner, it follows that no penalty was intended to
be covered by the mortgage. The mortgage contract consisted of three pages
with no less than seventeen conditions in fine print; it included provisions for
interest and attorneys fees similar to those in the promissory notes; and it
even provided for the payment of taxes and insurance charges. Plainly, the
petitioner can be as specific as it wants to be, yet it simply did not specify nor
even allude to, that the penalty in the promissory notes would be secured by
the mortgage. This can then only be interpreted to mean that the petitioner
had no design of including the penalty in the amount secured.[22] (Emphasis
and underscoring supplied)
WHEREFORE, the assailed Court of Appeals Decision of February 21, 2007
and Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No. 86412
affirming the trial courts decision are, in light of the foregoing
disquisition, AFFIRMED with MODIFICATION in that the penalty fee per month
of the outstanding obligation is excluded in the computation of the amount
secured by the Real Estate Mortgage executed by petitioners in respondents
favor.
SO ORDERED.
13
FIRST DIVISION
SPOUSES ADELINA S. CUYCO G.R. No. 168736
and FELICIANO U. CUYCO,
- versus - ,
SPOUSES RENATO CUYCO
and FILIPINA CUYCO,
April 19, 2006
x ---------------------------------------------------------------------------------------- x
This petition for review on certiorari assails the Decision[1] of the Court of
Appeals (CA) in CA G.R. CV No. 62352 dated November 5, 2003 which modified
the Decision[2] of the Regional Trial Court (RTC) of Quezon City, Branch 105 in
Civil Case No. Q-97-32130 dated January 27, 1999, as well as the
Resolution[3] dated June 28, 2005 denying the motion for reconsideration
thereof.
The facts of the case are as follows:
Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the
amount of P1,500,000.00 from respondents, spouses Renato and Filipina
Cuyco, payable within one year at 18% interest per annum, and secured by a
Real Estate Mortgage[4] over a parcel of land with improvements thereon
situated in Cubao, Quezon City covered by TCT No. RT-43723 (188321).[5]
Subsequently, petitioners obtained additional loans from the respondents in
the aggregate amount of P1,250,000.00, broken down as follows: (1)
P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3)
P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and
(5) P250,000.00 on January 13, 1993.[6]
Petitioners made payments amounting to P291,700.00,[7] but failed to settle
their outstanding loan obligations. Thus, on September 10, 1997, respondents
filed a complaint[8] for foreclosure of mortgage with the RTC of Quezon City,
which was docketed as Civil Case No. Q-97-32130. They alleged that
petitioners loans were secured by the real estate mortgage; that as of August
31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18%
interest compounded monthly; and that petitioners refusal to settle the same
entitles the respondents to foreclose the real estate mortgage.
Petitioners filed a motion to dismiss[9] on the ground that the complaint
states no cause of action which was denied by the RTC[10] for lack of merit.
In their answer,[11] petitioners admitted their loan obligations but argued that
only the original loan of P1,500,000.00 was secured by the real estate
mortgage at 18% per annum and that there was no agreement that the same
will be compounded monthly.
On January 27, 1999, the RTC rendered judgment[12] in favor of the
respondents, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the Court renders judgment on the
Complaint in favor of the plaintiffs and hereby orders the defendants to pay to
the Court or to the plaintiffs the amounts of P6,332,019.84, plus interest until
fully paid, P25,000.00 as attorneys fees, and costs of suit, within a period of
one hundred and twenty (120) days from the entry of judgment, and in case of
default of such payment and upon proper motion, the property shall be
ordered sold at public auction to satisfy the judgment. Further, defendants[]
counterclaim is dismissed.
SO ORDERED.[13]
Petitioners appealed to the CA reiterating their previous claim that only the
amount of P1,500,000.00 was secured by the real estate mortgage.[14] They
also contended that the RTC erred in ordering the foreclosure of the real
estate mortgage to satisfy the total indebtedness of P6,532,019.84, as of
January 10, 1999, plus interest until fully paid, and in imposing legal interest of
12% per annum on the stipulated interest of 18% from the filing of the case
until fully paid.[15]
On November 5, 2003, the CA partially granted the petition and modified the
RTC decision insofar as the amount of the loan obligations secured by the real
estate mortgage. It held that by express intention of the parties, the real
estate mortgage secured the original P1,500,000.00 loan and the subsequent
loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and
September 5, 1992, respectively. As regards the loans obtained on May 31,
1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00,
P200,000.00 and P250,000.00, respectively, the appellate tribunal held that
the parties never intended the same to be secured by the real estate
mortgage. The Court of Appeals also found that the trial court properly
imposed 12% legal interest on the stipulated interest from the date of filing of
the complaint. The dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision
of the Regional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-
32130 is hereby MODIFIED to read:
WHEREFORE, in the light of the foregoing, the Court renders judgment on the
Complaint in favor of the plaintiffs and hereby orders the defendants to pay to
the Court or to the plaintiffs the amount of P2,149,113.92[,] representing the
total outstanding principal loan of the said defendants, plus the stipulated
interest at the rate of 18% per annum accruing thereon until fully paid, within
a period of one hundred and twenty days from the entry of judgment, and in
case of default of such payment and upon motion, the property, subject of the
real estate mortgage contract, shall be ordered sold at public auction in
satisfaction of the mortgage debts.
Defendants are further, ordered to pay the plaintiffs the following:
1. the legal interest at the rate of 12% per annum on the stipulated interest
of 18% per annum, computed from the filing of the complaint until fully paid;
2. the sum of P25,000.00 as and for attorneys fees; and
3. the costs of suit.
SO ORDERED.[16]
Hence, the instant petition for review on the sole issue:
WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF
12% PER ANNUM ON THE STIPULATED INTEREST OF 18% PER ANNUM,
COMPUTED FROM THE FILING OF THE COMPLAINT UNTIL FULL PAID.[17]
Petitioners contend that the imposition of the 12% legal interest per annum on
the stipulated interest of 18% per annum computed from the filing of the
complaint until fully paid was not provided in the real estate mortgage
contract, thus, the same has no legal basis.
We are not persuaded.
While a contract is the law between the parties,[18] it is also settled that an
existing law enters into and forms part of a valid contract without the need for
the parties expressly making reference to it.[19] Thus, the lower courts
correctly applied Article 2212 of the Civil Code as the basis for the imposition
of the legal interest on the stipulated interest due. It reads:
Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
The foregoing provision has been incorporated in the comprehensive summary
of existing rules on the computation of legal interest enunciated by the Court
in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] to wit:
14
1. When an obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to
run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. (Emphasis supplied)
In the case at bar, the evidence shows that petitioners obtained several loans
from the respondent, some of which as held by the CA were secured by real
estate mortgage and earned an interest of 18% per annum. Upon default
thereof, respondents demanded payment from the petitioners by filing an
action for foreclosure of the real estate mortgage. Clearly, the case falls under
the rule stated in paragraph 1.
Applying the rules in the computation of interest, the principal amount of
loans subject of the real estate mortgage must earn the stipulated interest of
18% per annum, which interest, as long as unpaid, also earns legal interest of
12% per annum, computed from the date of the filing of the complaint on
September 10, 1997 until finality of the Courts Decision. Such interest is not
due to stipulation but due to the mandate of the law[21] as embodied in
Article 2212 of the Civil Code. From such date of finality, the total amount due
shall earn interest of 12% per annum until satisfied.[22]
Certainly, the computed interest from the filing of the complaint on
September 10, 1997 would no longer be true upon the finality of this Courts
decision. In accordance with the rules laid down in Eastern Shipping Lines, Inc.
v. Court of Appeals, we derive the following formula[23] for the RTCs
guidance:
TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial
payments made
Interest = principal x 18 % per annum x no. of years from due date until finality
of judgment
Interest on interest = Interest computed as of the filing of the complaint
(September 10, 1997) x 12% x no. of years until finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of
12% per annum until fully paid.
In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing
Corporation,[24] this Court held that the total amount due on the contracts of
loan may be easily determined by the trial court through a simple
mathematical computation based on the formula specified
above. Mathematics is an exact science, the application of which needs no
further proof from the parties.
As regards what loans were secured by the real estate mortgage, respondents
contended that all five additional loans were intended by the parties to be
secured by the real estate mortgage. Thus, the CA erred in ruling that only two
of the five additional loans were secured by the real estate mortgage when the
documents evidencing said loans would show at least three loans were
secured by the real estate mortgage, namely: (1) P150,000.00 obtained on
May 31, 1992; (2) P150,000.00 obtained on July 1, 1992; and (3) P500,000.00
obtained on September 5, 1992.[25]
In their Reply, petitioners alleged that their petition only raised the sole issue
of interest on the interest due, thus, by not filing their own petition for review,
respondents waived their privilege to bring matters for the Courts review that
do not deal with the sole issue raised.
Procedurally, the appellate court in deciding the case shall consider only the
assigned errors, however, it is equally settled that the Court is clothed with
ample authority to review matters not assigned as errors in an appeal, if it
finds that their consideration is necessary to arrive at a just disposition of the
case.[26]
Moreover, as an exception to the rule that findings of facts of the CA are
conclusive and binding on the Court,[27] an independent evaluation of facts
may be done by it when the findings of facts are conflicting,[28] as in this case.
The RTC held that all the additional loans were secured by the real estate
mortgage, thus:
There is, therefore, a preponderance of evidence to show that the parties
agreed that the additional loans would be against the mortgaged property. It is
of no moment that the Deed of Mortgage (Exh. B) was not amended and
thereafter annotated at the back of the title (Exh. C) because under Article
2125 of the Civil Code, if the instrument of mortgage is not recorded, the
mortgage is nevertheless binding between the parties. It is extremely difficult
for the court to perceive that the plaintiffs required the defendants to execute
a mortgage on the first loan and thereafter fail to do so on the succeeding
loans. Such contrary behavior is unlikely.[29]
The CA modified the RTC decision holding that:
However, the real estate mortgage contract was supplemented by the express
intention of the mortgagors (defendants-appellants) to secure the subsequent
loans they obtained from the mortgagees (plaintiffs-appellees), on 01 July
1992, in the amount of P150,000.00, and on 05 September 1992, in the
amount of P500,000.00. The mortgagors (defendants-appellants) intention to
secure a larger amount than that stated in the real estate mortgage contract
was unmistakable in the acknowledgment receipts they issued on the said
loans. The acknowledgment receipts read:
July 1, [1]992
Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of
P150,000.00 July 1/92 as additional loan against mortgaged property TCT No.
RT-43723 (188321) Q.C.
(SGD) Adelina S. Cuyco
Sept. 05/92
Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred
thousand) PCIB Ck # 468657 as additional loan from mortgage property TCT
RT-43723.
(SGD) Adelina S. Cuyco
In such case, the specific amount mentioned in the real estate mortgage
contract no longer controls. By express intention of the mortgagors
(defendants-appellants) the real estate mortgage contract, as supplemented,
secures the P1,500,000.00 loan obtained on 25 November 1991; the
P150,000.00 loan obtained on 01 July 1992; and the P500,000.00 loan
obtained on 05 September 1992. All these loans are subject to stipulated
interest of 18% per annum provided in the real estate mortgage contract.
With respect to the other subsequent loans of the defendants-appellants in
the amount of P150,000.00, obtained on 31 May 1992; in the amount of
P200,000.00, obtained on 29 October 1992; and, in the amount of
P250,000.00, obtained on 13 January 1993, nothing in the records remotely
suggests that the mortgagor (defendants-appellants), likewise, intended the
15
said loans to be secured by the real estate mortgage contract. Consequently,
we rule that the trial court did err in declaring said loans to be secured by the
real estate mortgage contract.[30]
As a general rule, a mortgage liability is usually limited to the amount
mentioned in the contract.[31] However, the amounts named as consideration
in a contract of mortgage do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered.This stipulation is valid
and binding between the parties and is known in American Jurisprudence as
the blanket mortgage clause, also known as a dragnet clause. [32]
A dragnet clause operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their having to
execute additional security documents, thereby saving time, travel, loan
closing costs, costs of extra legal services, recording fees, et cetera.[33]
While a real estate mortgage may exceptionally secure future loans or
advancements, these future debts must be sufficiently described in the
mortgage contract. An obligation is not secured by a mortgage unless it comes
fairly within the terms of the mortgage contract.[34]
The pertinent provisions of the November 26, 1991 real estate mortgage
reads:
That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE
MILLION FIVE THOUSAND PESOS (sic) (1,500,000.00) Philippine Currency,
receipt whereof is hereby acknowledged and confessed, payable within a
period of one year, with interest at the rate of eighteen percent (18%) per
annum;
That for and in consideration of said indebtedness, the MORTGAGOR does
hereby convey and deliver by way of MORTGAGE unto said MORTGAGEE, the
latters heirs and assigns, the following realty together with all the
improvements thereon and situated at Cubao, Quezon City, and described as
follows:
xxxx
PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be
paid unto the MORTGAGEE or his heirs and assigns, the said indebtedness of
ONE MILLION FIVE HUNDRED THOUSAND PESOS (1,500,000.00), Philippine
Currency, together with the agreed interest thereon, within the agreed term of
one year on a monthly basis then this MORTGAGE shall be discharged, and
rendered of no force and effect, otherwise it shall subsist and be subject to
foreclosure in the manner and form provided by law.
It is clear from a perusal of the aforequoted real estate mortgage that there is
no stipulation that the mortgaged realty shall also secure future loans and
advancements. Thus, what applies is the general rule above stated.
Even if the parties intended the additional loans of P150,000.00 obtained on
May 30, 1992, P150,000.00 obtained on July 1, 1992, and P500,00.00 obtained
on September 5, 1992 to be secured by the same real estate mortgage, as
shown in the acknowledgement receipts, it is not sufficient in law to bind the
realty for it was not made substantially in the form prescribed by law.
In order to constitute a legal mortgage, it must be executed in a public
document, besides being recorded. A provision in a private document,
although denominating the agreement as one of mortgage, cannot be
considered as it is not susceptible of inscription in the property registry. A
mortgage in legal form is not constituted by a private document, even if such
mortgage be accompanied with delivery of possession of the mortgage
property.[35] Besides, by express provisions of Section 127 of Act No. 496, a
mortgage affecting land, whether registered under said Act or not registered
at all, is not deemed to be sufficient in law nor may it be effective to encumber
or bind the land unless made substantially in the form therein prescribed. It is
required, among other things, that the document be signed by the mortgagor
executing the same, in the presence of two witnesses, and acknowledged as
his free act and deed before a notary public. A mortgage constituted by means
of a private document obviously does not comply with such legal
requirements.[36]
What the parties could have done in order to bind the realty for the additional
loans was to execute a new real estate mortgage or to amend the old
mortgage conformably with the form prescribed by the law. Failing to do so,
the realty cannot be bound by such additional loans, which may be recovered
by the respondents in an ordinary action for collection of sums of money.
Lastly, the CA held that to discharge the real estate mortgage, payment only of
the principal and the stipulated interest of 18% per annum is sufficient as the
mortgage document does not contain a stipulation that the legal interest on
the stipulated interest due, attorneys fees, and costs of suit must be paid first
before the same may be discharged.[37]
We do not agree.
Section 2, Rule 68 of the Rules of Court 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
the entry of judgment, and that in default of such payment the property shall
be sold at public auction to satisfy the judgment. (Emphasis added)
Indeed, the above provision of the Rules of Court provides that the mortgaged
property may be charged not only for the mortgage debt or obligation but also
for the interest, other charges and costs approved by the court. Thus, to
discharge the real estate mortgage, petitioners must pay the respondents (1)
the total amount due, as computed in accordance with the formula indicated
above, that is, the principal loan of P1,500,000.00, the stipulated interest of
18%, the interest on the stipulated interest due of 12% computed from the
filing of the complaint until finality of the decision less partial payments made,
(2) the 12% legal interest on the total amount due from finality until fully
satisfied, (3) the reasonable attorneys fees of P25,000.00 and (4) the costs of
suit, within the period specified by the Rules. Should the petitioners default in
the payment thereof, the property shall be sold at public auction to satisfy the
judgment.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in
CA G.R. CV No. 62352 dated November 5, 2003, which modified the Decision
of the Regional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-
32130, is AFFIRMED with the MODIFICATIONS that petitioners are ordered to
pay the respondents (1) the total amount due, as computed by the RTC in
accordance with the formula specified above, (2) the legal interest of 12% per
annum on the total amount due from such finality until fully paid, (3) the
reasonable amount of P25,000.00 as attorneys fees, and (4) the costs of suit,
within a period of not less than 90 days nor more than 120 days from the entry
of judgment, and in case of default of such payment the property shall be sold
at public auction to satisfy the judgment.
SO ORDERED.
16
THIRD DIVISION
G.R. No. 115548 March 5, 1996
STATE INVESTMENT HOUSE INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
The factual background of the case, aptly summarized in the decision of the
Office of the President and cited by respondent Court of Appeals1 in its
assailed decision, and which we have verified to be supported by the record is
herein reproduced as follows:
The uncontroverted facts of the case as recited in the decision of the Office of
the President are as follows:
Records show that, on October 15, 1969, Contract to Sell No. 36 was executed
by the Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc.
(SOLID), involving a parcel of land identified as Block No. 8, Lot No. 1, Phase of
the Capitol Park Homes Subdivision, Quezon City, containing 511 square
meters for a consideration of P39,347.00. Upon signing of the contract, the
spouses Oreta made payment amounting to P7,869.40, with the agreement
that the balance shall be payable in monthly installments of P451.70, at 12%
interest per annum.
On November 4, 1976, SOLID executed several real estate mortgage contracts
in favor of State Investment Homes, (sic) Inc. (STATE) over its subdivided
parcels of land, one of which is the subject lot covered by Transfer Certificate
of Title No. 209642.
For Failure of SOLID to comply with its mortgage obligations contract, STATE
extrajudicially foreclosed the mortgaged properties including the subject lot on
April 6, 1983, with the corresponding certificate of sale issued therefor to
STATE annotated at the back of the titles covering the said properties on
October 13, 1983.
On June 23, 1984; SOLID thru a Memorandum of Agreement negotiated for
the deferment of consolidation of ownership over the foreclosed properties by
committing to redeem the properties from STATE.
On August 15, 1988, the spouses filed a complaint before the Housing and
Land Use Regulatory Board, HLRB, against the developer SOLID and STATE for
failure on the part of SOLID "to execute
the necessary absolute deed of sale as well as to deliver title to said property .
. . in violation of the contract to sell . . .," despite full payment of the purchase
price as of January 7, 1981. In its Answer, SOLID, by way of alternative defense,
alleged that the obligations under the Contract to Sell has become so difficult .
. . the herein respondents be partially released from said obligation by
substituting subject lot with another suitable residential lot from another
subdivision which respondents own/operates". Upon the other hand, STATE,
to which the subject lot was mortgaged, averred that unless SOLID pays the
redemption price of P125,1955.00, (sic) it has "a right to hold on and not
release the foreclosed properties.
On May 23, 1989, the Office of Appeals, Adjudication and Legal Affairs
(OAALA) rendered a decision the decretal portion of which reads:
1. Ordering respondent, State Investment House, Inc. to execute a Deed of
Conveyance of Lot 1, Block 8, in Capital Park Homes Subdivision in favor of
complainants and to deliver to the latter the corresponding certificate of title;
2. Ordering respondent, Solid Homes, Inc. to pay State Investment House, Inc.
that portion of its loan which corresponds to the value of the lot as collateral;
3. Ordering respondent, Solid Homes, Inc. to pay to this Board the amount of
Six Thousand Pesos (P6,000.00) as administrative fine in accordance with
Section 25 in relation to Section 38 of P.D. 957.
Both the STATE and SOLID appealed to the Board of Commissioners, HLRB,
which affirmed on June 5, 1990 the OAALA's decision (Annex "C" of the
Petition; ibid, p. 34). Again, both STATE and SOLID appealed the decision of the
Board of Commissioners, HLRB, to the Office of the President which dismissed
the twin appeals on February 26, 1993.
Petitioner filed with the Supreme Court this petition for review of decision of
the Office of the President where it was docketed as G.R. No. 109364.
However, in a resolution dated May 13, 1993, the Supreme Court referred this
case to this Court for proper disposition. On the other hand, SOLID does not
appear to have joined herein petitioner in this petition for review.2
In a decision dated May 19, 1994, respondent court sustained the judgment of
the Office of the President. Hence, this petition substantially anchored on
these two alleged errors, namely: (1) error in ruling that private respondent
spouses Oreta's unregistered rights over the subject property are superior to
the registered mortgage rights of petitioner State Investment House, Inc.
(STATE); and (2) error in not applying the settled rule that persons dealing with
property covered by torrens certificate of title are not required to go beyond
what appears on the face of the title.
At the outset, we note that herein petitioner argues more extensively on the
second assigned issue, than on the first. In fact, petitioner admits the superior
rights of respondents-spouses Oreta over the subject property as it did not
pray for the nullification of the contract between respondents-spouses and
SOLID, but instead asked for the payment of the release value of the property
in question, plus interest, attorney's fees and costs of suit against SOLID or, in
case of the latter's inability to pay, against respondents-spouses before it can
be required to release the title of the subject property in favor of the
respondent spouses.3 And even if we were to pass upon the first assigned
error, we find respondent court's ruling on the matter to be well-founded.
STATE's registered mortgage right over the property is inferior to that of
respondents-spouses' unregistered right. The unrecorded sale between
respondents-spouses and SOLID is preferred for the reason that if the original
owner (SOLID, in this case) had parted with his ownership of the thing sold
then he no longer had ownership and free disposal of that thing so as to be
able to mortgage it again.4 Registration of the mortgage is of no moment since
it is understood to be without prejudice to the better right of third parties.5
Anent the second issue, petitioner asserts that a purchaser or mortgagee of
land/s covered under the Torrens System "is not required to do more than rely
upon the certificate of title [for] it is enough that the (purchaser or mortgagee]
examines the pertinent certificate of title [without] need [of] look[ing] beyond
such title."6
As a general rule, where there is nothing in the certificate of title to indicate
any cloud or vice in the ownership of the property, or any encumbrance
thereon, the purchaser is not required to explore further than what the
Torrens Title upon its face indicates in quest for any hidden defect or inchoate
right that may subsequently defeat his right thereto. This rule, however,
admits of an exception as where the purchaser or mortgagee, has knowledge
of a defect or lack of title in his vendor, or that he was aware of sufficient facts
to induce a reasonably prudent man to inquire into the status of the title of
the property in litigation.7 In this case, petitioner was well aware that it was
dealing with SOLID, a business entity engaged in the business of selling
subdivision lots. In fact, the OAALA found that at the time the lot was
mortgaged, respondent State Investment House Inc., [now petitioner] had
been aware of the lot's location and that the said lot formed part of Capital
Park/Homes Subdivision."8 In Sunshine Finance and Investment
Corp. v. Intermediate Appellate Court,9 the Court noting petitioner therein to
be a financing corporation, deviated from the general rule that a purchaser or
mortgagee of a land is not required to look further that what appears on the
face of the Torrens Title. Thus:
Nevertheless, we have to deviate from the general rule because of the failure
of the petitioner in this case to take the necessary precautions to ascertain if
there was any flaw in the title of the mortgage. The petitioner is an investment
and financing corporation. We presume it is experienced in its business.
Ascertainment of the status and condition of properties offerred to it as
security for the loans it extends must be a standard and indispensable part of
its operations. Surely, it cannot simply rely on an examination of a Torrens
certificate to determine what the subject property looks like as its condition is
not apparent in the document. The land might be in a depressed area. There
might be squatters on it. It might be easily inundated. It might be an interior
lot, without convenient access. These and other similar factors determine the
value of the property and so should be of practical concern to the petitioner.
Our conclusion might have been different if the mortgagee were an ordinary
individual or company without the expertise of the petitioner in the mortgage
17
and sale of registered land or if the land mortgaged were some distance from
the mortgagee and could not be conveniently inspected. But there were no
such impediments in this case. The facilities of the petitioner were not so
limited as to prevent it from making a more careful examination of the land to
assure itself that there were no unauthorized persons in possession.10

The above-enunciated rule should apply in this case as petitioner admits of

being a financing institution.11 We take judicial notice of the uniform practice
of financing institutions to investigate, examine and assess the real property
offered as security for any loan application especially where, as in this case,
the subject property is a subdivision lot located at Quezon City, M.M. It is a
settled rule that a purchaser or mortgagee cannot close its eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in the title of the vendor
or mortgagor.12 Petitioner's constructive knowledge of the defect in the title
of the subject property, or lack of such knowledge due to its negligence, takes
the place of registration of the rights of respondents-spouses. Respondent
Court thus correctly ruled that petitioner was not a purchaser or mortgagee in
good faith; hence petitioner can not solely rely on what merely appears on the
face of the Torrens Title.

ACCORDINGLY, finding no reversible error in the assailed judgment, the same

is hereby AFFIRMED. SO ORDERED.

18
THIRD DIVISION
[G.R. No. 146997. April 26, 2005]
SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners, vs. COURT OF
APPEALS & WILLIAM ONG GENATO, respondents.
DECISION
CORONA, J.:
Before us is a petition for review under Rule 45 of the Rules of Court, seeking
to set aside the October 6, 2000 decision[1] of the Court of Appeals in CA-G.R.
CV No. 56035.
The facts as outlined by the trial court[2] follow.
This is an action to declare null and void the mortgage executed by defendant
Oakland Development Resources Corp. xxx in favor of defendant William Ong
Genato over the house and lot plaintiffs spouses Godofredo and Dominica
Flancia purchased from defendant corporation.
In the complaint, plaintiffs allege that they purchased from defendant
corporation a parcel of land known as Lot 12, Blk. 3, Phase III-A containing an
area of 128.75 square meters situated in Prater Village Subd. II located at Brgy.
Old Balara, Quezon City; that by virtue of the contract of sale, defendant
corporation authorized plaintiffs to transport all their personal belongings to
their house at the aforesaid lot; that on December 24, 1992, plaintiffs received
a copy of the execution foreclosing [the] mortgage issued by the RTC, Branch
98 ordering defendant Sheriff Sula to sell at public auction several lots
formerly owned by defendant corporation including subject lot of plaintiffs;
that the alleged mortgage of subject lot is null and void as it is not authorized
by plaintiffs pursuant to Art. 2085 of the Civil Code which requires that the
mortgagor must be the absolute owner of the mortgaged property; that as a
consequence of the nullity of said mortgage, the execution foreclosing [the]
mortgage is likewise null and void; that plaintiffs advised defendants to
exclude subject lot from the auction sale but the latter refused. Plaintiffs
likewise prayed for damages in the sum of P50,000.00.
Defendant William Ong Genato filed a motion to dismiss the complaint which
was opposed by the plaintiffs and denied by the Court in its Order dated
February 16, 1993.
Defendant Genato, then filed his answer averring that on May 19, 1989 co-
defendant Oakland Development Resources Corporation mortgaged to Genato
two (2) parcels of land covered by TCT Nos. 356315 and 366380 as security and
guaranty for the payment of a loan in the sum of P2,000,000.00; that it
appears in the complaint that the subject parcel of land is an unsubdivided
portion of the aforesaid TCT No. 366380 which covers an area of 4,334 square
meters more or less; that said real estate mortgage has been duly annotated
at the back of TCT No. 366380 on May 22, 1989; that for non-payment of the
loan ofP2,000,000.00 defendant Genato filed an action for foreclosure of real
estate mortgage against co-defendant corporation; that after [trial], a decision
was rendered by the Regional Trial Court of Quezon City, Branch 98 against
defendant corporation which decision was affirmed by the Honorable Court of
Appeals; that the decision of the Court of Appeals has long become final and
thus, the Regional Trial Court, Brach 98 of Quezon City issued an Order dated
December 7, 1992 ordering defendant Sheriff Ernesto Sula to cause the sale at
public auction of the properties covered by TCT No. 366380 for failure of
defendant corporation to deposit in Court the money judgment within ninety
(90) days from receipt of the decision of the Court of Appeals; that plaintiffs
have no cause of action against defendant Genato; that the alleged plaintiffs
Contract to Sell does not appear to have been registered with the Register of
Deeds of Quezon City to affect defendant Genato and the latter is thus not
bound by the plaintiffs Contract to Sell; that the registered mortgage is
superior to plaintiffs alleged Contract to Sell and it is sufficient for defendant
Genato as mortgagee to know that the subject TCT No. 366380 was clean at
the time of the execution of the mortgage contract with defendant
corporation and defendant Genato is not bound to go beyond the title to look
for flaws in the mortgagors title; that plaintiffs alleged Contract to Sell is
neither a mutual promise to buy and sell nor a Contract of Sale. Ownership is
retained by the seller, regardless of delivery and is not to pass until full
payment of the price; that defendant Genato has not received any advice from
plaintiffs to exclude the subject lot from the auction sale, and by way of
counterclaim, defendant Genato prays for P150,000.00 moral damages
and P20,000.00 for attorneys fees.
On the other hand, defendant Oakland Development Resources Corporation
likewise filed its answer and alleged that the complaint states no cause of
action; xxx Defendant corporation also prays for attorneys fees of P20,000.00
in its counterclaim.[3]
After trial, the assisting judge[4] of the trial court rendered a decision dated
August 16, 1996, the decretal portion of which provided:
Wherefore, premises considered, judgment is hereby rendered.
1) Ordering defendant Oakland Devt. Resources Corporation to pay plaintiffs:
a) the amount of P10,000.00 representing payment for the option to purchase
lot;
b) the amount of P140,000.00 representing the first downpayment of the
contract price;
c) the amount of P20,520.80 representing five monthly amortizations for
February, March, April, May and June 1990;
d) the amount of P3,000.00 representing amortization for November 1990; all
plus legal interest from the constitution of the mortgage up to the time the
instant case was filed.
2) Ordering said defendant corporation to pay further to plaintiffs the sum
of P30,000.00 for moral damages, P10,000.00 for exemplary damages
and P20,000.00 for and as reasonable attorneys fees plus cost;
3) Dismissing defendant corporations counterclaim;
4) Dismissing defendant Genatos counterclaim.[5]
On motion for reconsideration, the regular presiding judge set aside the
judgment of the assisting judge and rendered a new one on November 27,
1996, the decretal portion of which read:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby
GRANTED. The decision dated August 16, 1996 is hereby set aside and a new
one entered in favor of the plaintiffs, declaring the subject mortgage and the
foreclosure proceedings held thereunder as null and void insofar as they affect
the superior right of the plaintiffs over the subject lot, and ordering as follows:
1. Defendant Oakland Development Resources to pay to plaintiffs the amount
of P20,000.00 for litigation-related expenses;
2. Ordering defendant Sheriff Ernesto L. Sula to desist from conducting further
proceedings in the extra-judicial foreclosure insofar as they affect the
plaintiffs, or, in the event that title has been consolidated in the name of
defendant William O. Genato, ordering said defendant to reconvey to plaintiffs
the title corresponding to Lot 12, Blk. 3, Phase III-A of Prater Village [Subd. II],
located in Old Balara, Quezon City, containing an area of 128.75 square
meters; and
3. Dismissing the counterclaims of defendants Oakland and Genato and with
costs against them.[6]
On appeal, the Court of Appeals issued the assailed order:
Wherefore, foregoing premises considered, the appeal having merit in fact and
in law is hereby GRANTED and the decision of the Trial Court dated 27
November 1996 hereby SET ASIDE and REVERSED, and its judgment dated
August 16, 1996 REINSTATED and AFFIRMED IN TOTO. No Costs.
SO ORDERED.[7]
Hence, this petition.
For resolution before us now are the following issues:
19
(1) whether or not the registered mortgage constituted over the property was
valid;
(2) whether or not the registered mortgage was superior to the contract to
sell; and
(3) whether or not the mortgagee was in good faith.
Under the Art. 2085 of the Civil Code, the essential requisites of a contract of
mortgage are: (a) that it be constituted to secure the fulfillment of a principal
obligation; (b) that the mortgagor be the absolute owner of the thing
mortgaged; and (c) that the persons constituting the mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
All these requirements are present in this case.
FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?
As to the first essential requisite of a mortgage, it is undisputed that the
mortgage was executed on May 15, 1989 as security for a loan obtained by
Oakland from Genato.
As to the second and third requisites, we need to discuss the difference
between a contract of sale and a contract to sell.
In a contract of sale, title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved by the vendor and is not to pass to the vendee until full payment of
the purchase price.
Otherwise stated, in a contract of sale, the vendor loses ownership over the
property and cannot recover it unless and until the contract is resolved or
rescinded; in a contract to sell, title is retained by the vendor until full payment
of the price.[8]
In the contract between petitioners and Oakland, aside from the fact that it
was denominated as a contract to sell, the intention of Oakland not to transfer
ownership to petitioners until full payment of the purchase price was very
clear. Acts of ownership over the property were expressly withheld by Oakland
from petitioner. All that was granted to them by the occupancy permit was the
right to possess it.
Specifically, the contract between Oakland and petitioners stated:
xxx xxx xxx
7. That the BUYER/S may be allowed to enter into and take possession of the
property upon issuance of Occupancy Permit by the OWNER/DEVELOPER
exclusively, although title has not yet passed to the BUYER/S, in which case his
possession shall be that of a possessor by mere tolerance Lessee, subject to
certain restrictions contained in this deed.
xxx xxx xxx
13. That the BUYER/S cannot sell, mortgage, cede, transfer, assign or in any
manner alienate or dispose of, in whole or in part, the rights acquired by and
the obligations imposed on the BUYER/S by virtue of this contract, without the
express written consent of the OWNER/DEVELOPER.
xxx xxx xxx
24. That this Contract to Sell shall not in any way [authorize] the BUYER/S to
occupy the assigned house and lot to them.[9]
xxx xxx xxx
Clearly, when the property was mortgaged to Genato in May 1989, what was
in effect between Oakland and petitioners was a contract to sell, not a
contract of sale. Oakland retained absolute ownership over the property.
Ownership is the independent and general power of a person over a thing for
purposes recognized by law and within the limits established
thereby.[10] According to Art. 428 of the Civil Code, this means that:
The owner has the right to enjoy and dispose of a thing, without other
limitations than those established by law.
xxx xxx xxx
Aside from the jus utendi and the jus abutendi [11] inherent in the right to
enjoy the thing, the right to dispose, or the jus disponendi, is the power of the
owner to alienate, encumber, transform and even destroy the thing
owned.[12]
Because Oakland retained all the foregoing rights as owner of the property, it
was entitled absolutely to mortgage it to Genato. Hence, the mortgage was
valid.
SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO THE
CONTRACT TO SELL?
In their memorandum, petitioners cite our ruling in State
Investment House, Inc. v. Court of Appeals [13] to the effect that
an unregistered sale is preferred over a registered mortgage over the same
property. The citation is misplaced.
This Court in that case explained the rationale behind the rule:
The unrecorded sale between respondents-spouses and SOLID is preferred for
the reason that if the original owner xxx had parted with his ownership of the
thing sold then he no longer had ownership and free disposal of that thing as
to be able to mortgage it again.
State Investment House is completely inapplicable to the case at bar. A
contract of sale and a contract to sell are worlds apart. State Investment
House clearly pertained to a contract of sale, not to a contract to sell which
was what Oakland and petitioners had. In State Investment House, ownership
had passed completely to the buyers and therefore, the former owner no
longer had any legal right to mortgage the property, notwithstanding the fact
that the new owner-buyers had not registered the sale. In the case before us,
Oakland retained absolute ownership over the property under the contract to
sell and therefore had every right to mortgage it.
In sum, we rule that Genatos registered mortgage was superior to petitioners
contract to sell, subject to any liabilities Oakland may have incurred in favor of
petitioners by irresponsibly mortgaging the property to Genato despite its
commitments to petitioners under their contract to sell.
THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?
The third issue involves a factual matter which should not be raised in this
petition. Only questions of law may be raised in a Rule 45 petition. This Court
is not a trier of facts. The resolution of factual issues is the function of the
lower courts. We therefore adopt the factual findings of the Court of Appeals
and uphold the good faith of the mortgagee Genato.
RELIANCE ON WHAT APPEARS IN THE TITLE
Just as an innocent purchaser for value may rightfully rely on what appears in
the certificate of title, a mortgagee has the right to rely on what appears in the
title presented to him. In the absence of anything to arouse suspicion, he is
under no obligation to look beyond the certificate and investigate the title of
the mortgagor appearing on the face of the said certificate. [14]
We agree with the findings and conclusions of the trial court regarding the
liabilities of Oakland in its August 16, 1996 decision, as affirmed by the Court
of Appeals:
Anent [plaintiffs] prayer for damages, the Court finds that defendant
corporation is liable to return to plaintiffs all the installments/payments made
by plaintiffs consisting of the amount of P10,000.00 representing payment for
the option to purchase lot; the amount of P140,000.00 which was the first
20
downpayment; the sum of P20,520.80 representing five monthly amortizations
for February, March, April, May and June 1990 and the amount of P3,000.00
representing amortization for November 1990 plus legal interest from the time
of the mortgage up to the time this instant case was filed. Further, considering
that defendant corporation wantonly and fraudulently mortgaged the subject
property without regard to [plaintiffs] rights over the same, said defendant
should pay plaintiffs moral damages in the reasonable amount of P30,000.00.
xxx Furthermore, since defendant [corporations] acts have compelled the
plaintiffs to litigate and incur expenses to protect their interest, it should
likewise be adjudged to pay plaintiffs attorneys fees of P20,000.00 under
Article 2208 paragraph two (2) of the Civil Code.[15]

WHEREFORE, the petition for review is hereby DENIED. The decision of the
Court of Appeals reinstating the August 16, 1996 decision of the trial court is
hereby AFFIRMED.

SO ORDERED.

21
SECOND DIVISION
PHILIPPINE NATIONAL BANK, G.R. No. 180945
AS THE ATTORNEY-IN-FACT OF OPAL PORTFOLIO INVESTMENTS
- versus - Del Castillo,
Abad, and
Perez, JJ.
MERCEDES CORPUZ, REPRESENTED
BY HER ATTORNEY-IN-FACT Promulgated:
VALENTINA CORPUZ,
Respondent. February 12, 2010
x --------------------------------------------------------------------------------------- x
This case is about the need for a mortgagee-bank, faced with suspicious layers
of transfers involving a property presented for mortgage, to exercise proper
diligence in ascertaining the bona fide status of those transfers.
The Facts and the Case
On October 4, 1974 respondent Mercedes Corpuz delivered her owners
duplicate copy of Transfer Certificate of Title (TCT) 32815 to Dagupan City
Rural Bank as security against any liability she might incur as its cashier. She
later left her job and went to the United States.
On October 24, 1994 the rural bank where she worked cancelled its lien on
Corpuzs title, she having incurred no liability to her employer. Without Corpuzs
knowledge and consent, however, Natividad Alano, the rural banks manager,
turned over Corpuzs title to Julita Camacho and Amparo Callejo.
Conniving with someone from the assessors office, Alano, Camacho, and
Callejo prepared a falsified deed of sale, making it appear that on February 23,
1995 Corpuz sold her land to one Mary Bondoc for P50,000.00. They caused
the registration of the deed of sale, resulting in the cancellation of TCT 32815
and the issuance of TCT 63262 in Bondocs name. About a month later or on
March 27, 1995 the trio executed another fictitious deed of sale with Mary
Bondoc selling the property to the spouses Rufo and Teresa Palaganas for
only P15,000.00. This sale resulted in the issuance of TCT 63466 in favor of the
Palaganases.
Nine days later or on April 5, 1995 the Palaganases executed a deed of sale in
favor of spouses Virgilio and Elena Songcuan for P50,000.00, resulting in the
issuance of TCT 63528. Finally, four months later or on August 10, 1995 the
Songcuans took out a loan of P1.1 million from petitioner Philippine National
Bank (PNB) and, to secure payment, they executed a real estate mortgage on
their title. Before granting the loan, the PNB had the title verified and the
property inspected.
On November 20, 1995 respondent Corpuz filed, through an attorney-in-fact, a
complaint before the Dagupan Regional Trial Court (RTC) against Mary Bondoc,
the Palaganases, the Songcuans, and petitioner PNB, asking for the annulment
of the layers of deeds of sale covering the land, the cancellation of TCTs 63262,
63466, and 63528, and the reinstatement of TCT 32815 in her name.
On June 29, 1998 the RTC rendered a decision granting respondent Corpuzs
prayers. This prompted petitioner PNB to appeal to the Court of Appeals
(CA). On July 31, 2007 the CA affirmed the decision of the RTC and denied the
motion for its reconsideration, prompting PNB to take recourse to this Court.
The Issue Presented
The sole issue presented in this case is whether or not petitioner PNB is a
mortgagee in good faith, entitling it to its lien on the title to the property in
dispute.
The Ruling of the Court
Petitioner PNB points out that, since it did a credit investigation, inspected the
property, and verified the clean status of the title before giving out the loan to
the Songcuans, it should be regarded as a mortgagee in good faith. PNB claims
that the precautions it took constitute sufficient compliance with the due
diligence required of banks when dealing with registered lands.
As a rule, the Court would not expect a mortgagee to conduct an exhaustive
investigation of the history of the mortgagors title before he extends a
loan.[1] But petitioner PNB is not an ordinary mortgagee; it is a bank.[2] Banks
are expected to be more cautious than ordinary individuals in dealing with
lands, even registered ones, since the business of banks is imbued with public
interest.[3] It is of judicial notice that the standard practice for banks before
approving a loan is to send a staff to the property offered as collateral and
verify the genuineness of the title to determine the real owner or owners.[4]
One of the CAs findings in this case is that in the course of its verification,
petitioner PNB was informed of the previous TCTs covering the subject
property.[5] And the PNB has not categorically contested this finding. It is
evident from the faces of those titles that the ownership of the land changed
from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the
Palaganases to the Songcuans in less than three months and mortgaged to
PNB within four months of the last transfer.
The above information in turn should have driven the PNB to look at the deeds
of sale involved. It would have then discovered that the property was sold for
ridiculously low prices: Corpuz supposedly sold it to Bondoc for
just P50,000.00; Bondoc to the Palaganases for just P15,000.00; and the
Palaganases to the Songcuans also for just P50,000.00. Yet the PNB gave the
property an appraised value of P781,760.00. Anyone who deliberately ignores
a significant fact that would create suspicion in an otherwise reasonable
person cannot be considered as an innocent mortgagee for value.[6]
The Court finds no reason to reverse the CA decision.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the
Court of Appeals dated July 31, 2007 and its resolution dated December 17,
2007 in CA-G.R. CV 60616.
SO ORDERED.
22
THIRD DIVISION
G.R. No. 196118 July 30, 2014
LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO, Petitioner,
vs.
SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES LEON C.
CASTILLO, JR., and TERESITA FLORESCASTILLO, Respondents.
DECISION
PERALTA, J.:
This is a Petition for Review questioning the Decision1 of the Court of Appeals
(CA) dated November 26, 2010, as well as its Resolution2 dated March 17,
2011 in CA-G.R. CV No. 88914. The CA reversed and set aside the Decision3 of
the Regional Trial Court (RTC) of San Pablo City, Laguna, Branch 32, dated
October 16, 2006 in Civil Case No. SP-5882 (02), and consequently, upheld the
validity of the real estate mortgage entered into by respondents spouses Leon
C. Castillo, Jr. and Teresita Flores-Castillo, and Security Bank Corporation (SBC).
The facts, as culled from the records, are as follows:
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are siblings.
Leon and Teresita Flores-Castillo (the Spouses Castillo) were doing business
under the name of JRC Poultry Farms. Sometime in 1994, the Spouses Castillo
obtained a loan from respondent SBC in the amount of ₱45,000,000.00. To
secure said loan, they executed a real estate mortgage on August 5, 1994 over
eleven (11) parcels of land belonging to different members of the Castillo
family and which are all located in San Pablo City.4 They also procured a
second loan5 amounting to ₱2,500,000.00, which was covered by a mortgage
on a land in Pasay City. Subsequently, the Spouses Castillo failed to settle the
loan, prompting SBC to proceed with the foreclosure of the properties. SBC
was then adjudged as the winning bidder in the foreclosure sale held on July
29, 1999. Thereafter, they were able to redeem the foreclosed properties,
withthe exception of the lots covered by Torrens Certificate of Title(TCT) Nos.
28302 and 28297.
On January 30, 2002, Leonardo filed a complaint for the partial annulment of
the real estate mortgage. He alleged that he owns the property covered by
TCT No. 28297 and that the Spouses Castillo used it as one of the collaterals
for a loan without his consent. He contested his supposed Special Power of
Attorney (SPA) in Leon’s favor, claiming that it is falsified. According to him,
the date of issuance of his Community Tax Certificate (CTC) as indicated on the
notarization of said SPA is January 11, 1993, when he only secured the same
on May 17, 1993. He also assailed the foreclosure of the lots under TCT
Nos.20030 and 10073 which were still registered in the name of their
deceased father. Lastly, Leonardo attacked SBC’s imposition of penalty and
interest on the loans as being arbitrary and unconscionable.
On the other hand, the Spouses Castillo insisted on the validity of Leonardo’s
SPA. They alleged that they incurred the loan not only for themselves, but also
for the other members of the Castillo family who needed money at that time.
Upon receipt of the proceeds of the loan, they distributed the same to their
family members, as agreed upon. However, when the loan became due, their
relatives failed to pay their respective shares such that Leon was forced to use
his own money until SBC had to finally foreclose the mortgage over the lots.6
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in
Leonardo’s favor, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Leonardo C.
Castillo and against the defendants SECURITY BANK CORPORATION, and JRC
POULTRY FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA FLORES-CASTILLO
declaring as null and void the Real Estate Mortgage dated August 5, 1994, the
Memorandum of Agreement dated October 28, 1997 and the Certificate of
Sale dated August 27, 1999 insofar as plaintiff’s property with Transfer
Certificate of Title No. T-28297 is concerned. The Security Bank Corporation is
likewise ordered to return the ownership of the Transfer Certificate of Title
No. T-28297 to plaintiff Leonardo Castillo. Likewise, defendants spouses Leon
C. Castillo, Jr. and Teresita Flores-Castillo are hereby ordered to pay plaintiff
moral damages in the total amount of ₱500,000.00 and exemplary damages of
₱20,000.00. All other claims for damages and attorney’s fees are DENIED for
insufficiency of evidence.
SO ORDERED.7
Both parties elevated the case to the CA. On November 26, 2010, the CA
denied Leonardo’s appeal and granted that of the Spouses Castillo and SBC. It
reversed and set aside the RTC Decision, essentially ruling that the August 5,
1994 real estate mortgage isvalid. Leonardo filed a Motion for
Reconsideration, but the same was denied for lack of merit.
Hence, Leonardo brought the case to the Court and filed the instant Petition
for Review.1âwphi1 The main issue soughtto be resolved here is whether or
not the real estate mortgage constituted over the property under TCT No. T-
28297 is valid and binding.
The Court finds the petition to be without merit.
As a rule, the jurisdiction of the Court over appealed cases from the CA is
limited to the review and revision of errors of law it allegedly committed, as its
findings of fact are deemed conclusive. Thus, the Court is not duty-bound to
evaluate and weigh the evidence all over again which were already considered
in the proceedings below, except when, as in this case, the findings of fact of
the CAare contrary to the findings and conclusions of the trial court.8
The following are the legal requisites for a mortgage to be valid:
(1) It must be constituted to secure the fulfillment of a principal obligation;
(2) The mortgagor must be the absolute owner of the thing mortgaged;
(3) The persons constituting the mortgage must have the free disposal of their
property, and in the absence thereof, they should be legally authorized for the
purpose.9
Leonardo asserts that his signature inthe SPA authorizing his brother, Leon, to
mortgage his property covered by TCT No. T-28297 was falsified. He claims
that he was in America at the time of its execution. As proof of the forgery, he
focuses on his alleged CTC used for the notarization10 of the SPA on May 5,
1993 and points out that it appears to have been issued on January 11, 1993
when, in fact, he only obtained it on May 17, 1993. But it is a settled rule that
allegations of forgery, like all other allegations, must be proved by clear,
positive, and convincing evidence by the party alleging it. It should not be
presumed, but must beestablished by comparing the alleged forged signature
with the genuine signatures.11 Here, Leonardo simply relied on his self-serving
declarations and refused to present further corroborative evidence, saying
that the falsified document itself is the best evidence.12 He did not even
bother comparing the alleged forged signature on the SPA with samples of his
real and actual signature. What he consistently utilized as lone support for his
allegation was the supposed discrepancy on the date of issuance of his CTC as
reflectedon the subject SPA’s notarial acknowledgment. On the contrary, in
view of the great ease with which CTCs are obtained these days,13 there is
reasonable ground to believe that, as the CA correctly observed, the CTC could
have been issued with the space for the date left blank and Leonardo
merelyfilled it up to accommodate his assertions. Also, upon careful
examination, the handwriting appearing on the space for the date of issuance
is different from that on the computation of fees, which in turn was consistent
with the rest of the writings on the document.14 He did not likewise attempt
to show any evidence that would back up his claim that at the time of the
execution of the SPA on May 5, 1993, he was actually in America and therefore
could not have possibly appeared and signed the document before the notary.
And even if the Court were to assume, simply for the sake of argument, that
Leonardo indeed secured his CTC only on May 17, 1993, this does not
automatically render the SPA invalid. The appellate court aptly held that
defective notarization will simply strip the document of its public character
and reduce it to a private instrument, but nonetheless, binding, provided its
validity is established by preponderance of evidence.15 Article 1358 of the
Civil Code requires that the form of a contract that transmits or extinguishes
real rights over immovable property should be in a public document, yet the
failure to observethe proper form does not render the transaction
invalid.16 The necessity of a public document for said contracts is only for
convenience; it is not essential for validity or enforceability.17 Even a sale of
23
real property, though notcontained in a public instrument or formal writing, is
nevertheless valid and binding, for even a verbal contract of sale or real estate
produceslegal effects between the parties.18 Consequently, when there is a
defect in the notarization of a document, the clear and convincing evidentiary
standard originally attached to a dulynotarized document is dispensed with,
and the measure to test the validity of such document is preponderance of
evidence.19
Here, the preponderance ofevidence indubitably tilts in favor of the
respondents, still making the SPA binding between the parties even with the
aforementioned assumed irregularity.1âwphi1 There are several telling
circumstances that would clearly demonstrate that Leonardo was aware of the
mortgage and he indeed executed the SPA to entrust Leon with the mortgage
of his property. Leon had inhis possession all the titles covering the eleven (11)
properties mortgaged, including that of Leonardo.20 Leonardo and the rest of
their relatives could not have just blindly ceded their respective TCTs to
Leon.21 It is likewise ridiculous how Leonardo seemed to have been totally
oblivious to the status of his property for eight (8) long years, and would only
find outabout the mortgage and foreclosure from a nephew who himself had
consented to the mortgage of his own lot.22 Considering the lapse of time
from the alleged forgery on May 5, 1993 and the mortgage on August 5, 1994,
to the foreclosure on July 29, 1999, and to the supposed discovery in 2001, it
appears that the suit is a mere afterthought or a last-ditch effort on
Leonardo’s part to extend his hold over his property and to prevent SBC from
consolidating ownership over the same. More importantly, Leonardo himself
admitted on cross-examination that he granted Leon authority to mortgage,
only that, according to him, he thought it was going to be with China Bank, and
not SBC.23 But as the CA noted, there is no mention of a certainbank in the
subject SPA with which Leon must specifically deal. Leon, therefore, was
simply acting within the bounds of the SPA’s authority when hemortgaged the
lot to SBC.
their expiration.28 Verily, the redemption price comprises not only the total
amount due under the mortgage deed, but also with interest at the rate
specified in the mortgage, and all the foreclosure expenses incurred by the
mortgagee bank.
To sustain Leonardo's claim that their payment of ₱45,000,000.00 had already
extinguished their entire obligation with SBC would mean that no interest ever
accrued from 1994, when the loan was availed, up to the time the payment of
₱45,000,000.00 was made in 2000-2001.
SBC's 16% rate of interest is not computed per month, but rather per annum
or only 1.33% per month. In Spouses Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch,29 the Court held that the interest rate
of 24% per annum on a loan of ₱244,000.00 is not considered as
unconscionable and excessive. As such, the Court ruled that the debtors
cannot renege on their obligation to comply with what is incumbent upon
them under the contract of loan as they are bound by its stipulations. Also, the
24o/o per annum rate or 2% per month for the penalty charges imposed on
account of default, cannot be considered as skyrocketing. The enforcement of
penalty can be demanded by the creditor in case of non-performance due to
the debtor's fault or fraud. The nonperformance gives rise to the presumption
of fault and in order to avoid the penalty, the debtor has the burden of proving
that the failure of the performance was due to either force majeure or the
creditor's own acts.30 In the instant case, petitioner failed to discharge said
burden and thus cannot avoid the payment of the penalty charge agreed upon.
WHEREFORE, premises considered, the petition is DENIED. The Decision of the
Court of Appeals, dated November 26, 2010, as well as its Resolution dated
March 17, 2011 in CA-G.R. CV No. 88914, are hereby AFFIRMED.
SO ORDERED.

True, banks and other financing institutions, in entering into mortgage

contracts, are expected to exercise due diligence.24 The ascertainment of the
status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of its operations.25 In this case, however, no
evidence was presented to show that SBC was remiss in the exercise of the
standard care and prudence required of it or that it was negligent in accepting
the mortgage.26 SBC could not likewise befaulted for relying on the
presumption of regularity of the notarized SPA when it entered into the
subject mortgage agreement.

Finally, the Court finds that the interest and penalty charges imposed by SBC
are just, and not excessive or unconscionable.

Section 47 of The General Banking Law of 200027 thus provides:

Section 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure,

whether judicially or extra-judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate,
to redeem the property by paying the amount due under the mortgage deed,
with interest thereon at the rate specified in the mortgage, and all the costs
and expenses incurred by the bank or institutionfrom the sale and custody of
said property less the income derived therefrom. However,the purchaser at
the auction sale concerned whether in a judicial or extra-judicial foreclosure
shall have the right to enter upon and take possession of such property
immediately after the date of the confirmation of the auction sale and
administer the same in accordance with law. Any petition in court to enjoin or
restrain the conduct of foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining or the restraint of the
foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold

pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration
of the certificate of foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a foreclosure
sale prior to the effectivity of this Act shall retain their redemption rights until

24
THIRD DIVISION
G.R. No. 112160 February 28, 2000
OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner,
vs.
COURT OF APPEALS, ASIAN SAVINGS BANK, MAXIMO C. CONTRARES and
VICENTE MAÑOSCA, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, seeking to review and set aside the Decision1 of the Court of Appeals in
CA-G.R. CV No. 25242, which reversed the Decision2 of Branch 59 of the
Regional Trial Court of Makati City in Civil Case No. M-028; the dispositive
portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE
and a new one is hereby entered DISMISSING the complaint of the spouses
Osmundo and Angelina Canlas. On the counterclaim of defendant Asian
Savings Bank, the plaintiffs Canlas spouses are hereby ordered to pay the
defendant Asian Savings Bank the amount of P50,000.00 as moral and
exemplary damages, plus P15,000.00 as and for attorney's fees.
With costs against appellees.
SO ORDERED.3
The facts that matter:
Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private
respondent, Vicente Mañosca, decided to venture in business and to raise the
capital needed therefor. The former then executed a Special Power of
Attorney authorizing the latter to mortgage two parcels of land situated in San
Dionisio, (BF Homes) Paranaque, Metro Manila, each lot with semi-concrete
residential house existing thereon, and respectively covered by Transfer
Certificate of Title No. 54366 in his (Osmundo's) name and Transfer Certificate
of Title No. S-78498 in the name of his wife Angelina Canlas.
Subsequently, Osmundo Canlas agreed to sell the said parcels of land to
Vicente Mañosca, for and in consideration of P850,000.00, P500,000.00 of
which payable within one week, and the balance of P350,000.00 to serve as his
(Osmundo's) investment in the business. Thus, Osmundo Canlas delivered to
Vicente Mañosca the transfer certificates of title of the parcels of land
involved. Vicente Mañosca, as his part of the transaction, issued two
postdated checks in favor of Osmundo Canlas in the amounts of P40,000.00
and P460,000.00, respectively, but it turned out that the check covering the
bigger amount was not sufficiently funded.4
On September 3, 1982, Vicente Mañosca was able to mortgage the same
parcels of land for P100,000.00 to a certain Attorney Manuel Magno, with the
help of impostors who misrepresented themselves as the spouses, Osmundo
Canlas and Angelina Canlas.5
On September 29, 1982, private respondent Vicente Mañosca was granted a
loan by the respondent Asian Savings Bank (ASB) in the amount of
P500,000.00, with the use of subject parcels of land as security, and with the
involvement of the same impostors who again introduced themselves as the
Canlas spouses.6 When the loan it extended was not paid, respondent bank
extrajudicially foreclosed the mortgage.
On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent
bank that the execution of subject mortgage over the two parcels of land in
question was without their (Canlas spouses) authority, and request that steps
be taken to annul and/or revoke the questioned mortgage. On January 18,
1983, petitioner Osmundo Canlas also wrote the office of Sheriff Maximo O.
Contreras, asking that the auction sale scheduled on February 3, 1983 be
cancelled or held in abeyance. But respondents Maximo C. Contreras and
Asian Savings Bank refused to heed petitioner Canlas' stance and proceeded
with the scheduled auction sale.7
Consequently, on February 3, 1983 the herein petitioners instituted the
present case for annulment of deed of real estate mortgage with prayer for
the issuance of a writ of preliminary injunction; and on May 23, 1983, the trial
court issued an Order restraining the respondent sheriff from issuing the
corresponding Certificate of Sheriff's Sale.8
For failure to file his answer, despite several motions for extension of time for
the filing thereof, Vicente Mañosca was declared in default.9
On June 1, 1989, the lower court a quo came out with a decision annulling
subject deed of mortgage and disposing, thus:
Premises considered, judgment is hereby rendered as follows.1âwphi1.nêt
1. Declaring the deed of real estate mortgage (Exhibit "L") involving the
properties of the plaintiffs as null and void;
2. Declaring the public auction sale conducted by the defendant Sheriff,
involving the same properties as illegal and without binding effect;
3. Ordering the defendants, jointly and severally, to pay the plaintiffs the sum
of P20,000.00 representing attorney's fees;
4. On defendant ASB's crossclaim: ordering the cross-defendant Vicente
Mañosca to pay the defendant ASB the sum of P350,000.00, representing the
amount which he received as proceeds of the loan secured by the void
mortgage, plus interest at the legal rate, starting February 3, 1983, the date
when the original complaint was filed, until the amount is fully paid;
5. With costs against the defendants.
SO ORDERED.10
From such Decision below, Asian Savings Bank appealed to the Court of
Appeals, which handed down the assailed judgment of reversal, dated
September 30, 1983, in CA-G.R. CV No. 25242. Dissatisfied therewith, the
petitioners found their way to this Court via the present Petition; theorizing
that:
I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE MORTGAGE
OF THE PROPERTIES SUBJECT OF THIS CASE WAS VALID.
II
RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT PETITIONERS ARE
NOT ENTITLED TO RELIEF BECAUSE THEY WERE NEGLIGENT AND THEREFORE
MUST BEAR THE LOSS.
III
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB
EXERCISED DUE DILIGENCE IN GRANTING THE LOAN APPLICATION OF
RESPONDENT.
IV
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB
DID NOT ACT WITH BAD FAITH IN PROCEEDING WITH THE FORECLOSURE SALE
OF THE PROPERTIES.
V
RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT ASB
MORAL DAMAGES.11
The Petition is impressed with merit.
Art. 1173 of the Civil Code, provides:
Art. 1173. The fault or negligence of the obligor consist in the omission of that
diligence which is required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of the place. When
25
negligence shows bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required. (1104)
The degree of diligence required of banks is more than that of a good father of
a family;12 in keeping with their responsibility to exercise the necessary care
and prudence in dealing even on a registered or titled property. The business
of a bank is affected with public interest, holding in trust the money of the
depositors, which bank deposits the bank should guard against loss due to
negligence or bad faith, by reason of which the bank would be denied the
protective mantle of the land registration law, accorded only to purchasers or
mortgagees for value and in good faith.13
In the case under consideration, from the evidence on hand it can be gleaned
unerringly that respondent bank did not observe the requisite diligence in
ascertaining or verifying the real identity of the couple who introduced
themselves as the spouses Osmundo Canlas and Angelina Canlas. It is worthy
to note that not even a single identification card was exhibited by the said
impostors to show their true identity; and yet, the bank acted on their
representations simply on the basis of the residence certificates bearing
signatures which tended to match the signatures affixed on a previous deed of
mortgage to a certain Atty. Magno, covering the same parcels of land in
question. Felizado Mangubat, Assistant Vice President of Asian Savings Bank,
thus testified inter alia:
xxx xxx xxx
Q: According to you, the basis for your having recommended for the
approval of MANASCO's (sic) loan particularly that one involving the property
of plaintiff in this case, the spouses OSMUNDO CANLAS and ANGELINA
CANLAS, the basis for such approval was that according to you all the
signatures and other things taken into account matches with that of the
document previously executed by the spouses CANLAS?
Q: That is the only basis for accepting the signature on the mortgage, the
basis for the recommendation of the approval of the loan are the financial
statement of MAÑOSCA?
A: Yes; among others the signature and TAX Account Number, Residence
Certificate appearing on the previous loan executed by the spouses CANLAS, I
am referring to EXHIBIT 5, mortgage to ATTY. MAGNO, those were made the
basis.
A: That is just the basis of accepting the signature, because at that time
the loan have been approved already on the basis of the financial statement of
the client the Bank Statement. Wneh (sic) it was approved we have to base it
on the Financial statement of the client, the signatures were accepted only for
the purpose of signing the mortgage not for the approval, we don't (sic)
approve loans on the signature.
ATTY. CLAROS:
Would you agree that as part of ascertaining the identify of the parties
particularly the mortgage, you don't consider also the signature, the Residence
Certificate, the particular address of the parties involved.
A: I think the question defers (sic) from what you asked a while ago.
Q: Among others?
A: We have to accept the signature on the basis of the other signatures
given to us it being a public instrument.
ATTY. CARLOS:
You mean to say the criteria of ascertaining the identity of the mortgagor does
not depend so much on the signature on the residence certificate they have
presented.
A: We have to accept that.
xxx xxx xxx
A: We accepted the signature on the basis of the mortgage in favor of
ATTY. MAGNO duly notarized which I have been reiterrting (sic) entitled to full
faith considering that it is a public instrument.
ATTY. CARLOS:
What other requirement did you take into account in ascertaining the
identification of the parties particularly the mortgagor in this case.
A: Residence Certificate.
Q: Is that all, is that the only requirement?
A: We requested for others but they could not produce, and because
they presented to us the Residence Certificate which matches on the signature
on the Residence Certificate in favor of Atty. Magno.14
Evidently, the efforts exerted by the bank to verify the identity of the couple
posing as Osmundo Canlas and Angelina Canlas fell short of the responsibility
of the bank to observe more than the diligence of a good father of a family.
The negligence of respondent bank was magnified by the fact that the
previous deed of mortgage (which was used as the basis for checking the
genuineness of the signatures of the supposed Canlas spouses) did not bear
the tax account number of the spouses,15 as well as the Community Tax
Certificate of Angelina Canlas.16 But such fact notwithstanding, the bank did
not require the impostors to submit additional proof of their true identity.
Under the doctrine of last clear chance, which is applicable here, the
respondent bank must suffer the resulting loss. In essence, the doctrine of last
clear chance is to the effect that where both parties are negligent but the
negligent act of one is appreciably later in point of time than that of the other,
or where it is impossible to determine whose fault or negligence brought
about the occurrence of the incident, the one who had the last clear
opportunity to avoid the impending harm but failed to do so, is chargeable
with the consequences arising therefrom. Stated differently, the rule is that
the antecedent negligence of a person does not preclude recovery of damages
caused by the supervening negligence of the latter, who had the last fair
chance to prevent the impending harm by the exercise of due diligence.17
Assuming that Osmundo Canlas was negligent in giving Vicente Mañosca the
opportunity to perpetrate the fraud, by entrusting to latter the owner's copy
of the transfer certificates of title of subject parcels of land, it cannot be
denied that the bank had the last clear chance to prevent the fraud, by the
simple expedient of faithfully complying with the requirements for banks to
ascertain the identity of the persons transacting with them.
For not observing the degree of diligence required of banking institutions,
whose business is impressed with public interest, respondent Asian Savings
Bank has to bear the loss sued upon.
In ruling for respondent bank, the Court of Appeals concluded that the
petitioner Osmundo Canlas was a party to the fraudulent scheme of Mañosca
and therefore, estopped from impugning the validity of subject deed of
mortgage; ratiocinating thus:
xxx xxx xxx
Thus, armed with the titles and the special power of attorney, Mañosca went
to the defendant bank and applied for a loan. And when Mañosca came over
to the bank to submit additional documents pertinent to his loan application,
Osmundo Canlas was with him, together with a certain Rogelio Viray. At that
time, Osmundo Canlas was introduced to the bank personnel as "Leonardo
Rey".
When he was introduced as "Leonardo Rey" for the first time Osmundo should
have corrected Mañosca right away. But he did not. Instead, he even allowed
Mañosca to avail of his (Osmundo's) membership privileges at the
Metropolitan Club when Mañosca invited two officers of the defendant bank
to a luncheon meeting which Osmundo also attended. And during that
meeting, Osmundo did not say who he really is, but even let Mañosca
26
introduced him again as "Leonardo Rey", which all the more indicates that he
connived with Mañosca in deceiving the defendant bank.
Finally after the loan was finally approved, Osmundo accompanied Mañosca to
the bank when the loan was released. At that time, a manger's check for
P200,000.00 was issued in the name of Oscar Motorworks, which Osmundo
admits he owns and operates.
wanted to make sure that Mañosca would make good his promise to pay the
balance of the purchase price of the said lots out of the proceeds of the
loan.23
The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not
estop him from assailing the validity of the mortgage because the said amount
was in payment of the parcels of land he sold to Mañosca.24

Collectively, the foregoing circumstances cannot but conjure to a single
conclusion that Osmundo active participated in the loan application of
defendant Asian Savings Bank, which culminated in his receiving a portion of
the process thereof:18
A meticulous and painstaking scrutiny of the Records on hand, reveals,
however, that the findings arrived at by the Court of Appeals are barren of any
sustainable basis. For instance, the execution of the deeds of mortgages
constituted by Mañosca on subject pieces of property of petitioners were
made possible not by the Special Power of Attorney executed by Osmundo
Canlas in favor of Mañosca but through the use of impostors who
misrepresented themselves as the spouses Angelina Canlas and Osmundo
Canlas. It cannot be said therefore, that the petitioners authorized Vicente
Mañosca to constitute the mortgage on their parcels of land.
What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente
Mañosca, only on the occasion of the luncheon meeting at the Metropolitan
Club.19 Thereat, the failure of Osmundo Canlas to rectify Mañosca's
misrepresentations could not be taken as a fraudulent act. As well explained
by the former, he just did not want to embarrass Mañosca, so that he waited
for the end of the meeting to correct Mañosca.20
Then, too, Osmundo Canlas recounted that during the said luncheon meeting,
they did not talk about the security or collateral for the loan of Mañosca with
ASB.21 So also, Mrs. Josefina Rojo, who was the Account Officer of Asian
Savings Bank when Mañosca applied for subject loan, corroborated the
testimony of Osmundo Canlas, she testified:
What is decisively clear on record is that Mañosca managed to keep Osmundo
Canlas uninformed of his (Mañosca's) intention to use the parcels of land of
the Canlas spouses as security for the loan obtained from Asian Savings Bank.
Since Vicente Mañosca showed Osmundo Canlas several certificates of title of
lots which, according to Mañosca were the collaterals, Osmundo Canlas was
confident that their (Canlases') parcels of land were not involved in the loan
transactions with the Asian Savings Bank.25 Under the attendant facts and
circumstances, Osmundo Canlas was undoubtedly negligent, which negligence
made them (petitioners) undeserving of an award of attorney's fees.
Settled is the rule that a contract of mortgage must be constituted only by the
absolute owner on the property mortgaged;26 a mortgage, constituted by an
impostor is void.27 Considering that it was established indubitably that the
contract of mortgage sued upon was entered into and signed by impostors
who misrepresented themselves as the spouses Osmundo Canlas and Angelina
Canlas, the Court is of the ineluctible conclusion and finding that subject
contract of mortgage is a complete nullity.
WHEREFORE, the Petition is GRANTED and the Decision of the Court of
Appeals, dated September 30, 1993, in CA-G.R. CV No. 25242 SET ASIDE. The
Decision of Branch 59 of the Regional Trial Court of Makati City in Civil Case
No. M-028 is hereby REINSTATED. No pronouncement as to costs.
SO ORDERED.1âwphi1.nêt

xxx xxx xxx

QUESTION: Now could you please describe out the lunch conference at
the Metro Club in Makati?

ANSWER: Mr. Mangubat, Mr. Mañosca and I did not discuss with respect
to the loan application and discuss primarily his business.

xxx xxx xxx

QUESTION: So, what is the main topic of your discussion during the
meeting?

ANSWER: The main topic war then, about his business although, Mr.
Leonardo Rey, who actually turned out as Mr. Canlas, supplier of Mr. Mañosca.

QUESTION: I see . . . other than the business of Mr. Mañosca, were there
any other topic discussed?

ANSWER: YES.

QUESTION: And what was the topic:

ANSWER: General Economy then.

xxx xxx x x x22

Verily, Osmundo Canlas was left unaware of the illicit plan of Mañosca,
explaining thus why he (Osmundo) did not bother to correct what Mañosca
misrepresented and to assert ownership over the two parcels of land in
question.

Not only that; while it is true that Osmundo Canlas was with Vicente Mañosca
when the latter submitted the documents needed for his loan application, and
when the check of P200,000.00 was released, the former did not know that
the collateral used by Mañosca for the said loan were their (Canlas spouses')
properties. Osmundo happened to be with Mañosca at the time because he

27
EN BANC the registered owner, all that the judge below did and could do, as a
registration court, is to order its registration and annotation on the certificate
G.R. No. L-13313 April 28, 1960 of title covering the land mortgaged. By said order the court did not pass upon
the effect or validity of the mortgage — these can only be determined in an
AGRICULTURAL CREDIT COOPERATIVE ASSOCIATION OF ordinary case before the courts, not before a court acting merely as a
HINIGARAN, movant-appellee, registration court, which did not have the jurisdiction to pass upon the alleged
vs. effect or validity.
ESTANISLAO YULO YUSAY, ET AL., oppositors-appellants.
Wherefore, the order appealed from is hereby affirmed, with costs against
Aritao, Garcia & Aritao for appellee. oppositors-appellants. So ordered.
Catalino A. Dayon and Arsenio Al. Acuna for appellant.

LABRADOR, J.:

This is an appeal from an order of the Court of First Instance of Negros

Occidental, Hon. Jose S. de la Cruz, presiding the Register of Deeds of Negros
Occidental to register a mortgage executed by Rafael Yulo in favor of the
movant covering Lot No. 855, Pontevedra Cadastre, covered by Original
Certificate of Title No. 4979.

The records disclose that on July 20, 1952, Rafaela Yulo executed in favor of
the movant a mortgage for P33,626.29, due from her, her mother, sisters,
brothers, and others, which amount she assumed to pay to the movant. A
motion was presented to the court by the movant demanding the surrender of
the owner's duplicate certificate of title that he may annotate said mortgage at
the back of the certificate. Estanislao Yusay, a part owner of the lot, opposed
the petition on the ground that he is owner of a part of the property in
question; that the granting of the motion would operate to his prejudice, as he
has not participated in the mortgage cited in the motion; that Rafaela Yulo is
dead; that the motion is not verified and movant's rights have lapsed by
prescription. Finally it is argued that his opposition raises a controversial
matter which the court has no jurisdiction to pass upon. Margarita, Maria,
Elena and Pilar, all surnamed Yulo, joined the oppositor Estanislao Yusay,
raising the same objections interposed by Yusay.

The existence of the mortgage is not disputed, and neither is the fact that the
mortgagor Rafaela Yulo is part owner of Lot No. 855 of the Cadastral Survey of
Pontevedra. The oppositors do not dispute that she is such a part owner, and
their main objection to the petition is that as part owners of the property, the
annotation of the mortgage on the common title will affect their rights.

The court held that even if the ownership of the deceased Rafaela Yulo over
the portion of the lot in question and the validity of the mortgage are
disputed, such invalidity of the mortgage is no proof of the non-existence of
the mortgage nor a ground for objecting to its registration, citing the case of
Register of Deeds of Manila vs. Maxima Tinoco Vda. de Cruz, et, al., 95 Phil.,
818; 53 Off. Gaz., 2804.

In his Brief before this Court, counsel for appellants argue that the mortgage
sought to be registered was not recorded before the closing of the intestate
proceedings of the deceased mortgagor, but was so recorded only four
months after the termination of said proceedings, so that the claim of movant
has been reduced to the character of a mere money claim, not a mortgage,
hence the mortgage may not be registered. In the first place, as the judge
below correctly ruled, the proceeding to register the mortgage does not
purport to determine the supposed invalidity of the mortgage or its effect.
Registration is a mere ministerial act by which a deed, contract or instrument
is sought to be inscribed in the records of the Office of the Register of Deeds
and annotated at the back of the certificate of title covering the land subject of
the deed, contract or instrument.

The registration of a lease or mortgage, or the entry of a memorial of a lease

or mortgage on the register, is not a declaration by the state that such an
instrument is a valid and subsisting interest in land; it is merely a declaration
that the record of the title appears to be burdened with the lease or mortgage
described, according to the priority set forth in the certificate.

The mere fact that a lease or mortgage was registered does not stop any party
to it from setting up that it now has no force or effect. (Niblack, pp. 134-135,
quoted in Francisco Land Registration Act, l950 ed., p. 348.)

The court below, in ordering the registration and annotation of the mortgage,
did not pass on its invalidity or effect. As the mortgage is admittedly an act of

28
SECOND DIVISION Upon maturity, the loan remained outstanding. As a result, PNB instituted
extrajudicial foreclosure proceedings on the mortgaged property. After the
extrajudicial sale thereof, a Certificate of Sale was issued in favor of
PNB, Laoag as the highest bidder. After the lapse of one (1) year without the
JOE A. ROS and G.R. No. 170166 property being redeemed, the property was consolidated and registered in the
ESTRELLA name of PNB, Laoag Branch on August 10, 1978.
AGUETE,
Claiming that she (plaintiff-appellee Estrella Aguete) has no knowledge of the
loan obtained by her husband nor she consented to the mortgage instituted
Petitioners,
on the conjugal property a complaint was filed to annul the proceedings
pertaining to the mortgage, sale and consolidation of the property interposing
Present: the defense that her signatures affixed on the documents were forged and
that the loan did not redound to the benefit of the family.

In its answer, PNB prays for the dismissal of the complaint for lack of cause of
CARPIO, J., Chairperson, action, and insists that it was plaintiffs-appellees own acts [of]

omission/connivance that bar them from recovering the subject property on

PERALTA,
the ground of estoppel, laches, abandonment and prescription.4
- versus - ABAD,
The Trial Courts Ruling
MENDOZA, and
On 29 June 2001, the trial court rendered its Decision5 in favor of petitioners.
The trial court declared that Aguete did not sign the loan documents, did not
SERENO,* JJ.
appear before the Notary Public to acknowledge the execution of the loan
documents, did not receive the loan proceeds from PNB, and was not aware of
the loan until PNB notified her in 14 August 1978 that she and her family
should vacate the mortgaged property because of the expiration of the
PHILIPPINE Promulgated: redemption period. Under the Civil Code, the effective law at the time of the
NATIONAL BANK - transaction, Roscould not encumber any real property of the conjugal
partnership without Aguetes consent. Aguete may, during their marriage and
LAOAG BRANCH, within ten years from the transaction questioned, ask the courts for the
April 6, 2011 annulment of the contract her husband entered into without her consent,
Respondent. especially in the present case where her consent is required. The trial court,
however, ruled that its decision is without prejudice to the right of action of
x--------------------------------------------------x PNB to recover the amount of the loan and its interests from Ros

The dispositive portion reads:

The Case WHEREFORE, premises considered, judgment is hereby rendered:

G.R. No. 170166 is a petition for review1 assailing the Decision2 promulgated
on 17 October 2005 by the Court of Appeals (appellate court) in CA-G.R. CV
No. 76845. The appellate court granted the appeal filed by the Philippine
National Bank Laoag Branch (PNB). The appellate court reversed the 29 June
2001 Decision of Branch 15 of the Regional Trial Court of Laoag City (trial
court) in Civil Case No. 7803.
1. DECLARING the Deed of Real Estate Mortgage (Exhibit C) and the
subsequent foreclosure proceedings conducted thereon NULL and VOID;
2. ORDERING the Register of Deeds of the City of Laoag to cancel TCT No. T-
15276 in the name of defendant PNB and revert the same in the name of
plaintiffs spouses Joe Ros and Estrella Aguete;

The trial court declared the Deed of Real Estate Mortgage executed by spouses
Jose A. Ros3 (Ros) and Estrella Aguete (Aguete) (collectively, petitioners), as
well as the subsequent foreclosure proceedings, void. Aside from payment of
attorneys fees, the trial court also ordered PNB to vacate the subject property
to give way to petitioners possession.
3. ORDERING defendant to vacate and turnover the possession of the premises
of the property in suit to the plaintiffs; and
4. ORDERING defendant to pay plaintiffs attorneys fee and litigation expenses
in the sum of TEN THOUSAND (P10,000.00) PESOS.

The Facts No pronouncement as to costs.

The appellate court narrated the facts as follows: SO ORDERED.

On January 13, 1983, spouses Jose A. Ros and Estrella Aguete filed a complaint
for the annulment of the Real Estate Mortgage and all legal proceedings
taken thereunder against PNB, LaoagBranch before the Court of First
Instance, Ilocos Norte docketed as Civil Case No. 7803.
The complaint was later amended and was raffled to the Regional Trial Court,
Branch 15, Laoag City.
The averments in the complaint disclosed that plaintiff-appellee Joe
A. Ros obtained a loan of P115,000.00 from PNB Laoag Branch on October 14,
1974 and as security for the loan, plaintiff-appellee Ros executed a real estate
mortgage involving a parcel of land Lot No. 9161 of the Cadastral Survey
of Laoag, with all the improvements thereon described under Transfer
Certificate of Title No. T-9646.
PNB filed its Notice of Appeal7 of the trial courts decision on 13 September
2001 and paid the corresponding fees. Petitioners filed on the same date a
motion for execution pending appeal,8 which PNB opposed.9 In their
comment to the opposition10 filed on 10 October 2001, petitioners stated that
at the hearing of the motion on 3 October 2001, PNBs lay representative had
no objection to the execution of judgment pending appeal. Petitioners claimed
that the house on the subject lot is dilapidated, a danger to life and limb, and
should be demolished. Petitioners added that they obliged themselves to
make the house habitable at a cost of not less P50,000.00. The repair cost
would accrue to PNBs benefit should the appellate court reverse the trial
court. PNB continued to oppose petitioners motion.11
In an Order12 dated 8 May 2002, the trial court found petitioners motion for
execution pending appeal improper because petitioners have made it clear
that they were willing to wait for the appellate courts decision. However, as a

29
court of justice and equity, the trial court allowed petitioners to occupy the
subject property with the condition that petitioners would voluntarily vacate
the premises and waive recovery of improvements introduced should PNB
prevail on appeal.
The Appellate Courts Ruling
On 17 October 2005, the appellate court rendered its Decision13 and granted
PNBs appeal. The appellate court reversed the trial courts decision, and
dismissed petitioners complaint.
The appellate court stated that the trial court concluded forgery without
adequate proof; thus it was improper for the trial court to rely solely
on Aguetes testimony that her signatures on the loan documents were forged.
The appellate court declared that Aguete affixed her signatures on the
documents knowingly and with her full consent.
Assuming arguendo that Aguete did not give her consent to Ros loan, the
appellate court ruled that the conjugal partnership is still liable because the
loan proceeds redounded to the benefit of the family. The records of the case
reveal that the loan was used for the expansion of the familys business.
Therefore, the debt obtained is chargeable against the conjugal partnership.
Petitioners filed the present petition for review before this Court on 9
December 2005.
The Issues
Petitioners assigned the following errors:
I. The Honorable Court of Appeals erred in not giving weight to the findings
and conclusions of the trial court, and in reversing and setting aside such
findings and conclusions without stating specific contrary evidence;
II. The Honorable Court of Appeals erred in declaring the real estate mortgage
valid;
III. The Honorable Court of Appeals erred in declaring, without basis, that the
loan contracted by husband Joe A. Ros with respondent Philippine National
Bank Laoag redounded to the benefit of his family, aside from the fact that
such had not been raised by respondent in its appeal.14
The Courts Ruling
The petition has no merit. We affirm the ruling of the appellate court.
The Civil Code was the applicable law at the time of the mortgage. The subject
property is thus considered part of the conjugal partnership of gains. The
pertinent articles of the Civil Code provide:
Art. 153. The following are conjugal partnership property:
(1) That which is acquired by onerous title during the marriage at the expense
of the common fund, whether the acquisition be for the partnership, or for
only one of the spouses;
(2) That which is obtained by the industry, or work or as salary of the spouses,
or of either of them;
(3) The fruits, rents or interest received or due during the marriage, coming
from the common property or from the exclusive property of each spouse.
Art. 160. All property of the marriage is presumed to belong to the
conjugal partnership, unless it be proved that it pertains exclusively to the
husband or to the wife.
Art. 161. The conjugal partnership shall be liable for:
(1) All debts and obligations contracted by the husband for the benefit of the
conjugal partnership, and those contracted by the wife, also for the same
purpose, in the cases where she may legally bind the partnership;
(2) Arrears or income due, during the marriage, from obligations which
constitute a charge upon property of either spouse or of the partnership;
(3) Minor repairs or for mere preservation made during the marriage upon the
separate property of either the husband or the wife; major repairs shall not be
charged to the partnership;
(4) Major or minor repairs upon the conjugal partnership property;
(5) The maintenance of the family and the education of the children of both
husband and wife, and of legitimate children of one of the spouses;
(6) Expenses to permit the spouses to complete a professional, vocational or
other course.
Art. 166. Unless the wife has been declared a non compos mentis or a
spendthrift, or is under civil interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real property of the conjugal
partnership without the wifes consent. If she refuses unreasonably to give her
consent, the court may compel her to grant the same.
Art. 173. The wife may, during the marriage, and within ten years from the
transaction questioned, ask the courts for the annulment of any contract of
the husband entered into without her consent, when such consent is required,
or any act or contract of the husband which tends to defraud her or impair her
interest in the conjugal partnership property. Should the wife fail to exercise
this right, she or her heirs after the dissolution of the marriage may demand
the value of the property fraudulently alienated by the husband.
There is no doubt that the subject property was acquired
during Ros and Aguetes marriage. Ros and Aguete were married on 16 January
1954, while the subject property was acquired in 1968.15 There is also no
doubt that Ros encumbered the subject property when he mortgaged it for
P115,000.00 on 23 October 1974.16 PNB Laoag does not doubt that Aguete, as
evidenced by her signature, consented to Ros mortgage to PNB of the subject
property. On the other hand, Aguete denies ever having consented to the loan
and also denies affixing her signature to the mortgage and loan documents.
The husband cannot alienate or encumber any conjugal real property without
the consent, express or implied, of the wife. Should the husband do so, then
the contract is voidable.17Article 173 of the Civil Code allows Aguete to
question Ros encumbrance of the subject property. However, the same article
does not guarantee that the courts will declare the annulment of the contract.
Annulment will be declared only upon a finding that the wife did not give her
consent. In the present case, we follow the conclusion of the appellate court
and rule that Aguete gave her consent to Ros encumbrance of the subject
property.
The documents disavowed by Aguete are acknowledged before a notary
public, hence they are public documents. Every instrument duly acknowledged
and certified as provided by law may be presented in evidence without further
proof, the certificate of acknowledgment being prima facie evidence of the
execution of the instrument or document involved.18 The execution of a
document that has been ratified before a notary public cannot be disproved by
the mere denial of the alleged signer.19 PNB was correct when it stated that
petitioners omission to present other positive evidence to substantiate their
claim of forgery was fatal to petitioners cause.20 Petitioners did not present
any corroborating witness, such as a handwriting expert, who could
authoritatively declare that Aguetes signatures were really forged.
A notarized document carries the evidentiary weight conferred upon it with
respect to its due execution, and it has in its favor the presumption of
regularity which may only be rebutted by evidence so clear, strong and
convincing as to exclude all controversy as to the falsity of the certificate.
Absent such, the presumption must be upheld. The burden of proof to
overcome the presumption of due execution of a notarial document lies on the
one contesting the same. Furthermore, an allegation of forgery must be
proved by clear and convincing evidence, and whoever alleges it has the
burden of proving the same.21
30
Ros himself cannot bring action against PNB, for no one can come before the
courts with unclean hands. In their memorandum before the trial court,
petitioners themselves admitted that Ros forged Aguetes signatures.

Joe A. Ros in legal effect admitted in the complaint that the signatures of his
wife in the questioned documents are forged, incriminating himself to criminal
prosecution. If he were alive today, he would be prosecuted for forgery. This
strengthens the testimony of his wife that her signatures on the questioned
documents are not hers.

In filing the complaint, it must have been a remorse of conscience for having
wronged his family; in forging the signature of his wife on the questioned
documents; in squandering the P115,000.00 loan from the bank for himself,
resulting in the foreclosure of the conjugal property; eviction of his
family therefrom; and, exposure to public contempt, embarassment and
ridicule.22

The application for loan shows that the loan would be used exclusively for
additional working [capital] of buy & sell of garlic & virginia tobacco.23 In her
testimony, Aguete confirmed that Ros engaged in such business, but claimed
to be unaware whether it prospered. Aguete was also aware of loans
contracted by Ros, but did not know where he wasted the money.24Debts
contracted by the husband for and in the exercise of the industry or profession
by which he contributes to the support of the family cannot be deemed to be
his exclusive and private debts.25

If the husband himself is the principal obligor in the contract, i.e., he directly
received the money and services to be used in or for his own business or his
own profession, that contract falls within the term x x x x obligations for the
benefit of the conjugal partnership. Here, no actual benefit may be proved. It
is enough that the benefit to the family is apparent at the signing of the
contract. From the very nature of the contract of loan or services, the family
stands to benefit from the loan facility or services to be rendered to the
business or profession of the husband. It is immaterial, if in the end, his
business or profession fails or does not succeed. Simply stated, where the
husband contracts obligations on behalf of the family business, the law
presumes, and rightly so, that such obligation will redound to the benefit of
the conjugal partnership.26

For this reason, we rule that Ros loan from PNB redounded to the benefit of
the conjugal partnership. Hence, the debt is chargeable to the conjugal
partnership.

WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in

CA-G.R. CV No. 76845 promulgated on 17 October 2005 is AFFIRMED. Costs
against petitioners.

SO ORDERED.

31
SECOND DIVISION
G.R. No. 212483, October 05, 2016
PHILIPPINE NATIONAL BANK, Petitioner, v. VENANCIO C. REYES,
JR., Respondent.
DECISION
LEONEN, J.:
A spouse's consent is indispensable for the disposition or encumbrance of
conjugal properties.
This resolves a dispute between petitioner Philippine National Bank and
respondent Venancio C. Reyes, Jr. (Venancio). Philippine National Bank filed a
Petition for Review on Certiorari1 assailing the Decision2dated August 22,
2013 and the Resolution3 dated May 5, 2014 of the Court of Appeals. The
assailed Court of Appeals Decision affirmed the Decision and Order of Branch
81 of the Regional Trial Court of Malolos, Bulacan, which annulled the real
estate mortgage and the certificate of sale issued under the extrajudicial
foreclosure conducted, and ordered Lilia Reyes (Lilia) to reimburse to
Philippine National Bank the total loan amount she borrowed from the bank.4
Venancio is married to Lilia since 1973. During their union, they acquired three
(3) parcels of land in Malolos, Bulacan. Transfer Certificates of Title (TCT) Nos.
T-52812 and T-52813 were registered under "Felicidad Pascual and Lilia C.
Reyes, married to Venancio Reyes[,]"5 while TCT No. 53994 was registered
under "Lilia C. Reyes, married to Venancio Reyes."6
The properties were mortgaged to Philippine National Bank on August 25,
1994 to secure a loan worth P1,100,000.00,7 which on October 6, 1994 was
increased to P3,000,000.00.8 According to Philippine National Bank, the Reyes
Spouses contracted and duly consented to the loan.9
When the Reyes Spouses failed to pay the loan obligations, Philippine National
Bank foreclosed the mortgaged real properties.10 The auction sale was held
on September 19, 1997. Philippine National Bank emerged as the highest
bidder, and a certificate of sale was issued in its favor.11
On September 22, 1998, Venancio filed before the Regional Trial Court a
Complaint (or Annulment of Certificate of Sale and Real Estate Mortgage
against Philippine National Bank.12 Upon order of the trial court, Venancio
amended his Complaint to include Lilia and the Provincial Sheriff ofBulacan as
defendants.13
In assailing the validity of the real estate mortgage, Venancio claimed that his
wife undertook the loan and the mortgage without his consent and his
signature was falsified on the promissory notes and the mortgage.14
Since the three (3) lots involved were conjugal properties, he argued that the
mortgage constituted over them was void.15
On May 27, 2009, Branch 81 of the Regional Trial Court of Malolos, Bulacan
ordered the annulment of the real estate mortgage and directed Lilia to
reimburse Philippine National Bank the loan amount with interest.16 The
dispositive portion reads:
WHEREFORE, judgment is hereby rendered:
1. Annulling in its entirety the Real Estate Mortgage Contract and the
Amendment thereto, the Certificate of Sale issued pursuant to the extra
judicial foreclosure and the foreclosure proceedings on the subject properties
covered by Transfer Certificates of Title Nos. T-53994, T-
52812 and T-52813 of the Registry of Deeds of Bulacan for want of consent on
the part of the plaintiff;
2. Making the writ of preliminary injunction permanent and perpetual
conditioned on plaintiffs posting within an inextendible period of five (5) days
from receipt thereof of the injunctive bond in the amount Eight Hundred
Thousand (P800,000.00) pesos as contained in the Order dated November 3,
1998;
3. Ordering defendant Lilia C. Reyes to reimburse the defendant Philippine
National Bank the total loan account of P3,324,771.18 with interest at 6% per
annum from the date of the foreclosure sale until finality of this decision. After
this decision has attained finality interest at the rate of 12% per annum on the
principal and interest (or any part thereof) shall be imposed until full payment.
SO ORDERED.17
Aggrieved, Philippine National Bank appealed to the Court of Appeals. On
August 22, 2013, the Court of Appeals denied the appeal18 and affirmed the
ruling of the Regional Trial Court. The dispositive portion of the Court of
Appeals Decision reads:
WHEREFORE, premises considered, the present appeal is DENIED. The
challenged Decision and Order of the Regional Trial Court of Malolos, Bulacan,
Branch 81 dated May 27, 2009 and August 4, 2009, respectively, are
hereby AFFIRMED.19 (Emphasis in the original)
Philippine National Bank moved for reconsideration, but the Motion was
denied in the Resolution20 dated May 5, 2014.
Petitioner Philippine National Bank insists that the Court of Appeals erred in
affirming the ruling of the trial court. It argues that the real estate mortgage is
valid, that the conjugal partnership should be held liable for the loan, and that
respondent Venancio C. Reyes, Jr.'s cause of action should be deemed barred
by laches.21
Petitioner claims that respondent and his wife both duly consented to the loan
and the mortgage.22 It points to respondent's testimony during cross
examination where he admitted that he had actual knowledge of the loan as
early as 1996, but only filed the Complaint in 1998.23 Petitioner further claims
that it is impossible for respondent to have no knowledge of the transaction
since the ·Reyes Spouses live together in the same house where the notices
and demand letters were sent.24 It contends that the Court of Appeals should
not have relied heavily on the testimony of the handwriting expert since
jurisprudence show these experts are not indispensable in determining a
forgery.25
Respondent, in his Comment,26 alleges that his wife hid the transaction from
him. Even if they lived under the same roof, he was not aware of everything
happening in their home because as a practicing lawyer, he was always away
at work from 8 a.m. to 7 p.m.27 He likewise points out that since both the
Regional Trial Court and the Court of Appeals made a factual finding of forgery,
this Court should respect this finding.28 Respondent contends that the
conjugal partnership cannot be held liable because a void contract has no legal
existence from which an obligation may stem.29
The issues for resolution are:
First, whether the Court of Appeals erred in declaring the real estate mortgage
void;
Second, whether the conjugal partnership can be held liable for the loan
contracted unilaterally by Lilia C. Reyes; and
Lastly, whether respondent is guilty of laches and whether his claim is now
barred by estoppel.
I
The real estate mortgage over a conjugal property is void if the noncontracting
spouse did not give consent.
The Court of Appeals committed no reversible error in affirming the ruling of
the Regional Trial Court. The real estate mortgage over the conjugal properties
32
is void for want of consent from respondent. The Family Code is clear: the
written consent of the spouse who did not encumber the property is necessary
before any disposition or encumbrance of a conjugal property can be valid.30
It is not disputed that the Reyes Spouses were married in 1973,31 before the
Family Code took effect. Under the Family Code, their property regime is
Conjugal Partnership of Gains; thus, Article 124 is the applicable provision
regarding te administration of their conjugal property. It states:
Art. 124. The administration and enjoyment of the conjugal partnership shall
belong to both spouses jointly. In case of disagreement, the husband's
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 the
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.
Any disposition or encumbrance of a conjugal property by one spouse must be
consented to by the other; otherwise, it is void.32
Petitioner points to respondent's signature on the Promissory Notes and Deed
of Mortgage to prove that he consented to the transactions.33 For his part,
respondent alleges that his signature was forged and offers testimony from a
handwriting expert to prove that his signature on the bank documents were
falsified.34 The Regional Trial Court and the Court of Appeals both agreed that
respondent presented clear and convincing evidence that his signature, as it
appeared on the mortgage contract, was forged.
Respondent offered the expert testimony of Efren B. Flores (Flores) of the
Questioned Document Section of the National Bureau of Investigation. Flores,
a handwriting expert, compared the signature on the loan documents with the
standard signatures of respondent.35 He concluded that they were not written
by the same person through the following observations:
First, the signatures on the loan documents were executed in a slowly drawn
motion of a pen. This can be observed in the hidden portion of the signature
because the changes in pen pressure were abrupt.36
Second, respondent's standard signature is written with free and well-
coordinated strokes.37
Lastly, there were discrepancies in the structural pattern of letter formation of
the two (2) sets of signatures. With the signatures in the loan documents, both
the upper and lower loops were elongated. On the standard signatures, the
upper loop was shorter while the lower loop was bigger.38
Flores was convinced that the variations he noted is "due to the operation of a
different personality and not merely an expected and inevitable variation
found in genuine handwriting of the same writer."39
Likewise telling was petitioner's inability to prove that respondent took part in
the transactions. Efren Agustin (Agustin), Loan and Discount Division Chief of
Philippine National Bank, admitted that he merely relied on the documents
presented to him,40 and that he never actually saw respondent sign the
documents, follow up, or inquire about the loan's status or the mortgage.
Agustin only testified to seeing Lilia, but not respondent, within the bank's
premises.41
This Court is not a trier of facts. In Manotok Realty, Inc. v CLT Realty
Development Corp.,42 "[w]here ... the findings of fact of the trial courts are
affirmed by the Court of Appeals, the same are accorded the highest degree of
respect and, generally, will not be disturbed on appeal. Such findings are
binding and conclusive on this Court."43
We see no compelling reason to overturn the lower couris' factual findings
that the forgery was proven with clear and convincing evidence. Having
established that his signature was forged, respondent proved that he did not
consent to the real estate mortgage. The mortgage unilaterally made by his
wife over their conjugal property is void and legally inexistent.
II
The lower courts may have declared the mortgage void, but the principal
obligation is not affected. It remains valid.
Petitioner contends that the conjugal partnership should be made liable to the
extent that it redounded to the benefit of the family under Article 122 of the
Family Code.
Petitioner's reliance on Article 122 to support the validity of the mortgage is
misplaced.
Article 122 provides:
ARTICLE 122. The payment of personal debts contracted by the husband or the
wife before or during the marriage shall not be charged to the conjugal
partnership except insofar as they redounded to the benefit of the family.
Neither shall the fines and pecuniary indemnities imposed upon them be
charged to the partnership.
However, the payment of personal debts contracted by either spouse before
the marriage, that of fines and indemnities imposed upon them, as well as the
support of illegitimate children of either spouse, may be enforced against the
partnership assets after the responsibilities enumerated in the preceding
Article have been covered, if the spouse who is bound should have no
exclusive property or if it should be insufficient; but at the time of the
liquidation of the partnership, such spouse shall be charged for what has been
paid for the purposes above-mentioned.
Article 122 applies to debts that were contracted by a spouse and redounded
to the benefit of the family. It applies specifically to the loan that respondent's
wife Lilia contracted, but not to the mortgage.
To be clear, nowhere in the Decision did the Court of Appeals state that the
principal obligation secured by the mortgage was void. The Court of Appeals
affirmed the May 27, 2009 Decision of the Regional Trial Court ordering,
respondent's wife to reimburse the petitioner the total loan amount44 "of
P3,324,771.18 with interest at 6% per annum from the date of the foreclosure
sale until finality of this decision."45 The Regional Trial Court further imposed
interest at 12% per annum on the principal and interest, or any part thereof,
after the decision had attained finality and until full payment.46
Ayala Investment & Development Corp. v. Court of Appeals47 has explained
how Article 121 should be applied:
From the foregoing jurisprudential rulings of this Court, we can derive the
following conclusions:
(A) If the husband himself is the principal obligor in the contract, i.e., he
directly received the money and services to be used in or for his own business
or his own profession, that contract falls within the term "x x x obligations for
the benefit of the conjugal partnership. " Here, no actual benefit may be
proved. It is enough that the benefit to the family is apparent at the time of
the signing of the contract. From the very nature of the contract of loan or
services, the family stands to benefit from the loan facility or services to be
rendered to the business or profession of the husband. It is immaterial, if in
the end, his business or profession fails or does not succeed. Simply stated,
where the husband contracts obligations on behalf of the family business, the
law presumes, and rightly so, that such obligation will redound to the benefit
of the conjugal partnership.
33
(B) On the other hand, if the money or services are given to another person or
entity, and the husband acted only as a surety or guarantor, that contract
cannot, by itself, alone be categorized as falling within the context of
"obligations for the benefit of the conjugal partnership." The contract of loan
or services is clearly for the benefit of the principal debtor and not for the
surety or his family. No presumption can be inferred that, when a husband
enters into a contract of surety or accommodation agreement, it is "for the
benefit of the conjugal partnership." Proof must be presented to establish
benefit redounding to the conjugal partnership.48 (Emphasis supplied)
There are two scenarios considered: one is when the husband, or in this case,
the wife, contracts a loan to be used for the family business and the other is
when she acts as a surety or guarantor. If she is a mere surety or guarantor,
evidence that the family benefited from the loan need to be presented before
the conjugal partnership can be held liable. On the other hand, if the loan was
taken out to be used for the family business, there is no need to prove actual
benefit. The law presumes the family benefited from the loan and the conjugal
partnership is held liable.
According to petitioner, the Regional Trial Court found49 that the loan was
used as additional working capital for respondent's printing business. As held
in Ayala Investment, since the loaned money is used in the husband's business,
there is a presumption that it redounded to the benefit of the family; hence,
the conjugal partnership may be held liable for the loan amount.50 Since there
is a legal presumption to this effect, there is no need to prove actual benefit to
the family.
What the lower courts declared void was the real estate mortgage attached to
the conjugal property of the Reyes Spouses. Since the real estate mortgage
was an encumbrance attached to a conjugal property without the consent of
the other spouse, it is void and legally inexistent. Although petitioner cannot
foreclose the mortgage over the conjugal property in question, it can still
recover the loan amount from the conjugal partnership.
In Philippine National Bank v. Banatao,51 "a mortgage is merely an accessory
agreement and does not affect the principal contract of loan. The mortgages,
while void, can still be considered as instruments evidencing the
indebtedness[.]"52
III
Laches does not apply where the delay is within the period prescribed by law.
Petitioner contends that respondent's action to annul the Deed of Real Estate
Mortgage is already barred by latches.53 This is erroneous.
As found by the trial court, records show that upon learning about the
mortgage, respondent immediately informed the bank about his forged
signature.54 He filed the Complaint for Annulment of Certificate of Sale and
Real Estate Mortgage against petitioner on September 22, 1998, which was
still within the prescribed period to redeem a mortgaged property.55
In Torbela v. Rosario:
Laches means the failure or neglect, for an unreasonable and unexplained
length of time, to do that which by exercising due diligence could or should
have been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it. As the Court explained in the
preceding paragraphs, the Torbela siblings instituted Civil Case No. U-4359 five
years after Dr. Rosario's repudiation of the express trust, still within the 10-
year prescriptive period for enforcement of such trusts. This does not
constitute an unreasonable delay in asserting one's right. A delay within the
prescriptive period is sanctioned by law and is not considered to be a delay
that would bar relief Laches apply only in the absence of a statutory
prescriptive period.57 (Emphasis supplied)
Since respondent filed the Complaint for Annulment of Certificate of Sale and
Real Estate Mortgage within the period of redemption prescribed by law,
petitioner fails to convince that respondent slept on his right.
The mortgage over the conjugal property is void and cannot be foreclosed.
However, petitioner can still hold the conjugal partnership liable for the
principal obligation since the loan is presumed to have redounded to the
benefit of the family. If the conjugal partnership is insufficient to cover the
liability, the husband is solidarity liable with the wife for the unpaid balance.58
The last paragraph of Article 121 of the Family Code is instructive:
Art. 121. The conjugal partnership shall be liable for:
(1) The support of the spouse, their common children, and the legitimate
children of either spouse; however, the support of illegitimate children
shall be governed by the provisions of this Code on Support;
(2) All debts and obligations contracted during the marriage by the
designated administrator-spouse for the benefit of the conjugal
partnership of gains, or by both spouses or by one of them with the
consent of the other;
(3) Debts and obligations contracted by either spouse without the consent
of the other to the extent that the family may have benefited;
(4) All taxes, liens, charges, and expenses, including major or minor repairs
upon the conjugal partnership property;
(5) All taxes and expenses for mere preservation made during the marriage
upon the separate property of either spouse;
(6) Expenses to enable either spouse to commence or complete a
professional, vocational, or other activity for self-improvement;
(7) Ante-nuptial debts of either spouse insofar as they have redounded to
the benefit of the family;
(8) The value of what is donated or promised by both spouses in favor of
their common legitimate children for the exclusive purpose of
commencing or completing a professional or vocational course or other
activity for self-improvement; and
(9) Expenses of litigation between the spouses unless the suit is found to
groundless.
If the conjugal partnership is insufficient to cover the foregoing liabilities, the
spouses shall be solidarily liable for the unpaid balance with their separaie
properties. (Emphasis supplied)
The last paragraph points to the "subsidiary but solidary liability of the
separate properties"59 of the spouses for liabilities enumerated in the Article.
This Article, similar to Article 94 of the Family Code governing the Absolute
Community of Property regime, explicitly holds the spouses solidarity liable
with each other if the conjugal properties are not enough to answer for the
liabilities. In this case, if the conjugal properties of the Reyes Spouses are not
enough to answer for the loan, petitioner can recover the remaining unpaid
balance from the separate properties of either respondent or his wife Lilia.
34
WHEREFORE, the Petition is DENIED for failure to show the Court of Appeals
committed a reversible error in the assailed Decision. The Decision of the
Court of Appeals dated August 22, 2013 in CA-G.R. CV No. 94018
is AFFIRMED with MODIFICATION, in that Spouses Venancio C. Reyes, Jr. and
Lilia Reyes are declared jointly and solidarity liable with each other with their
separate properties if their conjugal partnership is insufficient to fully pay for
the loan.

SO ORDERED.

35
SECOND DIVISION
PRODUCERS BANK OF THE G.R. No. 152071
PHILIPPINES,
- versus-
VELASCO, JR.,
LEONARDO-DE CASTRO, and**
EXCELSA INDUSTRIES, INC., BRION, JJ.
May 8, 2009
x --------------------------------------------------------------------------------------x
This is a petition for review on certiorari[1] under Rule 43 of the 1997 Rules of
Civil Procedure, assailing the decision[2] and resolution[3] of the Court of
Appeals in CA-G.R. CV No. 59931. The Court of Appeals decision[4] reversed
the decision of the Regional Trial Court (RTC), Branch 73, Antipolo, Rizal,
upholding the extrajudicial foreclosure of the mortgage on respondents
properties, while the resolution denied petitioners motion for
reconsideration.[5]
As borne by the records of the case, the following factual antecedents appear:
Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel
products, particularly charcoal briquettes, as an alternative fuel source.
Sometime in January 1987, respondent applied for a packing credit line or a
credit export advance with petitioner Producers Bank of the Philippines, a
banking institution duly organized and existing under Philippines laws.[6]
The application was supported by Letter of Credit No. M3411610NS2970 dated
14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of
credit through its correspondent bank, the Bank of the Philippine Islands, in
the amount of US$23,000.00 for the account of Shin Sung Commercial Co.,
Ltd., also located in Seoul, Korea. T.L. World Development Corporation was the
original beneficiary of the letter of credit. On 05 December 1986, for value
received, T.L. World transferred to respondent all its rights and obligations
under the said letter of credit. Petitioner approved respondents application for
a packing credit line in the amount of P300,000.00, of which about P96,000.00
in principal remained outstanding.[7] Respondent executed the corresponding
promissory notes evidencing the indebtedness.[8]
Prior to the application for the packing credit line, respondent had obtained a
loan from petitioner in the form of a bill discounted and secured credit
accommodation in the amount of P200,000.00, of which P110,000.00 was
outstanding at the time of the approval of the packing credit line. The loan was
secured by a real estate mortgage dated 05 December 1986 over respondents
properties covered by Transfer Certificates of Titles (TCT) No. N-68661, N-
68662, N-68663, N-68664, N-68665 and N-68666, all issued by the Register of
Deeds of Marikina.[9]
Significantly, the real estate mortgage contained the following clause:
For and in consideration of those certain loans, overdraft and/or other credit
accommodations on this date obtained from the MORTGAGEE, and to secure
the payment of the same, the principal of all of which is hereby fixed at FIVE
HUNDRED THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine Currency,
as well as those that the MORTGAGEE may hereafter extend to the
MORTGAGOR, including interest and expenses or any other obligation owing
to the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by
way of mortgage unto the MORTGAGEE, its successors or assigns, the parcel(s)
of land which is/are described in the list inserted on the back of this
document, and/or appended hereto, together with all the buildings and
improvements now existing or which may hereafter be erected or constructed
thereon, of which the MORTGAGOR declares that he/it is the absolute owner,
free from all liens and encumbrances.[10]
On 17 March 1987, respondent presented for negotiation to petitioner drafts
drawn under the letter of credit and the corresponding export documents in
consideration for its drawings in the amounts of US$5,739.76 and
US$4,585.79. Petitioner purchased the drafts and export documents by paying
respondent the peso equivalent of the drawings. The purchase was subject to
the conditions laid down in two separate undertakings by respondent dated 17
March 1987 and 10 April 1987.[11]
On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that
the Korean buyer refused to pay respondents export documents on account of
typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the
export documents.[12]
Upon learning about the Korean importers non-payment, respondent sent
petitioner a letter dated 27 July 1987, informing the latter that respondent had
brought the matter before the Korea Trade Court and that it was ready to
liquidate its past due account with petitioner. Respondent sent another letter
dated 08 September 1987, reiterating the same assurance. In a letter 05
October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be
returning the export documents on account of the non-acceptance by the
importer.[13]
Petitioner demanded from respondent the payment of the peso equivalent of
the export documents, plus interest and other charges, and also of the other
due and unpaid loans. Due to respondents failure to heed the demand,
petitioner moved for the extrajudicial foreclosure on the real estate mortgage
over respondents properties.
Per petitioners computation, aside from charges for attorneys fees and sheriffs
fees, respondent had a total due and demandable obligation of P573,225.60,
including interest, in six different accounts, namely:
1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06
2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97
3) BDS-001-87 = 61,777.78
4) BDS-030/86 A = 123,555.55
5) BDS-PC-002-/87 = 55,822.91
6) BDS-005/87 = 61,323.33
P573,225.60[14]
The total approved bid price, which included the attorneys fees and sheriff
fees, was pegged at P752,074.63. At the public auction held on 05 January
1988, the Sheriff of Antipolo, Rizal issued a Certificate of Sale in favor of
petitioner as the highest bidder.[15] The certificate of sale was registered on
24 March 1988.[16]
On 12 June 1989, petitioner executed an affidavit of consolidation over the
foreclosed properties after respondent failed to redeem the same. As a result,
the Register of Deeds of Marikina issued new certificates of title in the name of
petitioner.[17]
On 17 November 1989, respondent instituted an action for the annulment of
the extrajudicial foreclosure with prayer for preliminary injunction and
damages against petitioner and the Register of Deeds of Marikina. Docketed as
Civil Case No. 1587-A, the complaint was raffled to Branch 73 of the RTC of
Antipolo, Rizal. The complaint prayed, among others, that the defendants be
enjoined from causing the transfer of ownership over the foreclosed
properties from respondent to petitioner.[18]
On 05 April 1990, petitioner filed a petition for the issuance of a writ of
possession, docketed as LR Case No. 90-787, before the same branch of the
36
RTC of Antipolo, Rizal. The RTC ordered the consolidation of Civil Case No,
1587-A and LR Case No. 90-787.[19]
On 18 December 1997, the RTC rendered a decision upholding the validity of
the extrajudicial foreclosure and ordering the issuance of a writ of possession
in favor of petitioner, to wit:
WHEREFORE, in Case No. 1587-A, the court hereby rules that the foreclosure
of mortgage for the old and new obligations of the plaintiff Excelsa Industries
Corp., which has remained unpaid up to the time of foreclosure by defendant
Producers Bank of the Philippines was valid, legal and in order; In Case No.
787-A, the court hereby orders for the issuance of a writ of possession in favor
of Producers Bank of the Philippines after the properties of Excelsa Industries
Corp., which were foreclosed and consolidated in the name of Producers Bank
of the Philippines under TCT No. 169031, 169032, 169033, 169034 and 169035
of the Register of Deeds of Marikina.
SO ORDERED.[20]
The RTC held that petitioner, whose obligation consisted only of receiving, and
not of collecting, the export proceeds for the purpose of converting into
Philippine currency and remitting the same to respondent, cannot be
considered as respondents agent. The RTC also held that petitioner cannot be
presumed to have received the export proceeds, considering that respondent
executed undertakings warranting that the drafts and accompanying
documents were genuine and accurately represented the facts stated therein
and would be accepted and paid in accordance with their tenor.[21]
Furthermore, the RTC concluded that petitioner had no obligation to return
the export documents and respondent could not expect their return prior to
the payment of the export advances because the drafts and export documents
were the evidence that respondent received export advances from
petitioner.[22]
The RTC also found that by its admission, respondent had other loan
obligations obtained from petitioner which were due and demandable; hence,
petitioner correctly exercised its right to foreclose the real estate mortgage,
which provided that the same secured the payment of not only the loans
already obtained but also the export advances.[23]
Lastly, the RTC found respondent guilty of laches in questioning the
foreclosure sale considering that petitioner made several demands for
payment of respondents outstanding loans as early as July 1987 and that
respondent acknowledged the failure to pay its loans and advances.[24]
The RTC denied respondents motion for reconsideration.[25] Thus, respondent
elevated the matter to the Court of Appeals, reiterating its claim that
petitioner was not only a collection agent but was considered a purchaser of
the export
On 30 May 2001, the Court of Appeals rendered the assailed decision,
reversing the RTCs decision, thus:
WHEREFORE, the appeal is hereby GRANTED. The decision of the trial court
dated December 18, 1997 is REVERSED and SET ASIDE. Accordingly, the
foreclosure of mortgage on the properties of appellant is declared as INVALID.
The issuance of the writ of possession in favor of appellee is ANNULLED. The
following damages are hereby awarded in favor of appellant:
(a) Moral damages in the amount of P100,000.00;
(b) Exemplary damages in the amount of P100,000.00; and
(c) Costs.
SO ORDERED.[26]
The Court of Appeals held that respondent should not be faulted for the
dishonor of the drafts and export documents because the obligation to collect
the export proceeds from Kwang Ju Bank, Ltd. devolved upon petitioner. It
cited the testimony of petitioners manager for the foreign currency
department to the effect that petitioner was respondents agent, being the
only entity authorized under Central Bank Circular No. 491 to collect directly
from the importer the export proceeds on respondents behalf and converting
the same to Philippine currency for remittance to respondent. The appellate
court found that respondent was not authorized and even powerless to collect
from the importer and it appeared that respondent was left at the mercy of
petitioner, which kept the export documents during the time that respondent
attempted to collect payment from the Korean importer.
The Court of Appeals disregarded the RTCs finding that the export documents
were the only evidence of respondents export advances and that petitioner
was justified in refusing to return them. It opined that granting petitioner had
no obligation to return the export documents, the former should have helped
respondent in the collection efforts instead of augmenting respondents
dilemma.
Furthermore, the Court of Appeals found petitioners negligence as the cause
of the refusal by the Korean buyer to pay the export proceeds based on the
following: first, petitioner had a hand in preparing and scrutinizing the export
documents wherein the discrepancies were found; and, second, petitioner
failed to advise respondent about the warning from Kwang Ju Bank, Ltd. that
the export documents would be returned if no explanation regarding the
discrepancies would be made.
The Court of Appeals invalidated the extrajudicial foreclosure of the real estate
mortgage on the ground that the posting and publication of the notice of
extrajudicial foreclosure proceedings did not comply wit
the personal notice requirement under paragraph 12[27] of the real estate
mortgage executed between petitioner and respondent. The Court of Appeals
also overturned the RTCs finding that respondent was guilty of estoppel by
laches in questioning the extrajudicial foreclosure sale.
Petitioners motion for reconsideration[28] was denied in a Resolution dated
29 January 2002. Hence, the instant petition, arguing that the Court of Appeals
erred in finding petitioner as respondents agent, which was liable for the
discrepancies in the export documents, in invalidating the foreclosure sale and
in declaring that respondent was not estopped from questioning the
foreclosure sale.[29]
The validity of the extrajudicial foreclosure of the mortgage is dependent on
the following issues posed by petitioner: (1) the coverage of the blanket
mortgage clause; (2) petitioners failure to furnish personal notice of the
foreclosure to respondent; and (3) petitioners obligation as negotiating bank
under the letter of credit.
Notably, the errors cited by petitioners are factual in nature. Although the
instant case is a petition for review under Rule 45 which, as a general rule, is
limited to reviewing errors of law, findings of fact being conclusive as a matter
of general principle, however, considering the conflict between the factual
findings of the RTC and the Court of Appeals, there is a need to review the
factual issues as an exception to the general rule.[30]
Much of the discussion has revolved around who should be liable for the
dishonor of the draft and export documents. In the two undertakings executed
by respondent as a condition for the negotiation of the drafts, respondent held
itself liable if the drafts were not accepted. The two undertakings signed by
respondent are similarly-worded and contained respondents express
warranties, to wit:
In consideration of your negotiating the above described draft(s), we hereby
warrant that the said draft(s) and accompanying documents thereon are valid,
genuine and accurately represent the facts stated therein, and that such
draft(s) will be accepted and paid in accordance with its/their tenor. We
further undertake and agree, jointly and severally, to defend and hold you free
and harmless from any and all actions, claims and demands whatsoever, and
to pay on demand all damages actual or compensatory including attorneys
fees, costs and other awards or be adjudged to pay, in case of suit, which you
may suffer arising from, by reason, or on account of your negotiating the
above draft(s) because of the following discrepancies or reasons or any other
discrepancy or reason whatever.
We hereby undertake to pay on demand the full amount of the above draft(s)
or any unpaid balance thereof, the Philippine perso equivalent converted at
the prevailing selling rate (or selling rate prevailing at the date you negotiate
37
our draft, whichever is higher) allowed by the Central Bank with interest at the
rate prevailing today from the date of negotiation, plus all charges and
expenses whatsoever incurred in connection therewith. You shall neither be
obliged to contest or dispute any refusal to accept or to pay the whole or any
part of the above draft(s), nor proceed in any way against the drawee, the
issuing bank or any endorser thereof, before making a demand on us for the
payment of the whole or any unpaid balance of the draft(s).(Emphasis
supplied)[31]
In Velasquez v. Solidbank Corporation,[32] where the drawer therein also
executed a separate letter of undertaking in consideration for the banks
negotiation of its sight drafts, the Court held that the drawer can still be made
liable under the letter of undertaking even if he is discharged due to the banks
failure to protest the non-acceptance of the drafts. The Court explained, thus:
Petitioner, however, can still be made liable under the letter of undertaking. It
bears stressing that it is a separate contract from the sight draft. The liability of
petitioner under the letter of undertaking is direct and primary. It is
independent from his liability under the sight draft. Liability subsists on it even
if the sight draft was dishonored for non-acceptance or non-payment.
Respondent agreed to purchase the draft and credit petitioner its value upon
the undertaking that he will reimburse the amount in case the sight draft is
dishonored. The bank would certainly not have agreed to grant petitioner an
advance export payment were it not for the letter of undertaking. The
consideration for the letter of undertaking was petitioners promise to pay
respondent the value of the sight draft if it was dishonored for any reason by
the Bank of Seoul.[33]
Thus, notwithstanding petitioners alleged failure to comply with the
requirements of notice of dishonor and protest under Sections 89[34] and
152,[35] respectively, of the Negotiable Instruments Law, respondent may not
escape its liability under the separate undertakings, where respondent
promised to pay on demand the full amount of the drafts.
The next question, therefore, is whether the real estate mortgage also served
as security for respondents drafts that were not accepted and paid by the
Kwang Ju Bank, Ltd.
Respondent executed a real estate mortgage containing a blanket mortgage
clause, also known as a dragnet clause. It has been settled in a long line of
decisions that mortgages given to secure future advancements are valid and
legal contracts, and the amounts named as consideration in said contracts do
not limit the amount for which the mortgage may stand as security if from the
four corners of the instrument the intent to secure future and other
indebtedness can be gathered.[36]
Petitioner, on the other hand, claims that under paragraph 12[39] of the real
estate mortgage, personal notice of the foreclosure sale is not a requirement
to the validity of the foreclosure sale.
A perusal of the records of the case shows that a notice of sheriffs sale[40] was
sent by registered mail to respondent and received in due course.[41] Yet,
respondent claims that it did not receive the notice but only learned about it
from petitioner. In any event, paragraph 12 of the real estate mortgage
requires petitioner merely to furnish respondent with the notice and does not
oblige petitioner to ensure that respondent actually receives the notice. On
this score, the Court holds that petitioner has performed its obligation under
paragraph 12 of the real estate mortgage.
As regards the issue of whether respondent may still question the foreclosure
sale, the RTC held that the sale was conducted according to the legal
procedure, to wit:
Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty of
laches and cannot at this point in time question the foreclosure of the subject
properties. Defendant bank made demands against the plaintiff for the
payment of plaintiffs outstanding loans and advances with the defendant as
early as July 1997. Plaintiff acknowledged such outstanding loans and
advances to the defendant bank and committed to liquidate the same. For
failure of the plaintiff to pay its obligations on maturity, defendant bank
foreclosed the mortgage on subject properties on January 5, 1988 the
certificate of sale was annotated on March 24, 1988 and there being no
redemption made by the plaintiff, title to said properties were consolidated in
the name of defendant in July 1989. Undeniably, subject foreclosure was done
in accordance with the prescribed rules as may be borne out by the exhibits
submitted to this Court which are Exhibit 33, a notice of extrajudicial sale
executed by the Sheriff of Antipolo, Exhibit 34 certificate posting of
extrajudicial sale, Exhibit 35 return card evidencing receipt by plaintiff of the
notice of extrajudicial sale and Exhibit 21 affidavit of publication.
The Court adopts and approves the aforequoted findings by the RTC, the same
being fully supported by the evidence on record.
WHEREFORE, the instant petition for review on certiorari is GRANTED and the
decision and resolution of the Court of Appeals in CA-G.R. CV No. 59931 are
REVERSED and SET ASIDE. The decision of the Regional Trial Court Branch 73,
Antipolo, Rizal in Civil Case No. 1587-A and LR Case No. 90-787 is REINSTATED.
SO ORDERED.

In Union Bank of the Philippines v. Court of Appeals,[37] the nature of a

dragnet clause was explained, thus:

Is one which is specifically phrased to subsume all debts of past and future
origins. Such clauses are carefully scrutinized and strictly construed. Mortgages
of this character enable the parties to provide continuous dealings, the nature
or extent of which may not be known or anticipated at the time, and they
avoid the expense and inconvenience of executing a new security on each new
transaction. A dragnet clause operates as a convenience and accommodation
to the borrowers as it makes available additional funds without their

having to execute additional security documents, thereby saving time, travel,

loan closing costs, costs of extra legal services, recording fees, et cetera.[38]

Petitioner, therefore, was not precluded from seeking the foreclosure of the
real estate mortgage based on the unpaid drafts drawn by respondent. In any
case, respondent had admitted that aside from the unpaid drafts, respondent
also had due and demandable loans secured from another account as
evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-
002-/87 and BDS-005/87.

However, the Court of Appeals invalidated the extrajudicial foreclosure of the

mortgage on the ground that petitioner had failed to furnish respondent
personal notice of the sale contrary to the stipulation in the real estate
mortgage.

38
SECOND DIVISION
G.R. No. 173171 July 11, 2012
PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO), Petitioner,
vs.
NEW DAGUPAN METRO GAS CORPORATION, PURITA E. PERALTA and
PATRICIA P. GALANG, Respondents.
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court, assailing the
Decision1 dated September 29, 2005 and Resolution2 dated June 9, 2006 of
the Court of Appeals (CA) in CA-G.R. CV No. 59590.
In the assailed Decision, the CA Affirmed the Decision3 dated January 28, 1998
of the Regional Trial Court (RTC), Branch 42 of Dagupan City in Civil Case No.
94-00200-D, ordering petitioner Philippine Charity Sweepstakes Office (PCSO)
to surrender the owner’s duplicate of Transfer
Certificate of Title (TCT) No. 52135 to the Register of Deeds of Dagupan City
for cancellation and issuance of a new certificate of title in the name of
respondent New Dagupan Metro Gas Corporation (New Dagupan).
In its Resolution4 dated June 9, 2006, the CA denied PCSO’s motion for
reconsideration.
The Factual Antecedents
Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of
land located at Bonuan Blue Beach Subdivision, Dagupan City under TCT No.
52135. On March 8, 1989, a real estate mortgage was constituted over such
property in favor of PCSO to secure the payment of the sweepstakes tickets
purchased by one of its provincial distributors, Patricia P. Galang (Galang). The
salient provisions of the Deed of Undertaking with First Real Estate
Mortgage,5 where Galang, PCSO and Peralta were respectively designated as
"principal", "mortgagee" and "mortgagor", are as follows:
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
THOUSAND (P450,000.00), representing the balance of his/her accountabilities
for all draws;
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days
after each draw with interest at the rate of 14% per annum.
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that
the said balance shall bear interest thereon at the rate of 14% per annum;
To secure the faithful compliance and as security to the obligation of the
PRINCIPAL stated in the next preceding paragraph hereof, the MORTGAGOR
hereby convey unto and in favor of the MORTGAGEE, its successor and assigns
by way of its first real estate mortgage, a parcel/s of land together with all the
improvements now or hereafter existing thereon located at BOQUIG,
DAGUPAN CITY, covered by TCT No. 52135, of the Register of Deeds of
DAGUPAN CITY, and more particularly described as follows:
xxxx
4. During the lifetime of this mortgage, the MORTGAGOR shall not alienate,
sell, or in any manner dispose of or encumber the above-mentioned property,
without the prior written consent of the MORTGAGEE;
xxxx
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above undertaking is
considered terminated.6
On July 31, 1990, Peralta sold, under a conditional sale, the subject property to
New Dagupan, the conveyance to be absolute upon the latter’s full payment of
the price of P800,000.00. New Dagupan obliged to pay Peralta P200,000.00
upon the execution of the corresponding deed and the balance of P600,000.00
by monthly instalments of P70,000.00, the first instalment falling due on
August 31, 1990. Peralta showed to New Dagupan a photocopy of TCT No.
52135, which bore no liens and encumbrances, and undertook to deliver the
owner’s duplicate within three (3) months from the execution of the
contract.7
New Dagupan withheld payment of the last instalment, which was intended to
cover the payment of the capital gains tax, in view of Peralta’s failure to
deliver the owner’s duplicate of TCT No. 52135 and to execute a deed of
absolute sale in its favor. Further, New Dagupan, through its President, Julian
Ong Cuña (Cuña), executed an affidavit of adverse claim, which was annotated
on TCT No. 52135 on October 1, 1991 as Entry No. 14826.8
In view of Peralta’s continued failure to deliver a deed of absolute sale and the
owner’s duplicate of the title, New Dagupan filed a complaint for specific
performance against her with the RTC on February 28, 1992. New Dagupan’s
complaint was raffled to Branch 43 and docketed as Civil Case No. D-10160.
On May 20, 1992, during the pendency of New Dagupan’s complaint against
Peralta, PCSO caused the registration of the mortgage.9
On February 10, 1993, PCSO filed an application for the extrajudicial
foreclosure sale of the subject property in view of Galang’s failure to fully pay
the sweepstakes she purchased in 1992.10 A public auction took place on June
15, 1993 where PCSO was the highest bidder. A certificate of sale was
correspondingly issued to PCSO.11
The certified true copy of TCT No. 52135 that New Dagupan obtained from the
Register of Deeds of Dagupan City for its use in Civil Case No. D-10160
reflected PCSO’s mortgage lien. New Dagupan, claiming that it is only then that
it was informed of the subject mortgage, sent a letter to PCSO on October 28,
1993, notifying the latter of its complaint against Peralta and its claim over the
subject property and suggesting that PCSO intervene and participate in the
case.
On January 21, 1994, the RTC Branch 43 rendered a Decision, approving the
compromise agreement between Peralta and New Dagupan. Some of the
stipulations made are as follows:
3. For her failure to execute, sign and deliver a Deed of Absolute Sale to
plaintiff by way of transferring TCT No. 52135 in the name of the latter,
defendant hereby waives and quitclaims the remaining balance of the
purchase price in the amount of P60,000.00 in favor of the plaintiff, it being
understood that the said amount shall be treated as a penalty for such failure;
xxxx
6. Upon the signing of this compromise agreement, possession and ownership
of the above described property, together with all the improvements existing
thereon, are hereby vested absolutely upon, and transferred to the plaintiff
whom the defendant hereby declares and acknowledges to be the absolute
owner thereof, now and hereafter;
7. This compromise agreement shall be without prejudice to whatever rights
and remedies, if any, that the Philippine Charity Sweepstakes Office has
against the herein defendant and Patricia P. Galang under the Deed of
Undertaking adverted to under par. 2(f) hereof.12
As the RTC Branch 43 Decision dated January 21, 1994 became final and
executory, New Dagupan once again demanded Peralta’s delivery of the
owner’s duplicate of TCT No. 52135. Also, in a letter dated March 29, 1994,
New Dagupan made a similar demand from PCSO, who in response, stated
that it had already foreclosed the mortgage on the subject property and it has
in its name a certificate of sale for being the highest bidder in the public
auction that took place on June 15, 1993.
Thus, on June 1, 1994, New Dagupan filed with the RTC a petition against PCSO
for the annulment of TCT No. 52135 or surrender of the owner’s duplicate
39
thereof.13 The petition was docketed as Civil Case No. 94-00200-D and raffled
to Branch 43.
In an Answer14 dated March 7, 1995, PCSO alleged that: (a) New Dagupan was
a buyer in bad faith; (b) New Dagupan and Peralta colluded to deprive PCSO of
its rights under the subject mortgage; (c) New Dagupan is estopped from
questioning the superior right of PCSO to the subject property when it entered
into the compromise agreement subject of the RTC Branch 43 Decision dated
January 21, 1994; and (d) New Dagupan is bound by the foreclosure
proceedings where PCSO obtained title to the subject property.
In a Motion for Leave to File Third-Party Complaint15 dated April 17, 1995,
PCSO sought the inclusion of Peralta and Galang who are allegedly
indispensable parties. In its Third-Party Complaint,16 PCSO reiterated its
allegations in its Answer dated March 7, 1995 and made the further claim that
the sale of the subject property to New Dagupan is void for being expressly
prohibited under the Deed of Undertaking with First Real Estate Mortgage.
In their Answer to Third-Party Complaint with Counterclaims17 dated January
2, 1996, Peralta and Galang claimed that: (a) the provision in the Deed of
Undertaking with First Real Estate Mortgage prohibiting the sale of the subject
property is void under Article 2130 of the Civil Code; (b) PCSO’s failure to
intervene in Civil Case No. D-10160 despite notice barred it from questioning
the sale of the subject property to New Dagupan and the compromise
agreement approved by the RTC Branch 43; (c) it was due to PCSO’s very own
neglect in registering its mortgage lien that preference is accorded to New
Dagupan’s rights as a buyer of the subject property; and (d) PCSO no longer
has any cause of action against them following its decision to foreclose the
subject mortgage.
On March 6, 1996, Civil Case No. 94-00200-D was transferred to Branch 42,
after the presiding judge of Branch 43 inhibited himself.
On January 28, 1998, the RTC Branch 42 rendered a Decision18 in New
Dagupan’s favor, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the petitioner and
against the defendant, ordering PCSO to deliver the owner’s duplicate copy of
TCT No. 52135 in its possession to the Registry of Deeds of Dagupan City for
the purpose of having the decision in favor of the petitioner annotated at the
back thereof. Should said defendant fail to deliver the said title within 30 days
from the date this decision becomes final and executory, the said owner’s
duplicate certificate of title is hereby cancelled and the Register of Deeds can
issue a new one carrying all the encumbrances of the original owner’s
duplicate subject of this case. Further, the defendant is ordered to pay to
petitioner the sum of Ten Thousand Pesos (P10,000.00) as attorney’s fees. It is
also ordered to pay costs.
SO ORDERED.19
The RTC Branch 42 ruled that New Dagupan is a buyer in good faith,
ratiocinating that:
In other words, the evidence of the petitioner would show that although the
Deed of Undertaking with First Real Estate Mortgage was executed on March
8, 1989 its annotation was made long after the conditional sale in favor of the
petitioner was executed and annotated at the back of the title in question.
Because of the said exhibits, petitioner contended that it was a buyer in good
faith and for value.
Defendant, to controvert the aforementioned evidence of the plaintiff, alleged
that Exhibits C, C-1 to C-1-C was contrary to the testimony of Mr. Julian Ong
Cuña to the effect that when defendants sold the property to petitioner only
the xerox copy of the title was shown and petitioner should have verified the
original as it was a buyer in bad faith. Defendant also alleged that the decision
in Civil Case D-10160 dated January 21, 1994 would show that there was a
collusion between the petitioner and the third-party defendants.
The Court cannot go along with the reasoning of the defendant because what
was shown to Mr. Cuña by the third-party defendants was Exhibit "C" which
did not carry any encumbrance at the back of the subject title and the
annotation made on May 20, 1992 in favor of the PCSO. Mr. Cuña verified the
title x x x but the encumbrance on the title was not still there at [that] time.
One thing more, there was nothing indicated in the decision in Civil Case No.
D-10160 that petitioner already knew that there was already a mortgage in
favor of the PCSO. Worst, defendant did not even introduce any oral evidence
to show that petitioner was in bad faith except the manifestations of counsel.
Unfortunately, manifestations could not be considered evidence.
xxxx
Defendant should not be allowed to profit from its negligence of not
registering the Deed of Undertaking with First Real Estate Mortgage in its
favor.20
Also, the RTC Branch 42 ruled that the prohibition on the sale of the subject
property is void. Specifically:
Suffice it to say that there is no law prohibiting a mortgagor from encumbering
or alienating the property mortgaged. On the contrary, there is a law
prohibiting an agreement forbidding the owner from alienating a mortgaged
property. We are referring to Article 2130 of the New Civil Code which
provides as follows:
"A stipulation forbidding the owner from alienating the immovable mortgage
shall be void."21
Moreover, the RTC Branch 42 ruled that PCSO had no right to foreclose the
subject mortgage as the land in question had already been disencumbered
after Galang’s full payment of all the sweepstakes tickets she purchased in
1989 and 1990.
It should be recalled that Amparo Abrigo, OIC Chief of the Credit Accounts
Division of the PCSO, admitted not only once but twice that Patricia Galang has
no more liability with the PCSO for the years 1989 and 1990 x x x. Another
witness, Carlos Castillo who is the OIC of the Sales Department of the PCSO,
joined Amparo Abrigo in saying that Patricia Galang has already paid her
liability with the PCSO for the years 1989 and 1990 x x x. Thus, the undertaking
was already discharged. Both of the said witnesses of the PCSO alleged that
the undertaking has been re-used by Patricia Galang for the years 1991 to
1992 yet there is no proof whatsoever showing that Purita Peralta consented
to the use of the undertaking by Patricia Galang for 1991 to 1992. Incidentally,
it is not far-fetched to say that Purita Peralta might have thought that the
undertaking was already discharged which was the reason she executed the
Deed of Conditional Sale x x x in favor of petitioner in 1990. That being the
case, the foreclosure sale in favor of the PCSO has no legal leg to stand as the
Deed of Undertaking with First Real Estate Mortgage has already been
discharged before the foreclosure sale was conducted.22
According to the RTC Branch 42, the intent to use the subject property as
security for Galang’s purchases for the years after 1989, as PCSO claimed, is
not clear from the Deed of Undertaking with First Real Estate Mortgage:
Was it not provided in the deed that the undertaking would be for "all draws".
That might be true but the terms of the Contract should be understood to
mean only to cover the draws relative to the current liabilities of Patricia
Galang at the time of the execution of the undertaking in 1989. It could have
not been agreed upon that it should also cover her liability for 1991 up to 1992
because if that was the intention of the parties, the undertaking should have
so provided expressly. The term of the undertaking with respect to the period
was ambiguous but any ambiguity in the Contract should be resolved against
PCSO because the form used was a standard form of the defendant and it
appeared that it was its lawyers who prepared it, therefore, it was the latter
which caused the ambiguity.23
PCSO’s appeal from the foregoing adverse decision was dismissed. By way of
its assailed decision, the CA did not agree with PCSO’s claim that the subject
mortgage is in the nature of a continuing guaranty, holding that Peralta’s
undertaking to secure Galang’s liability to PCSO is only for a period of one year
and was extinguished when Peralta completed payment on the sweepstakes
tickets she purchased in 1989.
The instant appeal must fail. There is nothing in the Deed of Undertaking with
First Real Estate Mortgage, expressly or impliedly, that would indicate that
Peralta agreed to let her property be burdened as long as the contract of
undertaking with real estate mortgage was not cancelled or revoked. x x x
40
xxxx
A perusal of the deed of undertaking between the PCSO and Peralta would
reveal nothing but the undertaking of Peralta to guarantee the payment of the
pre-existing obligation of Galang, constituting the unpaid sweepstakes tickets
issued to the latter before the deed of undertaking was executed, with the
PCSO in the amount of P450,000.00. No words were added therein to show
the intention of the parties to regard it as a contract of continuing guaranty. In
other jurisdictions, it has been held that the use of the particular words and
expressions such as payment of "any debt", "any indebtedness", "any
deficiency", or "any sum", or the guaranty of "any transaction" or money to be
furnished the principal debtor "at any time", or "on such time" that the
principal debtor may require, have been construed to indicate a continuing
guaranty. Similar phrases or words of the same import or tenor are not extant
in the deed of undertaking. The deed of undertaking states:
"WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
THOUSAND (P450,000.00), representing the balance of his/her ticket
accountabilities for all draws."
xxxx
Upon full payment of the principal obligation, which from the testimonies of
the officers of the PCSO had been paid as early as 1990, the subsidiary contract
of guaranty was automatically terminated. The parties have not executed
another contract of guaranty to secure the subsequent obligations of Galang
for the tickets issued thereafter. It must be noted that a contract of guaranty is
not presumed; it must be express and cannot extend to more than what is
stipulated therein.
xxxx
The arguments of PCSO fail to persuade us. The phrase "for all draws" is
limited to the draws covered by the original transaction. In its pleadings, the
PCSO asserted that the contract of undertaking was renewed and the
collateral was re-used by Galang to obtain again tickets from the PCSO after
she had settled her account under the original contract. From such admission,
it is thus clear that the contract is not in the nature of a continuing guaranty.
For a contract of continuing guaranty is not renewed as it is understood to be
of a continuing nature without the necessity of renewing the same every time
a new transaction contemplated under the original contract is entered into. x x
x 24 (Citations omitted)
In this petition, PCSO claims that the CA erred in holding that the subject
mortgage had been extinguished by Galang’s payment of P450,000.00,
representing the amount of the sweepstakes tickets she purchased in 1989.
According to PCSO, the said amount is actually the credit line granted to
Galang and the phrase "all draws" refers to her ticket purchases for
subsequent years drawn against such credit line. Consequently, PCSO posits,
the subject mortgage had not been extinguished by Peralta’s payment of her
ticket purchases in 1989 and its coverage extends to her purchases after 1989,
which she made against the credit line that was granted to her. That when
Galang failed to pay her ticket purchases in 1992, PCSO’s right to foreclose the
subject mortgage arose.
PCSO also maintains that its rights over the subject property are superior to
those of New Dagupan. Considering that the contract between New Dagupan
is a conditional sale, there was no conveyance of ownership at the time of the
execution thereof on July 31, 1989. It was only on January 21, 1994, or when
the RTC Branch 43 approved the compromise agreement, that a supposed
transfer of title between Peralta and New Dagupan took place. However, since
PCSO had earlier foreclosed the subject mortgage and obtained title to the
subject property as evidenced by the certificate of sale dated June 15, 1993,
Peralta had nothing to cede or assign to New Dagupan.
PCSO likewise attributes bad faith to New Dagupan, claiming that Peralta’s
presentation of a mere photocopy of TCT No. 52135, albeit without any
annotation of a lien or encumbrance, sufficed to raise reasonable suspicions
against Peralta’s claim of a clean title and should have prompted it to conduct
an investigation that went beyond the face of TCT No. 52135.
PCSO even assails the validity of the subject sale for being against the
prohibition contained in the Deed of Undertaking with First Real Estate
Mortgage.
New Dagupan, in its Comment,25 avers that it was a purchaser in good faith
and it has a superior right to the subject property, considering that PCSO’s
mortgage lien was annotated only on May 20, 1992 or long after the execution
of the conditional sale on July 31, 1990 and the annotation of New Dagupan’s
adverse claim on October 1, 1991. While the subject mortgage antedated the
subject sale, PCSO was already aware of the latter at the time of its belated
registration of its mortgage lien. PCSO’s registration was therefore in bad faith,
rendering its claim over the subject property defeasible by New Dagupan’s
adverse claim.
New Dagupan also claims that the subject property had already been
discharged from the mortgage, hence, PCSO had nothing to foreclose when it
filed its application for extra-judicial foreclosure on February 10, 1993. The
subject mortgage was intended to secure Galang’s ticket purchases that were
outstanding at the time of the execution of the same, the amount of which has
been specified to be P450,000.00 and does not extend to Galang’s future
purchases. Thus, upon Galang’s full payment of P450,000.00, which PCSO
admits, the subject mortgage had been automatically terminated as expressly
provided under Section 15 of the Deed of Undertaking with First Real Estate
Mortgage quoted above.
Issue
The rise and fall of this recourse is dependent on the resolution of the issue
who between New Dagupan and PCSO has a better right to the property in
question.
Our Ruling
PCSO is undeterred by the denial of its appeal to the CA and now seeks to
convince this Court that it has a superior right over the subject property.
However, PCSO’s resolve fails to move this Court and the ineluctability of the
denial of this petition is owing to the following:
a. At the time of PCSO’s registration of its mortgage lien on May 20, 1992, the
subject mortgage had already been discharged by Galang’s full payment of
P450,000.00, the amount specified in the Deed of Undertaking with First Real
Estate Mortgage;
b. There is nothing in the Deed of Undertaking with First Real Estate Mortgage
that would indicate that it is a continuing security or that there is an intent to
secure Galang’s future debts;
c. Assuming the contrary, New Dagupan is not bound by PCSO’s mortgage lien
and was a purchaser in good faith and for value; and
d. While the subject mortgage predated the sale of the subject property to
New Dagupan, the absence of any evidence that the latter had knowledge of
PCSO’s mortgage lien at the time of the sale and its prior registration of an
adverse claim created a preference in its favor.
I
As a general rule, a mortgage liability is usually limited to the amount
mentioned in the contract. However, the amounts named as consideration in a
contract of mortgage do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered.26
Alternatively, while a real estate mortgage may exceptionally secure future
loans or advancements, these future debts must be specifically described in
the mortgage contract. An obligation is not secured by a mortgage unless it
comes fairly within the terms of the mortgage contract.27
The stipulation extending the coverage of a mortgage to advances or loans
other than those already obtained or specified in the contract is valid and has
been commonly referred to as a "blanket mortgage" or "dragnet" clause. In
Prudential Bank v. Alviar,28 this Court elucidated on the nature and purpose of
such a clause as follows:
41
A "blanket mortgage clause," also known as a "dragnet clause" in American
jurisprudence, is one which is specifically phrased to subsume all debts of past
or future origins. Such clauses are "carefully scrutinized and strictly
construed." Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A "dragnet clause" operates
as a convenience and accommodation to the borrowers as it makes available
additional funds without their having to execute additional security
documents, thereby saving time, travel, loan closing costs, costs of extra legal
services, recording fees, et cetera. x x x.29(Citations omitted)
A mortgage that provides for a dragnet clause is in the nature of a continuing
guaranty and constitutes an exception to the rule than an action to foreclose a
mortgage must be limited to the amount mentioned in the mortgage contract.
Its validity is anchored on Article 2053 of the Civil Code and is not limited to a
single transaction, but contemplates a future course of dealing, covering a
series of transactions, generally for an indefinite time or until revoked. It is
prospective in its operation and is generally intended to provide security with
respect to future transactions within certain limits, and contemplates a
succession of liabilities, for which, as they accrue, the guarantor becomes
liable. In other words, a continuing guaranty is one that covers all transactions,
including those arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or termination
thereof.30
In this case, PCSO claims the subject mortgage is a continuing guaranty.
According to PCSO, the intent was to secure Galang’s ticket purchases other
than those outstanding at the time of the execution of the Deed of
Undertaking with First Real Estate Mortgage on March 8, 1989 such that it can
foreclose the subject mortgage for Galang’s non-payment of her ticket
purchases in 1992. PCSO does not deny and even admits that Galang had
already settled the amount of P450,000.00. However, PCSO refuses to concede
that the subject mortgage had already been discharged, claiming that Galang
had unpaid ticket purchases in 1992 and these are likewise secured as
evidenced by the following clause in the Deed of Undertaking with First Real
Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days
after each draw with interest at the rate of 14% per annum;31
This Court has to disagree with PCSO in view of the principles quoted above. A
reading of the other pertinent clauses of the subject mortgage, not only of the
provision invoked by PCSO, does not show that the security provided in the
subject mortgage is continuing in nature. That the subject mortgage shall only
secure Galang’s liability in the amount of P450,000.00 is evident from the
following:
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
THOUSAND (P450,000.00), representing the balance of his/her ticket
accountabilities for all draws;
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that
the said balance shall bear interest thereon at the rate of 14% per annum;
To secure the faithful compliance and as security to the obligation of the
PRINCIPAL stated in the next preceding paragraph hereof, the MORTGAGOR
hereby convey unto and in favor of the MORTGAGEE, its successor and assigns
by way of its first real estate mortgage, a parcel/s of land together with all the
improvements now or hereafter existing thereon, located at BOQUIG,
DAGUPAN CITY, covered by TCT No. 52135, of the Register of Deeds of
DAGUPAN CITY, and more particularly described as follows:32
As the CA correctly observed, the use of the terms "outstanding" and "unpaid"
militates against PCSO’s claim that future ticket purchases are likewise
secured. That there is a seeming ambiguity between the provision relied upon
by PCSO containing the phrase "after each draw" and the other provisions,
which mention with particularity the amount of P450,000.00 as Galang’s
unpaid and outstanding account and secured by the subject mortgage, should
be construed against PCSO. The subject mortgage is a contract of adhesion as
it was prepared solely by PCSO and the only participation of Galang and
Peralta was the act of affixing their signatures thereto.
Considering that the debt secured had already been fully paid, the subject
mortgage had already been discharged and there is no necessity for any act or
document to be executed for the purpose. As provided in the Deed of
Undertaking with First Real Estate Mortgage:
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above-undertaking is
considered terminated.33
Section 6234 of Presidential Decree (P.D.) No. 1529 appears to require the
execution of an instrument in order for a mortgage to be cancelled or
discharged. However, this rule presupposes that there has been a prior
registration of the mortgage lien prior to its discharge. In this case, the subject
mortgage had already been cancelled or terminated upon Galang’s full
payment before PCSO availed of registration in 1992. As the subject mortgage
was not annotated on TCT No. 52135 at the time it was terminated, there was
no need for Peralta to secure a deed of cancellation in order for such discharge
to be fully effective and duly reflected on the face of her title.
Therefore, since the subject mortgage is not in the nature of a continuing
guaranty and given the automatic termination thereof, PCSO cannot claim that
Galang’s ticket purchases in 1992 are also secured. From the time the amount
of P450,000.00 was fully settled, the subject mortgage had already been
cancelled such that Galang’s subsequent ticket purchases are unsecured.
Simply put, PCSO had nothing to register, much less, foreclose.
Consequently, PCSO’s registration of its non-existent mortgage lien and
subsequent foreclosure of a mortgage that was no longer extant cannot defeat
New Dagupan’s title over the subject property.
II
Sections 51 and 53 of P.D. No. 1529 provide:
Section 51. Conveyance and other dealings by registered owner. An owner of
registered land may convey, mortgage, lease, charge or otherwise deal with
the same in accordance with existing laws. He may use such forms of deeds,
mortgages, leases or other voluntary instrument, except a will purporting to
convey or affect registered land, but shall operate only as a contract between
the parties and as evidence of authority to the Register of Deeds to make
registration.
The act of registration shall be the operative act to convey or affect the land
insofar as third persons are concerned, and in all cases under this Decree, the
registration shall be made in the office of the Register of Deeds for the
province or city where the land lies.
Section 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed or entered in the office of the
Register of Deeds for the province or city where the land to which it relates
lies, be constructive notice to all persons from the time of such registering,
filing or entering.
On the other hand, Article 2125 of the Civil Code states:
Article 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between the
parties.
The persons in whose favor the law establishes a mortgage have no other right
than to demand the execution and the recording of the document in which the
mortgage is formalized.
Construing the foregoing conjunctively, as to third persons, a property
registered under the Torrens system is, for all legal purposes, unencumbered
or remains to be the property of the person in whose name it is registered,
42
notwithstanding the execution of any conveyance, mortgage, lease, lien, order
or judgment unless the corresponding deed is registered.
The law does not require a person dealing with the owner of registered land to
go beyond the certificate of title as he may rely on the notices of the
encumbrances on the property annotated on the certificate of title or absence
of any annotation.35 Registration affords legal protection such that the claim
of an innocent purchaser for value is recognized as valid despite a defect in the
title of the vendor.36
In Cruz v. Bancom Finance Corporation,37 the foregoing principle was applied
as follows:
Second, respondent was already aware that there was an adverse claim and
notice of lis pendens annotated on the Certificate of Title when it registered
the mortgage on March 14, 1980. Unless duly registered, a mortgage does not
affect third parties like herein petitioners, as provided under Section 51 of PD
NO. 1529, which we reproduce hereunder:
xxxx
True, registration is not the operative act for a mortgage to be binding
between the parties. But to third persons, it is indispensible. In the present
case, the adverse claim and the notice of lis pendens were annotated on the
title on October 30, 1979 and December 10, 1979, respectively; the real estate
mortgage over the subject property was registered by respondent only on
March 14, 1980. Settled in this jurisdiction is the doctrine that a prior
registration of a lien creates a preference. Even a subsequent registration of
the prior mortgage will not diminish this preference, which retroacts to the
date of the annotation of the notice of lis pendens and the adverse claim.
Thus, respondent’s failure to register the real estate mortgage prior to these
annotations, resulted in the mortgage being binding only between it and the
mortgagor, Sulit. Petitioners, being third parties to the mortgage, were not
bound by it. Contrary to respondent’s claim that petitioners were in bad faith
because they already had knowledge of the existence of the mortgage in favor
of respondent when they caused the aforesaid annotations, petitioner
Edilberto Cruz said that they only knew of this mortgage when respondent
intervened in the RTC proceedings.38 (Citations omitted)
It is undisputed that it was only on May 20, 1992 that PCSO registered its
mortgage lien. By that time, New Dagupan had already purchased the subject
property, albeit under a conditional sale. In fact, PCSO’s mortgage lien was yet
to be registered at the time New Dagupan filed its adverse claim on October 1,
1991 and its complaint against Peralta for the surrender of the owner’s
duplicate of TCT No. 52135 on February 28, 1992. It was only during the
pendency of Civil Case No. D-10160, or sometime in 1993, that New Dagupan
was informed of PCSO’s mortgage lien. On the other hand, PCSO was already
charged with knowledge of New Dagupan’s adverse claim at the time of the
annotation of the subject mortgage. PCSO’s attempt to conceal these damning
facts is palpable. However, they are patent from the records such that there is
no gainsaying that New Dagupan is a purchaser in good faith and for value and
is not bound by PCSO’s mortgage lien.
A purchaser in good faith and for value is one who buys property of another,
without notice that some other person has a right to, or interest in, such
property, and pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some other
person in the property.39 Good faith is the opposite of fraud and of bad faith,
and its non-existence must be established by competent proof.40 Sans such
proof, a buyer is deemed to be in good faith and his interest in the subject
property will not be disturbed. A purchaser of a registered property can rely
on the guarantee afforded by pertinent laws on registration that he can take
and hold it free from any and all prior liens and claims except those set forth in
or preserved against the certificate of title.41
This Court cannot give credence to PCSO’s claim to the contrary. PCSO did not
present evidence, showing that New Dagupan had knowledge of the mortgage
despite its being unregistered at the time the subject sale was entered into.
Peralta, in the compromise agreement, even admitted that she did not inform
New Dagupan of the subject mortgage.42 PCSO’s only basis for claiming that
New Dagupan was a buyer in bad faith was the latter’s reliance on a mere
photocopy of TCT No. 52135. However, apart from the fact that the facsimile
bore no annotation of a lien or encumbrance, PCSO failed to refute the
testimony of Cuña that his verification of TCT No. 52135 with the Register of
Deeds of Dagupan City confirmed Peralta’s claim of a clean title.
Since PCSO had notice of New Dagupan’s adverse claim prior to the
registration of its mortgage lien, it is bound thereby and thus legally compelled
to respect the proceedings on the validity of such adverse claim. It is therefore
of no moment if PCSO’s foreclosure of the subject mortgage and purchase of
the subject property at the auction sale took place prior to New Dagupan’s
acquisition of title as decreed in the Decision dated January 21, 1994 of RTC
Branch 43. The effects of a foreclosure sale retroact to the date the mortgage
was registered.43 Hence, while PCSO may be deemed to have acquired title
over the subject property on May 20, 1992, such title is rendered inferior by
New Dagupan’s adverse claim, the validity of which was confirmed per the
Decision dated January 21, 1994 of RTC Branch 43.
Otherwise, if PCSO’s mortgage lien is allowed to prevail by the mere
expediency of registration over an adverse claim that was registered ahead of
time, the object of an adverse claim – to apprise third persons that any
transaction regarding the disputed property is subject to the outcome of the
dispute – would be rendered naught. A different conclusion would remove the
primary motivation for the public to rely on and respect the Torrens system of
registration. Such would be inconsistent with the well-settled, even axiomatic,
rule that a person dealing with registered property need not go beyond the
title and is not required to explore outside the four (4) corners thereof in
search for any hidden defect or inchoate right that may turn out to be
superior.
Worthy of extrapolation is the fact that there is no conflict between the
disposition of this case and Garbin v. CA44where this Court decided the
controversy between a buyer with an earlier registered adverse claim and a
subsequent buyer, who is charged with notice of such adverse claim at the
time of the registration of her title, in favor of the latter. As to why the adverse
claim cannot prevail against the rights of the later buyer notwithstanding its
prior registration was discussed by this Court in this wise:
It is undisputed that the adverse claim of private respondents was registered
pursuant to Sec. 110 of Act No. 496, the same having been accomplished by
the filing of a sworn statement with the Register of Deeds of the province
where the property was located. However, what was registered was merely
the adverse claim and not the Deed of Sale, which supposedly conveyed the
northern half portion of the subject property. Therefore, there is still need to
resolve the validity of the adverse claim in separate proceedings, as there is an
absence of registration of the actual conveyance of the portion of land herein
claimed by private respondents.
From the provisions of the law, it is clear that mere registration of an adverse
claim does not make such claim valid, nor is it permanent in character. More
importantly, such registration does not confer instant title of ownership since
judicial determination on the issue of the ownership is still
necessary.45 (Citation omitted)
Apart from the foregoing, the more important consideration was the improper
resort to an adverse claim.1âwphi1 In L.P. Leviste & Co. v. Noblejas,46 this
Court emphasized that the availability of the special remedy of an adverse
claim is subject to the absence of any other statutory provision for the
registration of the claimant’s alleged right or interest in the property. That if
the claimant’s interest is based on a perfected contract of sale or any
voluntary instrument executed by the registered owner of the land, the
procedure that should be followed is that prescribed under Section 51 in
relation to Section 52 of P.D. No. 1529. Specifically, the owner’s duplicate
certificate must be presented to the Register of Deeds for the inscription of
the corresponding memorandum thereon and in the entry day book. It is only
when the owner refuses or fails to surrender the duplicate certificate for
annotation that a statement setting forth an adverse claim may be filed with
the Register of Deeds. Otherwise, the adverse claim filed will not have the
effect of a conveyance of any right or interest on the disputed property that
could prejudice the rights that have been subsequently acquired by third
persons.
What transpired in Gabin is similar to that in Leviste. In Gabin, the basis of the
claim on the property is a deed of absolute sale. In Leviste, what is involved is
a contract to sell. Both are voluntary instruments that should have been
43
registered in accordance with Sections 51 and 52 of P.D. No. 1529 as there was
no showing of an inability to present the owner’s duplicate of title.

It is patent that the contrary appears in this case. Indeed, New Dagupan’s
claim over the subject property is based on a conditional sale, which is likewise
a voluntary instrument. However, New Dagupan’s use of the adverse claim to
protect its rights is far from being incongruent in view of the undisputed fact
that Peralta failed to surrender the owner’s duplicate of TCT No. 52135 despite
demands.

Moreover, while the validity of the adverse claim in Gabin is not established as
there was no separate proceeding instituted that would determine the
existence and due execution of the deed of sale upon which it is founded, the
same does not obtain in this case. The existence and due execution of the
conditional sale and Peralta’s absolute and complete cession of her title over
the subject property to New Dagupan are undisputed. These are matters
covered by the Decision dated January 21, 1994 of RTC Branch 43, which had
long become final and executory.

At any rate, in Sajonas v.CA,47 this Court clarified that there is no necessity for
a prior judicial determination of the validity of an adverse claim for it to be
considered a flaw in the vendor’s title as that would be repugnant to the very
purpose thereof.48

WHEREFORE, premises considered, the petition is DISMISSED and the Decision

dated September 29, 2005 and Resolution dated June9, 2006 of the Court of
Appeals in CA-G.R. CV No. 59590 are hereby AFFIRMED.

SO ORDERED.

44

SECOND DIVISION
PRUDENTIAL BANK, G.R. No. 150197
- versus -
DON A. ALVIAR and GEORGIA
B. ALVIAR,
July 28, 2005
x-------------------------------------------------------------------x
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court. Petitioner Prudential Bank seeks the reversal of the Decision[1]of the
Court of Appeals dated 27 September 2001 in CA-G.R. CV No. 59543 affirming
the Decision of the Regional Trial Court (RTC) of Pasig City, Branch 160, in favor
of respondents.
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered
owners of a parcel of land in San Juan, Metro Manila, covered by Transfer
Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal. On 10
July 1975, they executed a deed of real estate mortgage in favor of petitioner
Prudential Bank to secure the payment of a loan worth P250,000.00.[2] This
mortgage was annotated at the back of TCT No. 438157. On 4 August 1975,
respondents executed the corresponding promissory note, PN BD#75/C-252,
covering the said loan, which provides that the loan matured on 4 August 1976
at an interest rate of 12% per annum with a 2% service charge, and that the
note is secured by a real estate mortgage as aforementioned.[3] Significantly,
the real estate mortgage contained the following clause:
That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may hereafter
be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty
Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest
and expenses or any other obligation owing to the Mortgagee, whether direct
or indirect, principal or secondary as appears in the accounts, books and
records of the Mortgagee, the Mortgagor does hereby transfer and convey by
way of mortgage unto the Mortgagee, its successors or assigns, the parcels of
land which are described in the list inserted on the back of this document,
and/or appended hereto, together with all the buildings and improvements
now existing or which may hereafter be erected or constructed thereon, of
which the Mortgagor declares that he/it is the absolute owner free from all
liens and incumbrances. . . .[4]
On 22 October 1976, Don Alviar executed another promissory note, PN
BD#76/C-345 for P2,640,000.00, secured by D/A SFDX #129, signifying that the
loan was secured by a hold-out on the mortgagors foreign currency savings
account with the bank under Account No. 129, and that the mortgagors
passbook is to be surrendered to the bank until the amount secured by the
hold-out is settled.[5]
On 27 December 1976, respondent spouses executed for Donalco Trading,
Inc., of which the husband and wife were President and Chairman of the Board
and Vice President,[6] respectively, PN BD#76/C-430 covering P545,000.000.
As provided in the note, the loan is secured by Clean-Phase out TOD CA 3923,
which means that the temporary overdraft incurred by Donalco Trading, Inc.
with petitioner is to be converted into an ordinary loan in compliance with a
Central Bank circular directing the discontinuance of overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter
of its approval of a straight loan of P545,000.00, the proceeds of which shall be
used to liquidate the outstanding loan of P545,000.00 TOD. The letter likewise
mentioned that the securities for the loan were the deed of assignment on
two promissory notes executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on
various heavy and transportation equipment.[8]
On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied
to the obligations of G.B. Alviar Realty and Development, Inc. and for the
release of the real estate mortgage for the P450,000.00 loan covering the two
(2) lots located at Vam Buren and Madison Streets, North Greenhills, San Juan,
Metro Manila. The payment was acknowledged by petitioner who accordingly
released the mortgage over the two properties.[9]
On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the
mortgage on the property covered by TCT No. 438157. Per petitioners
computation, respondents had the total obligation of P1,608,256.68, covering
the three (3) promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN
BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus
assessed past due interests and penalty charges. The public auction sale of the
mortgaged property was set on 15 January 1980.[10]
Respondents filed a complaint for damages with a prayer for the issuance of a
writ of preliminary injunction with the RTC of Pasig,[11] claiming that they
have paid their principal loan secured by the mortgaged property, and thus the
mortgage should not be foreclosed. For its part, petitioner averred that the
payment of P2,000,000.00 made on 6 March 1979 was not a payment made by
respondents, but by G.B. Alviar Realty and Development Inc., which has a
separate loan with the bank secured by a separate mortgage.[12]
On 15 March 1994, the trial court dismissed the complaint and ordered the
Sheriff to proceed with the extra-judicial foreclosure.[13]Respondents sought
reconsideration of the decision.[14] On 24 August 1994, the trial court issued
an Order setting aside its earlier decision and awarded attorneys fees to
respondents.[15] It found that only the P250,000.00 loan is secured by the
mortgage on the land covered by TCT No. 438157. On the other hand,
the P382,680.83 loan is secured by the foreign currency deposit account of
Don A. Alviar, while the P545,000.00 obligation was an unsecured loan, being a
mere conversion of the temporary overdraft of Donalco Trading, Inc. in
compliance with a Central Bank circular. According to the trial court, the
blanket mortgage clause relied upon by petitioner applies only to future loans
obtained by the mortgagors, and not by parties other than the said
mortgagors, such as Donalco Trading, Inc., for which respondents merely
signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the following assignment
of errors:
I. The trial court erred in holding that the real estate mortgage
covers only the promissory note BD#75/C-252 for the sum of P250,000.00.
II. The trial court erred in holding that the promissory note BD#76/C-
345 for P2,640,000.00 (P382,680.83 outstanding principal balance) is not
covered by the real estate mortgage by expressed agreement.
III. The trial court erred in holding that Promissory Note BD#76/C-430
for P545,000.00 is not covered by the real estate mortgage.
IV. The trial court erred in holding that the real estate mortgage is a
contract of adhesion.
V. The trial court erred in holding defendant-appellant liable to pay
plaintiffs-appellees attorneys fees for P20,000.00.[16]
The Court of Appeals affirmed the Order of the trial court but deleted the
award of attorneys fees.[17] It ruled that while a continuing loan or credit
accommodation based on only one security or mortgage is a common practice
in financial and commercial institutions, such agreement must be clear and
unequivocal. In the instant case, the parties executed different promissory
notes agreeing to a particular security for each loan. Thus, the appellate court
ruled that the extrajudicial foreclosure sale of the property for the three loans
is improper.[18]
The Court of Appeals, however, found that respondents have not yet paid
the P250,000.00 covered by PN BD#75/C-252 since the payment
of P2,000,000.00 adverted to by respondents was issued for the obligations of
G.B. Alviar Realty and Development, Inc.[19]
45
Aggrieved, petitioner filed the instant petition, reiterating the assignment of
errors raised in the Court of Appeals as grounds herein.
Petitioner maintains that the blanket mortgage clause or the dragnet clause in
the real estate mortgage expressly covers not only the P250,000.00 under PN
BD#75/C-252, but also the two other promissory notes included in the
application for extrajudicial foreclosure of real estate mortgage.[20] Thus, it
claims that it acted within the terms of the mortgage contract when it filed its
petition for extrajudicial foreclosure of real estate mortgage. Petitioner relies
on the cases of Lim Julian v. Lutero,[21] Tad-Y v. Philippine National
Bank,[22] Quimson v. Philippine National Bank,[23] C & C Commercial v.
Philippine National Bank,[24] Mojica v. Court of Appeals,[25] and China
Banking Corporation v. Court of Appeals,[26]all of which upheld the validity of
mortgage contracts securing future advancements.
Anent the Court of Appeals conclusion that the parties did not intend to
include PN BD#76/C-345 in the real estate mortgage because the same was
specifically secured by a foreign currency deposit account, petitioner states
that there is no law or rule which prohibits an obligation from being covered
by more than one security.[27] Besides, respondents even continued to
withdraw from the same foreign currency account even while the promissory
note was still outstanding, strengthening the belief that it was the real estate
mortgage that principally secured all of respondents promissory notes.[28] As
for PN BD#76/C-345, which the Court of Appeals found to be exclusively
secured by the Clean-Phase out TOD 3923, petitioner posits that such security
is not exclusive, as the dragnet clause of the real estate mortgage covers all
the obligations of the respondents.[29]
Moreover, petitioner insists that respondents attempt to evade foreclosure by
the expediency of stating that the promissory notes were executed by them
not in their personal capacity but as corporate officers. It claims that PN
BD#76/C-430 was in fact for home construction and personal consumption of
respondents. Thus, it states that there is a need to pierce the veil of corporate
fiction.[30]
Finally, petitioner alleges that the mortgage contract was executed by
respondents with knowledge and understanding of the dragnet clause, being
highly educated individuals, seasoned businesspersons, and political
personalities.[31] There was no oppressive use of superior bargaining power in
the execution of the promissory notes and the real estate mortgage.[32]
For their part, respondents claim that the dragnet clause cannot be applied to
the subsequent loans extended to Don Alviar and Donalco Trading, Inc. since
these loans are covered by separate promissory notes that expressly provide
for a different form of security.[33] They reiterate the holding of the trial court
that the blanket mortgage clause would apply only to loans obtained jointly by
respondents, and not to loans obtained by other parties.[34] Respondents also
place a premium on the finding of the lower courts that the real estate
mortgage clause is a contract of adhesion and must be strictly construed
against petitioner bank.[35]
The instant case thus poses the following issues pertaining to: (i) the validity of
the blanket mortgage clause or the dragnet clause; (ii) the coverage of the
blanket mortgage clause; and consequently, (iii) the propriety of seeking
foreclosure of the mortgaged property for the non-payment of the three
loans.
At this point, it is important to note that one of the loans sought to be
included in the blanket mortgage clause was obtained by respondents for
Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by respondents
on behalf of Donalco Trading, Inc. and not in their personal capacity. Petitioner
asks the Court to pierce the veil of corporate fiction and hold respondents
liable even for obligations they incurred for the corporation. The mortgage
contract states that the mortgage covers as well as those that the Mortgagee
may extend to the Mortgagor and/or DEBTOR, including interest and expenses
or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary. Well-settled is the rule that a corporation has a
personality separate and distinct from that of its officers and stockholders.
Officers of a corporation are not personally liable for their acts as such officers
unless it is shown that they have exceeded their authority.[36] However, the
legal fiction that a corporation has a personality separate and distinct from
stockholders and members may be disregarded if it is used as a means to
perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate
issues.[37] PN BD#76/C-430, being an obligation of Donalco Trading, Inc., and
not of the respondents, is not within the contemplation of the blanket
mortgage clause. Moreover, petitioner is unable to show that respondents are
hiding behind the corporate structure to evade payment of their obligations.
Save for the notation in the promissory note that the loan was for house
construction and personal consumption, there is no proof showing that the
loan was indeed for respondents personal consumption. Besides, petitioner
agreed to the terms of the promissory note. If respondents were indeed the
real parties to the loan, petitioner, a big, well-established institution of long
standing that it is, should have insisted that the note be made in the name of
respondents themselves, and not to Donalco Trading Inc., and that they sign
the note in their personal capacity and not as officers of the corporation.
Now on the main issues.
A blanket mortgage clause, also known as a dragnet clause in American
jurisprudence, is one which is specifically phrased to subsume all debts of past
or future origins. Such clauses are carefully scrutinized and strictly
construed.[38] Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction.[39] A dragnet clause
operates as a convenience and accommodation to the borrowers as it makes
available additional funds without their having to execute additional security
documents, thereby saving time, travel, loan closing costs, costs of extra legal
services, recording fees, et cetera.[40] Indeed, it has been settled in a long line
of decisions that mortgages given to secure future advancements are valid and
legal contracts,[41] and the amounts named as consideration in said contracts
do not limit the amount for which the mortgage may stand as security if from
the four corners of the instrument the intent to secure future and other
indebtedness can be gathered.[42]
The blanket mortgage clause in the instant case states:
That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may hereafter
be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty
Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest
and expenses or any other obligation owing to the Mortgagee, whether direct
or indirect, principal or secondary as appears in the accounts, books and
records of the Mortgagee, the Mortgagor does hereby transfer and convey by
way of mortgage unto the Mortgagee, its successors or assigns, the parcels of
land which are described in the list inserted on the back of this document,
and/or appended hereto, together with all the buildings and improvements
now existing or which may hereafter be erected or constructed thereon, of
which the Mortgagor declares that he/it is the absolute owner free from all
liens and incumbrances. . . .[43] (Emphasis supplied.)
Thus, contrary to the finding of the Court of Appeals, petitioner and
respondents intended the real estate mortgage to secure not only
the P250,000.00 loan from the petitioner, but also future credit facilities and
advancements that may be obtained by the respondents. The terms of the
above provision being clear and unambiguous, there is neither need nor
excuse to construe it otherwise.
The cases cited by petitioner, while affirming the validity of dragnet clauses or
blanket mortgage clauses, are of a different factual milieu from the instant
case. There, the subsequent loans were not covered by any security other than
that for the mortgage deeds which uniformly contained the dragnet clause.
In the case at bar, the subsequent loans obtained by respondents were
secured by other securities, thus: PN BD#76/C-345, executed by Don Alviar
was secured by a hold-out on his foreign currency savings account, while PN
BD#76/C-430, executed by respondents for Donalco Trading, Inc., was secured
by Clean-Phase out TOD CA 3923 and eventually by a deed of assignment on
two promissory notes executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on
various heavy and transportation equipment. The matter of PN BD#76/C-430
has already been discussed. Thus, the critical issue is whether the blanket
46
mortgage clause applies even to subsequent advancements for which other
securities were intended, or particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged on this
question. One school advocates that a dragnet clause so worded as to be
broad enough to cover all other debts in addition to the one specifically
secured will be construed to cover a different debt, although such other debt
is secured by another mortgage.[44] The contrary thinking maintains that a
mortgage with such a clause will not secure a note that expresses on its face
that it is otherwise secured as to its entirety, at least to anything other than a
deficiency after exhausting the security specified therein,[45] such deficiency
being an indebtedness within the meaning of the mortgage, in the absence of
a special contract excluding it from the arrangement.[46]
The latter school represents the better position. The parties having conformed
to the blanket mortgage clause or dragnet clause, it is reasonable to conclude
that they also agreed to an implied understanding that subsequent loans need
not be secured by other securities, as the subsequent loans will be secured by
the first mortgage. In other words, the sufficiency of the first security is a
corollary component of the dragnet clause. But of course, there is no
prohibition, as in the mortgage contract in issue, against contractually
requiring other securities for the subsequent loans. Thus, when the mortgagor
takes another loan for which another security was given it could not be
inferred that such loan was made in reliance solely on the original security
with the dragnet clause, but rather, on the new security given. This is the
reliance on the security test.
Hence, based on the reliance on the security test, the California court in the
cited case made an inquiry whether the second loan was made in reliance on
the original security containing a dragnet clause. Accordingly, finding a
different security was taken for the second loan no intent that the parties
relied on the security of the first loan could be inferred, so it was held. The
rationale involved, the court said, was that the dragnet clause in the first
security instrument constituted a continuing offer by the borrower to secure
further loans under the security of the first security instrument, and that when
the lender accepted a different security he did not accept the offer.[47]
One other crucial point. The mortgage contract, as well as the promissory
notes subject of this case, is a contract of adhesion, to which respondents only
participation was the affixing of their signatures or adhesion thereto.[51] A
contract of adhesion is one in which a party imposes a ready-made form of
contract which the other party may accept or reject, but which the latter
cannot modify.[52]
The real estate mortgage in issue appears in a standard form, drafted and
prepared solely by petitioner, and which, according to jurisprudence must be
strictly construed against the party responsible for its preparation.[53] If the
parties intended that the blanket mortgage clause shall cover subsequent
advancement secured by separate securities, then the same should have been
indicated in the mortgage contract. Consequently, any ambiguity is to be
taken contra proferentum, that is, construed against the party who caused the
ambiguity which could have avoided it by the exercise of a little more
care.[54] To be more emphatic, any ambiguity in a contract whose terms are
susceptible of different interpretations must be read against the party who
drafted it,[55] which is the petitioner in this case.
Even the promissory notes in issue were made on standard forms prepared by
petitioner, and as such are likewise contracts of adhesion. Being of such
nature, the same should be interpreted strictly against petitioner and with
even more reason since having been accomplished by respondents in the
presence of petitioners personnel and approved by its manager, they could
not have been unaware of the import and extent of such contracts.
Petitioner, however, is not without recourse. Both the Court of Appeals and
the trial court found that respondents have not yet paid the P250,000.00, and
gave no credence to their claim that they paid the said amount when they paid
petitioner P2,000,000.00. Thus, the mortgaged property could still be properly
subjected to foreclosure proceedings for the unpaid P250,000.00 loan, and as
mentioned earlier, for any deficiency after D/A SFDX#129, security for PN
BD#76/C-345, has been exhausted, subject of course to defenses which are
available to respondents.

In another case, it was held that a mortgage with a dragnet clause is an offer WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
by the mortgagor to the bank to provide the security of the mortgage for CA-G.R. CV No. 59543 is AFFIRMED.
advances of and when they were made. Thus, it was concluded that the offer
was not accepted by the bank when a subsequent advance was made because Costs against petitioner.
(1) the second note was secured by a chattel mortgage on certain vehicles, and
the clause therein stated that the note was secured by such chattel mortgage; SO ORDERED.
(2) there was no reference in the second note or chattel mortgage indicating a
connection between the real estate mortgage and the advance; (3) the
mortgagor signed the real estate mortgage by her name alone, whereas the
second note and chattel mortgage were signed by the mortgagor doing
business under an assumed name; and (4) there was no allegation by the bank,
and apparently no proof, that it relied on the security of the real estate
mortgage in making the advance.[48]

Indeed, in some instances, it has been held that in the absence of clear,
supportive evidence of a contrary intention, a mortgage containing a dragnet
clause will not be extended to cover future advances unless the document
evidencing the subsequent advance refers to the mortgage as providing
security therefor.[49]

It was therefore improper for petitioner in this case to seek foreclosure of the
mortgaged property because of non-payment of all the three promissory
notes. While the existence and validity of the dragnet clause cannot be denied,
there is a need to respect the existence of the other security given for PN
BD#76/C-345. The foreclosure of the mortgaged property should only be for
the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not
covered by the security for the second promissory note. As held in one case,
where deeds absolute in form were executed to secure any and all kinds of
indebtedness that might subsequently become due, a balance due on a note,
after exhausting the special security given for the payment of such note, was
in the absence of a special agreement to the contrary, within the protection of
the mortgage, notwithstanding the giving of the special security.[50] This is
recognition that while the dragnet clause subsists, the security specifically
executed for subsequent loans must first be exhausted before the mortgaged
property can be resorted to.

47
FIRST DIVISION foreclosed the mortgage over the property covered by OCT No. P-3599 on
August 17, 1984.
G.R. No. 171865, October 12, 2016
It appeared that notwithstanding such foreclosure, a deficiency balance of
PHILIPPINE NATIONAL BANK, Petitioner, v. HEIRS OF BENEDICTO AND P91,525.22 remained.4 Hence, the petitioner applied for the extrajudicial
AZUCENA ALONDAY, Respondent. foreclosure of the mortgage on the property covered by TCT No. T-66139. A
notice of extra-judicial sale was issued on August 20, 1984, and the property
DECISION covered by TCT No. T-66139 was sold on September 28, 1984 to the petitioner
in the amount of P29,900.00. Since the Alondays were unable to redeem the
BERSAMIN, J.: property, the petitioner consolidated its ownership. Later on, the property was
sold for P48,000.00 to one Felix Malmis on November 10, 1989.5
The issue is whether the all-embracing or dragnet clause contained in the first
mortgage contract executed between the parties for the security of the first According to the petitioner, the deed of mortgage relating to the property
loan could authorize the foreclosure of the property under the mortgage to covered by TCT No. T-66139 included an "all-embracing clause" whereby the
secure a second loan despite the full payment of the second loan. mortgage secured not only the commercial loan contracted with its Davao City
Branch but also the earlier agricultural loan contracted with its Digos Branch.
Antecedents
Judgment of the RTC

On September 26, 1974, the Spouses Benedicto and Azucena Alonday

(Spouses Alonday) obtained an agricultural loan of P28,000.00 from the On July 8, 1994, therefore, the respondents instituted a complaint against the
petitioner at its Digos, Davao del Sur Branch, and secured the obligation by petitioner in the Regional Trial Court (RTC) in Davao City to recover damages
constituting a real estate mortgage on their parcel of land situated in Sta. Cruz, and attorney's fees (Civil Case No. 23,021-94), averring that the foreclosure
Davao del Sur registered under Original Certificate of Title (OCT) No. P-3599 of and sale of the property covered by TCT No. T-66139 was illegal.
the Registry of Deeds of Davao del Sur.1
On November 28, 1997, the RTC rendered judgment finding in favor of the
On June 11, 1980, the Spouses Alonday obtained a commercial loan for respondents,6 and disposed as follows:
P16,700.00 from the petitioner's Davao City Branch, and constituted a real
estate mortgage over their 598 square meter residential lot situated in Ulas, WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
Davao City registered under Transfer Certificate of Title (TCT) No. T-66139 of defendant bank, ordering said defendant bank:
the Registry of Deeds of Davao City.
To pay plaintiffs the sum of One Million Seven Hundred Thousand
It is noted that the mortgage contracts contained the following identical (P1,700,000.00) Pesos, representing the value of the land covered by TCT No.
provision, to wit: T-66139;

That for and in consideration of certain loans, overdrafts, and other credit To pay plaintiffs the sum of P20,000.00 as attorney's fees; and
accommodations, obtained from the Mortgagee, which is hereby fixed at
_________, Philippine Currency, and to secure the payment of the same and To pay the costs of this suit.
those others that the Mortgagee may extend to the Mortgagor, including
interests and expenses, and other obligations owing by the Mortgagor to the SO ORDERED.7
Mortgagee, whether direct or indirect, principal or secondary, as appearing in
the accounts, books and records of the Mortgagee, the Mortgagor does The RTC observed that if the petitioner had intended to have the second
hereby transfer and convey by way of mortgage unto the Mortgagee, its mortgage secure the pre-existing agricultural loan, it should have made an
successors or assigns, the parcel of land which is/are described in the list express reservation to that effect; that based on the all-embracing clause, the
inserted at the back of this document xxx. In case the Mortgagor executes mortgage was a contract of adhesion, and the ambiguities therein should be
subsequent promissory note or notes either as renewal of the former note, as construed strictly against the petitioner; that the last sentence of the all-
an extension thereof, or as a new loan, or is given any other kind of embracing clause provided that the mortgage would be null and void upon the
accommodation, xxx, this mortgage shall also stand as security for the payment of the obligations secured by the mortgage; and that the petitioner
payment of the said promissory note or notes and/or accommodations was guilty of bad faith in refusing to nullify the mortgage despite full payment
without the necessity of executing a new contract and this mortgage shall of the commercial loan prior to its maturity.
have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof, notwithstanding full The RTC also ruled that because the property had already been sold to Malmis,
payments of any or all obligations of the Mortgagors. This mortgage shall also a third party not brought within the trial court's jurisdiction, it could not order
stand as security for said obligations and any and all other obligations of the the return of the property; and that it was ordering the petitioner instead to
Mortgagor to the Mortgagee of whatever kind and nature, whether such pay the respondents the value of the property under its present market
obligations have been contracted before, during or after the constitution of valuation.
this mortgage. However, if the Mortgagor shall pay the Mortgagee, its
successors or assigns, the obligations secured by this mortgage, together with Decision of the CA
interests, costs and other expenses, on or before the date they are due, and
shall keep and perform all the covenants and agreements herein contained for
the Mortgagor to keep and perform, then this mortgage shall be null and void, Dissatisfied, the petitioner appealed to the Court of Appeals (CA). The appeal
otherwise, it shall remain in full force and effect.2 was docketed as C.A.-G.R. CV No. 60625.

The Spouses Alonday made partial payments on the commercial loan, which On August 31, 2005, the CA affirmed the RTC,8 observing that the mortgage,
they renewed on December 23, 1983 for the balance of P15,950.00. The being a contract of adhesion, should be construed strictly against the
renewed commercial loan, although due on December 25, 1984, was fully paid petitioner as the patty who had drafted the same; and that although the
on July 5, 1984.3 petitioner had argued, citing Mojica v. Court of Appeals,9 that all-embracing
clauses were valid to secure past, present and future loans, Mojica v. Court of
On August 6, 1984, respondents Mercy and Alberto Alonday, the children of Appeals was not in point inasmuch as the facts therein were different from the
the Spouses Alonday, demanded the release of the mortgage over the facts herein.
property covered by TCT No. T-66139. The petitioner informed them, however,
that the mortgage could not be released because the agricultural loan had not The petitioner filed a motion for reconsideration, but the CA denied the
yet been fully paid, and that as the consequence of the failure to pay, it had motion on February 27, 2006.10

48

Hence, this appeal by petition for review on certiorari.
Issues
The petitioner assigns the following errors to the CA, to wit:
The Court of Appeals grievously erred in restricting and delimiting the scope
and validity of the standard "all-embracing clause" in real estate mortgage
contracts solely to future indebtedness and not to prior ones, contrary to
leading Supreme Court decisions on the matter.
Even assuming arguendo that the xxx decisions are inapplicable to the case at
bar, the Court of Appeals grievously erred in awarding the unsubstantiated
amount of P1.7 million in damages and P20,000.00 as attorney's fees against
PNB without factual and legal basis.11
The petitioner submits that Mojica v. Court of Appeals validates the use of an
all-embracing clause in a mortgage agreement to secure not only the amount
indicated on the mortgage instrument, but also the mortgagor's future and
past obligations; that by denying the applicability to the case of Mojica v. Court
of Appeals and other similar rulings, the CA disregarded the principle of stare
decisis; and that the CA in effect thereby regarded allembracing clauses invalid
as to prior obligations.
Ruling of the Court
The appeal lacks merit.
The CA opined as follows:
The real estate mortgage on the property covered by TCT No. T-66139 was
specifically constituted to secure the payment of the commercial loan of the
Spouses ALONDAY. In the same manner, the real estate mortgage on the
property covered by OCT No. P-3599 was constituted to secure the payment of
their agricultural loan with the PNB. With the execution of separate mortgage
contracts for the two (2) loans, it is clear that the intention of the parties was
to limit the mortgage to the loan for which it was constituted.
xxxx
The [Mojica] case is not in point since the facts therein are different from the
case at bench. In Mojica vs. Court of Appeals, the mortgaged real estate
property was made to answer for future advancement or renewal of the loan,
whereas in the instant case, the foreclosure sale included a property which
was used as a security for a commercial loan which was obtained after the
agricultural loan.
The mortgage provision relied upon by appellant is known in American
jurisprudence as a "dragnet" clause, which is specifically phrased to subsume
all debts of past or future origin. Such clauses pursuant to the pronouncement
of the Supreme Court in DBP vs. Mirang must be "carefully scrutinized and
strictly construed."12
The petitioner wrongly insists that the CA, thr ough the foregoing
ratiocination, held that the all-embracing or dragnet clauses were altogether
invalid as to prior obligations. What the CA, although reiterating that the Court
upheld the validity of using real estate mortgages to secure future
advancements, only thereby pointed out that it could not find similar rulings as
to mortgages executed to secure prior loans.
There is no question, indeed, that all-embracing or dragnet clauses have been
recognized as valid means to secure debts of both future and past
origins.13 Even so, we have likewise emphasized that such clauses were an
exceptional mode of securing obligations, and have held that obligations could
only be deemed secured by the mortgage if they came fairly within the terms
of the mortgage contract.14 For the all-embracing or dragnet clauses to secure
future loans, therefore, such loans must be sufficiently described in the
mortgage contract.15 If the requirement could be imposed on a future loan
that was uncertain to materialize, there is a greater reason that it should be
applicable to a past loan, which is already subsisting and known to the parties.
Nonetheless, it was undeniable that the petitioner had the opportunity to
include some form of acknowledgement of the previously subsisting
agricultural loan in the terms of the second mortgage contract The mere fact
that the mortgage constituted on the property covered by TCT No. T-66139
made no mention of the pre-existing loan could only strongly indicate that
each of the loans of the Spouses Alonday had been treated separately by the
parties themselves, and this sufficiently explained why the loans had been
secured by different mortgages.
Another indication that the second mortgage did not extend to the agricultural
loan was the fact that the second mortgage was entered into in connection
only with the commercial loan. Our ruling in Prudential Bank v. Alviar16 is then
relevant, to wit:
xxx The parties having conformed to the "blanket mortgage clause" or
"dragnet clause," it is reasonable to conclude that they also agreed to an
implied understanding that subsequent loans need not be secured by other
securities, as the subsequent loans will be secured by the first mortgage. In
other words, the sufficiency of the first security is a corollary component of
the "dragnet clause." But of course, there is no prohibition, as in the mortgage
contract in issue, against contractually requiring other securities for the
subsequent loans. Thus, when the mortgagor takes another loan for which
another security was given it could not be inferred that such loan was made in
reliance solely on the original security with the "dragnet clause," but rather, on
the new security given. This is the "reliance on the security test."
xxx Accordingly, finding a different security was taken for the second loan no
intent that the parties relied on the security of the first loan could be inferred,
so it was held. The rationale involved, the court said, was that the "dragnet
clause" in the first security instrument constituted a continuing offer by the
borrower to secure further loans under the security of the first security
instrument, and that when the lender accepted a different security he did not
accept the offer.17
Although the facts in Prudential Bank were not entirely on all fours with those
of this case because the prior mortgage in Prudential Bank was sought to be
enforced against a subsequent loan already secured by other securities, the
logic in Prudential Bank is applicable here. The execution of the subsequent
mortgage by the parties herein to secure the subsequenlloan was an indication
that they had intended to treat each loan as distinct from the other, and that
they had intended to secure each of the loans individually and separately.
We further concur with the CA and the RTC in their holding that the mortgage
contracts executed by the Spouses Alonday were contracts of adhesion
exclusively prep red by the petitioner. Under Article 1306 of the Civil Code, the
contracting parties "may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order or public policy." This is an express
recognition by the law of the right of the people to enter into all manner of
lawful conventions as part of their safeguarded liberties. The objection against
a contract of adhesion lies most often in its negation of the autonomy of the
will of the parties in contracts. A contract of adhesion, albeit valid, becomes
objectionable only when it takes undue advantage of one of the parties the
weaker party- by having such party just adhere to the terms of the contract. In
such situation, the courts go to the succor of the weaker party by construing
any obscurity in the contract against the party who prepared the contract, the
latter being presumed as the stronger party to the agreement, and as the
party who caused the obscurity.18
To reiterate, in order for the all-embracing or dragnet clauses to secure future
and other loans, the loans thereby secured must be sufficiently described in
the mortgage contract. Considering that the agricultural loan had been pre-
existing when the mortgage was constituted on the property covered by TCT
No. T-66139, it would have been easy for the petitioner to have expressly
incorporated the reference to such agricultural loan in the mortgage contract
covering the commercial loan. But the petitioner did not. Being the party that
had prepared the contract of mortgage, its failure to do so should be
construed that it did not at all contemplate the earlier loan when it entered
into the subsequent mortgage.
49
Anent the value of the property covered by TCT No. T-66139, the findings of provides that interest due shall earn legal interest from the time it is judicially
the RTC on the valuation were as follows: demanded, although the obligation may be silent on this point.

Considering that the property is located at the junction of the roads leading to
Toril and Calinan districts with big establishments all around, plaintiffs claim
that at the time of the filing of this case which was in 1994, the reasonable
market value of the land was P1,200.00 per square meter. To date, the value
could reasonably be P3,000.00 per square meter.19
All the same, the interest under these two instances may be imposed only as a
penalty or damages for breach of contractual obligations. It cannot be charged
as a compensation for the use or forbearance of money. In other words, the
two instances apply only to compensatory interest and not to monetary
interest.26 xxx

Opining that the respondents should be indemnified the value of the loss The petitioner should be held liable for interest on the actual damages of
suffered from the illegal foreclosure of the property covered by TCT No. T- P717,600.00 representing the value of the propetiy with an area 598 square
66139, theCA adopted the valuation by the RTC on the established fair market meters that was lost to them through the unwarranted foreclosure, the same
value of the property being P3,000.00/square meter, for a total of to be reckoned from the date of judicial demand (i.e., the filing of the action
P1,700,000.00 as damages to be awarded.20 by the Spouses Alonday). At the time thereof, the rate was 12% per annum,
and such rate shall run until June 30, 2013. Thereafter, or starting on July 1,
The petitioner challenges the valuation as devoid of basis. It points out that 2013, the rate of interest shall be 6% per annum until full payment of the
the complaint of the Spouses Alonday had placed the value of the property at obligation, pursuant to the ruling in Nacar v. Gallery Frames,27 which took into
P1,200.00/square meter; and that respondent Alberto Alonday had testified consideration the lowering of interest rates by the Monetary Board.
during the trial that the value of the property had been only P1,200.00/square
meter. In addition, Article 221228 of the Civil Code requires that interest due shall
earn legal interest from the time it is judicially demanded, although the
We uphold the challenge by the petitioner. obligation may be silent upon this point. Accordingly, the interest due shall
itself earn legal interest of 6% per annum from the date of finality of the
We are at a loss at how the RTC had computed and determined the valuation judgment until its full satisfaction, the interim period being deemed to be an
at P3,000.00/square meter. Such determination was easily the product of equivalent to a forbearance of credit.29
guesswork on the part of the trial court, for the language employed in its
judgment in reference to such value was "could reasonably be."21 On its part, WHEREFORE, the Court AFFIRMS the decision promulgated in C.A.-G.R. CV No.
the CA adverted to the valuation as "approximately P3,000.00,"22 indicating 60625 on August 31, 2005 in all respects subject to the
that its own determination of the fair market value was of similar tenor as that following MODIFICATIONS, namely: (1) the award of P1,700,000.00
by the RTC. Accordingly, the valuation by both lower courts cannot be upheld, representing the value of the land covered by Transfer Certificate of Title No.
for it is basic enough that in their determination of actual damages, the comis T-66139 of the Registry of Deeds of Davao City is REDUCED to P717,600.00, the
should eschew mere assertions, speculations, conjectures or same to be paid by petitioner Philippine National Bank; (2) the principal
guesswork;23 otherwise, they would be guilty of arbitrariness and amount of P717,600.00 shall earn interest of 12% per annum from the filing of
whimsicality. the complaint until June 30, 2013, and interest of 6% per annum from July 1,
2013 until full payment; and (3) the interests thus earned shall also earn
Moreover, the courts cannot grant reliefs not prayed for in the pleadings or in interest of 6% per annum from the finality of this decision until full payment.
excess of what is being sought by the party.24
SO ORDERED.
To accord with what is fair, based on the records, we reduce the basis of the
actual damages to P1,200.00/square meter. Such valuation is insulated from
arbitrariness because it was made by the Spouses Alonday themselves in their
complaint, rendering a total of P717,600.00 as actual damages.

The lower courts did not impose interest on the judgment obligation to be
paid by the petitioner. Such interest is in the nature of compensatory interest,
as distinguished from monetary interest. It is relevant to elucidate on the
distinctions between these kinds of interest. In this regard, the Court has
expounded in Siga-an v. Villanueva:25

Interest is a compensation fixed by the parties for the use or forbearance of

money. This is referred to as monetary interest. Interest may also be imposed
by law or by courts as penalty or indemnity for damages. This is called
compensatory interest. The right to interest arises only by virtue of a contract
or by virtue of damages for delay or failure to pay the principal loan on which
interest is demanded.

Article 1956 of the Civil Code, which refers to monetary interest, specifically
mandates that no interest shall be due unless it has been expressly stipulated
in writing. As can be gleaned from the foregoing provision, payment of
monetary interest is allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the payment of interest
was reduced in writing. The concurrence of the two conditions is required for
the payment of monetary interest. Thus, we have held that collection of
interest without any stipulation therefor in writing is prohibited by law.

xxxx

There are instances in which an interest may be imposed even in the absence
of express stipulation, verbal or written, regarding payment of interest. Article
2209 of the Civil Code states that if the obligation consists in the payment of a
sum of money, and the debtor incurs delay, a legal interest of 12% per
annum may be imposed as indemnity for damages if no stipulation on the
payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code

50
SECOND DIVISION
G.R. No. 183987 July 25, 2012
ASIA TRUST DEVELOPMENT BANK, Petitioner,
vs.
CARMELO H. TUBLE, Respondent.
DECISION
SERENO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, seeking to review the Court of Appeals (CA) 28 March
2008 Decision and 30 July 2008 Resolution in CA-G.R. CV No. 87410. The CA
affirmed the Regional Trial Court (RTC) Decision of 15 May 2006 in Civil Case
No. 67973, which granted to respondent the refund of
₱845,805.491 representing the amount he had paid in excess of the
redemption price.
The antecedent facts are as follows: 2
Respondent Carmelo H. Tuble, who served as the vice-president of petitioner
Asiatrust Development Bank, availed himself of the car incentive plan and loan
privileges offered by the bank. He was also entitled to the bank’s Senior
Managers Deferred Incentive Plan (DIP).
Respondent acquired a Nissan Vanette through the company’s car incentive
plan. The arrangement was made to appear as a lease agreement requiring
only the payment of monthly rentals. Accordingly, the lease would be
terminated in case of the employee’s resignation or retirement prior to full
payment of the price.
As regards the loan privileges, Tuble obtained three separate loans. The first, a
real estate loan evidenced by the 18 January 1993 Promissory Note No.
01423 with maturity date of 1 January 1999, was secured by a mortgage over
his property covered by Transfer Certificate of Title No. T 145794. No interest
on this loan was indicated.
The second was a consumption loan, evidenced by the 10 January 1994
Promissory Note No. 01434 with the maturity date of 31 January 1995 and
interest at 18% per annum. Aside from the said indebtedness, Tuble allegedly
obtained a salary loan, his third loan.
On 30 March 1995, he resigned. Subsequently, he was given the option to
either return the vehicle without any further obligation or retain the unit and
pay its remaining book value.
Respondent had the following obligations to the bank after his retirement: (1)
the purchase or return of the Nissan Vanette; (2) ₱100,000 as consumption
loan; (3) ₱421,800 as real estate loan; and (4) ₱16,250 as salary loan.5
In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to
be issued after the bank had given the resigned employee’s clearance; and (2)
₱25,797.35 representing his final salary and corresponding 13th month pay.
Respondent claimed that since he and the bank were debtors and creditors of
each other, the offsetting of loans could legally take place. He then asked the
bank to simply compute his DIP and apply his receivables to his outstanding
loans.6 However, instead of heeding his request, the bank sent him a 1 June
1995 demand letter7obliging him to pay his debts. The bank also required him
to return the Nissan Vanette. Despite this demand, the vehicle was not
surrendered.
On 14 August 1995, Tuble wrote the bank again to follow up his request to
offset the loans. This letter was not immediately acted upon. It was only on 13
October 1995 that the bank finally allowed the offsetting of his various claims
and liabilities. As a result, his liabilities were reduced to ₱970,691.46 plus the
unreturned value of the vehicle.
In order to recover the Nissan Vanette, the bank filed a Complaint for replevin
against Tuble. Petitioner obtained a favorable judgment. Then, to collect the
liabilities of respondent, it also filed a Petition for Extra-judicial Foreclosure of
real estate mortgage over his property. The Petition was based only on his real
estate loan, which at that time amounted to ₱421,800. His other liabilities to
the bank were excluded. The foreclosure proceedings terminated, with the
bank emerging as the purchaser of the secured property.
Thereafter, Tuble timely redeemed the property on 17 March 1997 for
₱1,318,401.91.8 Notably, the redemption price increased to this figure,
because the bank had unilaterally imposed additional interest and other
charges.
With the payment of ₱1,318,401.91, Tuble was deemed to have fully paid his
accountabilities. Thus, three years after his payment, the bank issued him a
Clearance necessary for the release of his DIP share. Subsequently, he received
a Manager’s Check in the amount of ₱166,049.73 representing his share in the
DIP funds.
Despite his payment of the redemption price, Tuble questioned how the
foreclosure basis of ₱421,800 ballooned to ₱1,318,401.91 in a matter of one
year. Belatedly, the bank explained that this redemption price included the
Nissan Vanette’s book value, the salary loan, car insurance, 18% annual
interest on the bank’s redemption price of ₱421,800, penalty and interest
charges on Promissory Note No. 0142, and litigation expenses.9 By way of
note, from these items, the amounts that remained to be collected as stated in
the Petition before us, are (1) the 18% annual interest on the redemption price
and (2) the interest charge on Promissory Note No. 0142.
Because Tuble disputed the redemption price, he filed a Complaint for
recovery of a sum of money and damages before the RTC. He specifically
sought to collect ₱896,602.0210 representing the excess charges on the
redemption price. Additionally, he prayed for moral and exemplary damages.
The RTC ruled in favor of Tuble. The trial court characterized the redemption
price as excessive and arbitrary, because the correct redemption price should
not have included the above-mentioned charges. Moral and exemplary
damages were also awarded to him.
According to the trial court,11 the value of the car should not have been
included, considering that the bank had already recovered the Nissan Vanette.
The obligations arising from the salary loan and car insurance should have also
been excluded, for there was no proof that these debts existed. The interest
and penalty charges should have been deleted, too, because Promissory Note
No. 0142 did not indicate any interest or penalty charges. Neither should
litigation expenses have been added, since there was no proof that the bank
incurred those expenses.
As for the 18% annual interest on the bid price of ₱421,800, the RTC agreed
with Tuble that this charge was unlawful. Act 313512 as amended, in relation
to Section 28 of Rule 39 of the Rules of Court,13 only allows the mortgagee to
charge an interest of 1% per month if the foreclosed property is redeemed.
Ultimately, under the principle of solutio indebiti, the trial court required the
refund of these amounts charged in excess of the correct redemption price.
On appeal, the CA affirmed the findings of the RTC.14 The appellate court only
expounded the rule that, at the time of redemption, the one who redeemed is
liable to pay only 1% monthly interest plus taxes. Thus, the CA also concluded
that there was practically no basis to impose the additional charges.
Before this Court, petitioner reiterates its claims regarding the inclusion in the
redemption price of the 18% annual interest on the bid price of ₱421,800 and
the interest charges on Promissory Note No. 0142. Petitioner emphasizes that
an 18% interest rate allegedly referred to in the mortgage deed is the proper
basis of the interest. Pointing to the Real Estate Mortgage Contract, the bank
highlights the blanket security clause or "dragnet clause" that purports to
cover all obligations owed by Tuble:15
All obligations of the Borrower and/or Mortgagor, its renewal, extension,
amendment or novation irrespective of whether such obligations as renewed,
extended, amended or novated are in the nature of new, separate or
additional obligations;
All other obligations of the Borrower and/or Mortgagor in favor of the
Mortgagee, executed before or after the execution of this document whether
51
presently owing or hereinafter incurred and whether or not arising from or
connection with the aforesaid loan/Credit accommodation; x x x.
Tuble’s obligations are defined in Promissory Note Nos. 0142 and 0143. By way
of recap, Promissory Note No. 0142 refers to the real estate loan; it does not
contain any stipulation on interest. On the other hand, Promissory Note No.
0143 refers to the consumption loan; it charges an 18% annual interest rate.
Petitioner uses this latter rate to impose an interest over the bid price of
₱421,800.
Further, the bank sees the inclusion in the redemption price of an addition
12% annual interest on Tuble’s real estate loan.
On top of these claims, the bank raises a new item – the car’s rental fee – to be
included in the redemption price. In dealing with this argument raised for the
first time on certiorari, this Court dismisses the contention based on the well-
entrenched prohibition on raising new issues, especially factual ones, on
appeal.16
Thus, the pertinent issue in the instant appeal is whether or not the bank is
entitled to include these items in the redemption price: (1) the interest
charges on Promissory Note No. 0142; and (2) the 18% annual interest on the
bid price of P421,800.
RULING OF THE COURT
The 18% Annual Interest on the Bid
Price of ₱421,800
The Applicable Law
The bank argues that instead of referring to the Rules of Court to compute the
redemption price, the courts a quoshould have applied the General Banking
Law,17 considering that petitioner is a banking institution.
The statute referred to requires that in the event of judicial or extrajudicial
foreclosure of any mortgage on real estate that is used as security for an
obligation to any bank, banking institution, or credit institution, the mortgagor
can redeem the property by paying the amount fixed by the court in the order
of execution, with interest thereon at the rate specified in the mortgage.18
Petitioner is correct. We have already established in Union Bank of the
Philippines v. Court of Appeals,19 citing Ponce de Leon v. Rehabilitation
Finance Corporation20 and Sy v. Court of Appeals,21 that the General Banking
Act – being a special and subsequent legislation – has the effect of amending
Section 6 of Act No. 3135, insofar as the redemption price is concerned, when
the mortgagee is a bank. Thus, the amount to be paid in redeeming the
property is determined by the General Banking Act, and not by the Rules of
Court in Relation to Act 3135.
The Remedy of Foreclosure
In reviewing the bank’s additional charges on the redemption price as a result
of the foreclosure, this Court will first clarify certain vital points of fact and law
that both parties and the courts a quo seem to have missed.
Firstly, at the time respondent resigned, which was chronologically before the
foreclosure proceedings, he had several liabilities to the bank. Secondly, when
the bank later on instituted the foreclosure proceedings, it foreclosed only the
mortgage secured by the real estate loan of ₱421,800.22 It did not seek to
include, in the foreclosure, the consumption loan under Promissory Note No.
0143 or the other alleged obligations of respondent. Thirdly, on 28 February
1996, the bank availed itself of the remedy of foreclosure and, in doing so,
effectively gained the property.
As a result of these established facts, one evident conclusion surfaces: the Real
Estate Mortgage Contract on the secured property is already extinguished.
In foreclosures, the mortgaged property is subjected to the proceedings for
the satisfaction of the obligation.23 As a result, payment is effected by
abnormal means whereby the debtor is forced by a judicial proceeding to
comply with the presentation or to pay indemnity.24
Once the proceeds from the sale of the property are applied to the payment of
the obligation, the obligation is already extinguished.25 Thus, in
Spouses Romero v. Court of Appeals,26 we held that the mortgage
indebtedness was extinguished with the foreclosure and sale of the mortgaged
property, and that what remained was the right of redemption granted by law.
Consequently, since the Real Estate Mortgage Contract is already extinguished,
petitioner can no longer rely on it or invoke its provisions, including the
dragnet clause stipulated therein. It follows that the bank cannot refer to the
18% annual interest charged in Promissory Note No. 0143, an obligation
allegedly covered by the terms of the Contract.
Neither can the bank use the consummated contract to collect on the rest of
the obligations, which were not included when it earlier instituted the
foreclosure proceedings. It cannot be allowed to use the same security to
collect on the other loans. To do so would be akin to foreclosing an already
foreclosed property.
Rather than relying on an expired contract, the bank should have collected on
the excluded loans by instituting the proper actions for recovery of sums of
money. Simply put, petitioner should have run after Tuble separately, instead
of hostaging the same property to cover all of his liabilities.
The Right of Redemption
Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had
the right to redeem the security by paying the redemption price.
The right of redemption of foreclosed properties was a statutory
privilege27 he enjoyed. Redemption is by force of law, and the purchaser at
public auction is bound to accept it.28 Thus, it is the law that provides the
terms of the right; the mortgagee cannot dictate them. The terms of this right,
based on Section 47 of the General Banking Law, are as follows:
1. The redemptioner shall have the right within one year after the sale of the
real estate, to redeem the property.
2. The redemptioner shall pay the amount due under the mortgage deed, with
interest thereon at rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the sale and custody of said
property less the income derived therefrom.
3. In case of redemptioners who are considered by law as juridical persons,
they shall have the right to redeem not after the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which in no case shall
be more than three (3) months after foreclosure, whichever is earlier.
Consequently, the bank cannot alter that right by imposing additional charges
and including other loans. Verily, the freedom to stipulate the terms and
conditions of an agreement is limited by law.29
Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate
Court30 that the power to decide whether or not to foreclose is the
prerogative of the mortgagee; however, once it has made the decision by filing
a petition with the sheriff, the acts of the latter shall thereafter be governed
by the provisions of the mortgage laws, and not by the instructions of the
mortgagee. In direct contravention of this ruling, though, the bank included
numerous charges and loans in the redemption price, which inexplicably
ballooned to ₱1,318,401.91. On this error alone, the claims of petitioner
covering all the additional charges should be denied. Thus, considering the
undue inclusions of the additional charges, the bank cannot impose the 18%
annual interest on the redemption price.
The Dragnet Clause
In any event, assuming that the Real Estate Mortgage Contract subsists, we
rule that the dragnet clause therein does not justify the imposition of an 18%
annual interest on the redemption price.
This Court has recognized that, through a dragnet clause, a real estate
mortgage contract may exceptionally secure future loans or
advancements.31 But an obligation is not secured by a mortgage, unless, that
mortgage comes fairly within the terms of the mortgage contract.32
52
We have also emphasized that the mortgage agreement, being a contract of
adhesion, is to be carefully scrutinized and strictly construed against the bank,
the party that prepared the agreement.33
Here, after reviewing the entire deed, this Court finds that there is no specific
mention of interest to be added in case of either default or redemption. The
Real Estate Mortgage Contract itself is silent on the computation of the
redemption price. Although it refers to the Promissory Notes as constitutive of
Tuble’s secured obligations, the said contract does not state that the interest
to be charged in case of redemption should be what is specified in the
Promissory Notes.
In Philippine Banking Communications v. Court of Appeals,34 we have
construed such silence or omission of additional charges strictly against the
bank. In that case, we affirmed the findings of the courts a quo that penalties
and charges are not due for want of stipulation in the mortgage contract.
Worse, when petitioner invites us to look at the Promissory Notes in
determining the interest, these loan agreements offer different interest
charges: Promissory Note No. 0142, which corresponds exactly to the real
estate loan, contains no stipulation on interest; while Promissory Note No.
0143, which in turn corresponds to the consumption loan, provides a charge of
18% interest per annum.
Thus, an ambiguity results as to which interest shall be applied, for to apply an
18% interest per annum based on Promissory Note No. 0143 will negate the
existence of the 0% interest charged by Promissory Note No. 0142. Notably, it
is this latter Promissory Note that refers to the principal agreement to which
the security attaches.
In resolving this ambiguity, we refer to a basic principle in the law of contracts:
"Any ambiguity is to be taken contra proferentem, that is, construed against
the party who caused the ambiguity which could have avoided it by the
exercise of a little more care."35 Therefore, the ambiguity in the mortgage
deed whose terms are susceptible of different interpretations must be read
against the bank that drafted it. Consequently, we cannot impute grave error
on the part of the courts a quo for not appreciating a charge of 18%
interest per annum.
Furthermore, this Court refuses to be blindsided by the dragnet clause in the
Real Estate Mortgage Contract to automatically include the consumption loan,
and its corresponding interest, in computing the redemption price.
As we have held in Prudential Bank v. Alviar,36 in the absence of clear and
supportive evidence of a contrary intention, a mortgage containing a dragnet
clause will not be extended to cover future advances, unless the document
evidencing the subsequent advance refers to the mortgage as providing
security therefor.
In this regard, this Court adopted the "reliance on the security test" used in the
above-mentioned cases, Prudential Bank37 and Philippine Bank of
Communications.38 In these Decisions, we elucidated the test as follows:
x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the
bank to provide the security of the mortgage for advances of and when they
were made. Thus, it was concluded that the "offer" was not accepted by the
bank when a subsequent advance was made because (1) the second note was
secured by a chattel mortgage on certain vehicles, and the clause therein
stated that the note was secured by such chattel mortgage; (2) there was no
reference in the second note or chattel mortgage indicating a connection
between the real estate mortgage and the advance; (3) the mortgagor signed
the real estate mortgage by her name alone, whereas the second note and
chattel mortgage were signed by the mortgagor doing business under an
assumed name; and (4) there was no allegation by the bank, and apparently
no proof, that it relied on the security of the real estate mortgage in making
the advance.39 (Emphasis supplied)
Here, the second loan agreement, or Promissory Note No. 0143, referring to
the consumption loan makes no reference to the earlier loan with a real estate
mortgage. Neither does the bank make any allegation that it relied on the
security of the real estate mortgage in issuing the consumption loan to Tuble.
It must be remembered that Tuble was petitioner’s previous vice-president.
Hence, as one of the senior officers, the consumption loan was given to him
not as an ordinary loan, but as a form of accommodation or privilege.40 The
bank’s grant of the salary loan to Tuble was apparently not motivated by the
creation of a security in favor of the bank, but by the fact the he was a top
executive of petitioner.
Thus, the bank cannot claim that it relied on the previous security in granting
the consumption loan to Tuble. For this reason, the dragnet clause will not be
extended to cover the consumption loan. It follows, therefore, that its
corresponding interest – 18% per annum – is inapplicable. Consequently, the
courts a quo did not gravely abuse their discretion in refusing to apply an
annual interest of 18% in computing the redemption price. A finding of grave
abuse of discretion necessitates that the judgment must have been exercised
arbitrarily and without basis in fact and in law.41
The Interest Charges on Promissory
Note No. 0142
In addition to the 18% annual interest, the bank also claims a 12% interest per
annum on the consumption loan. Notwithstanding that Promissory Note No.
0142 contains no stipulation on interest payments, the bank still claims that
Tuble is liable to pay the legal interest. This interest is currently at 12% per
annum, pursuant to Central Bank Circular No. 416 and Article 2209 of the Civil
Code, which provides:
If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum. (Emphasis
supplied)
While Article 2209 allows the recovery of interest sans stipulation, this charge
is provided not as a form of monetary interest, but as one of compensatory
interest.42
Monetary interest refers to the compensation set by the parties for the use or
forbearance of money.43 On the other hand, compensatory interest refers to
the penalty or indemnity for damages imposed by law or by the
courts.44Compensatory interest, as a form of damages, is due only if the
obligor is proven to have defaulted in paying the loan.45
Thus, a default must exist before the bank can collect the compensatory legal
interest of 12% per annum. In this regard, Tuble denies being in default since,
by way of legal compensation, he effectively paid his liabilities on time.
This argument is flawed. The bank correctly explains in its Petition that in
order for legal compensation to take effect, Article 1279 of the Civil Code
requires that the debts be liquidated and demandable. This provision reads:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
(Emphasis supplied)
Liquidated debts are those whose exact amount has already been
determined.46 In this case, the receivable of Tuble, including his DIP share,
was not yet determined; it was the petitioner’s policy to compute and issue
the computation only after the retired employee had been cleared by the
bank. Thus, Tuble incorrectly invoked legal compensation in addressing this
issue of default.
53
Nevertheless, based on the findings of the RTC and the CA, the obligation of
Tuble as evidenced by Promissory Note No. 0142, was set to mature on 1
January 1999. But then, he had already settled his liabilities on 17 March 1997
by paying ₱1,318,401.91 as redemption price. Then, in 1999, the bank issued
his Clearance and share in the DIP in view of the full settlement of his
obligations. Thus, there being no substantial delay on his part, the CA did not
grievously err in not declaring him to be in default.

The Award of Moral and Exemplary

Damages

The courts a quo awarded Tuble ₱200,000 as moral damages and ₱50,000 as
exemplary damages.1âwphi1 As appreciated by the RTC, which had the
opportunity to examine the parties,47 the bank treated Tuble unfairly and
unreasonably by refusing to lend even a little charity and human consideration
when it immediately foreclosed the loans of its previous vice-president instead
of heeding his request to make a straightforward calculation of his receivables
and offset them against his liabilities.48

To the mind of the trial court, this was such a simple request within the control
of the bank to grant; and if petitioner had only acceded, the troubles of the
lawsuit would have been avoided.1âwphi1

Moreover, the RTC found that the bank caused Tuble severe humiliation when
the Nissan Vannette was seized from his new office at Kuok Properties
Philippines. The trial court also highlighted the fact that respondent as the
previous vice-president of petitioner was no ordinary employee – he was a
man of good professional standing, and one who actively participated in civic
organizations. The RTC then concluded that a man of his standing deserved fair
treatment from his employer, especially since they served common goals.

This Court affirms the dispositions of the RTC and the CA. They correctly ruled
that the award of moral damages also includes cases of besmirched
reputation, moral shock, social humiliation and similar injury. In this regard,
the social and financial standings of the parties are additional elements that
should be taken into account in the determination of the amount of moral
damages.49 Based on their findings that Tuble suffered undue
embarrassment, given his social standing, the courts a quo had factual
Basis50 to justify the award of moral damages and, consequently, exemplary
damages51 in his favor.

From all the foregoing, we rule that the appellate court correctly deleted the
18% annual interest charges, albeit for different reasons. First, the interest
cannot be imposed, because any reference to it under the Real Estate
Mortgage Contract is misplaced, as the contract is already extinguished.
Second, the said interest cannot be collected without any basis in terms of
Tuble's redemption rights. Third, assuming that the Real Estate Mortgage
Contract subsists, the bank cannot collect the interest because of the
contract's ambiguity. Fourth, the dragnet clause referred to in the contract
cannot be presumed to include the 18% annual interest specified in the
consumption loan. Fifth, with respect to the compensatory interest claimed by
the bank, we hold that neither is the interest due, because Tuble cannot be
deemed to be in default of his obligations.

IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are
hereby AFFIRMED.

SO ORDERED.

54
SECOND DIVISION
SPS. ANTONIO & LETICIA VEGA, G.R. No. 181672
- versus -
SOCIAL SECURITY SYSTEM (SSS)
& PILAR DEVELOPMENT Promulgated:
CORPORATION,
September 20, 2010
x --------------------------------------------------------------------------------------- x
This case is about the lack of authority of a sheriff to execute upon a property
that the judgment obligor had long sold to another although the registered
title to the property remained in the name of the former.
The Facts and the Case
Magdalena V. Reyes (Reyes) owned a piece of titled land[1] in Pilar Village, Las
Pias City. On August 17, 1979 she got a housing loan from respondent Social
Security System (SSS) for which she mortgaged her land.[2] In late 1979,
however, she asked the petitioner spouses Antonio and Leticia Vega (the
Vegas) to assume the loan and buy her house and lot since she wanted to
emigrate.[3]
Upon inquiry with the SSS, an employee there told the Vegas that the SSS did
not approve of members transferring their mortgaged homes. The Vegas
could, however, simply make a private arrangement with Reyes provided they
paid the monthly amortizations on time. This practice, said the SSS employee,
was commonplace.[4] Armed with this information, the Vegas agreed for
Reyes to execute in their favor a deed of assignment of real property with
assumption of mortgage and paid Reyes P20,000.00 after she undertook to
update the amortizations before leaving the country. The Vegas then took
possession of the house in January 1981.[5]
But Reyes did not readily execute the deed of assignment. She left the country
and gave her sister, Julieta Reyes Ofilada (Ofilada), a special power of attorney
to convey ownership of the property. Sometime between 1983 and 1984,
Ofilada finally executed the deed promised by her sister to the Vegas. Ofilada
kept the original and gave the Vegas two copies. The latter gave one copy to
the Home Development Mortgage Fund and kept the other.[6] Unfortunately,
a storm in 1984 resulted in a flood that destroyed the copy left with them.[7]
In 1992, the Vegas learned that Reyes did not update the amortizations for
they received a notice to Reyes from the SSS concerning it.[8] They told the
SSS that they already gave the payment to Reyes but, since it appeared
indifferent, on January 6, 1992 the Vegas updated the amortization
themselves and paid P115,738.48 to the SSS, through Antonio Vegas personal
check.[9] They negotiated seven additional remittances and the SSS
accepted P8,681.00 more from the Vegas.[10]
Meanwhile, on April 16, 1993 respondent Pilar Development Corporation
(PDC) filed an action for sum of money against Reyes before the Regional Trial
Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that Reyes borrowed
from Apex Mortgage and Loans Corporation (Apex) P46,500.00 to buy the lot
and construct a house on it.[11]Apex then assigned Reyes credit to the PDC on
December 29, 1992,[12] hence, the suit by PDC for the recovery of the unpaid
debt. On August 26, 1993 the RTC rendered judgment, ordering Reyes to pay
the PDC the loan of P46,398.00 plus interest and penalties beginning April 11,
1979 as well as attorneys fees and the costs.[13] Unable to do so, on January
5, 1994 the RTC issued a writ of execution against Reyes and its Sheriff levied
on the property in Pilar Village.[14]
On February 16, 1994 the Vegas requested the SSS to acknowledge their status
as subrogees and to give them an update of the account so they could settle it
in full. The SSS did not reply. Meantime, the RTC sheriff published a notice for
the auction sale of the property on February 24, March 3 and 10, 1994.[15] He
also served on the Vegas notice of that sale on or about March 20,
1994.[16] On April 5, 1994, the Vegas filed an affidavit of third party claimant
and a motion for leave to admit a motion in intervention to quash the levy on
the property.[17]
Still, stating that Vegas remedy lay elsewhere, the RTC directed the sheriff to
proceed with the execution.[18] Meantime, the Vegas got a telegram dated
August 29, 1994, informing them that the SSS intended to foreclose on the
property to satisfy the unpaid housing debt of P38,789.58.[19] On October 19,
1994 the Vegas requested the SSS in writing for the exact computation of the
indebtedness and for assurance that they would be entitled to the discharge of
the mortgage and delivery of the proper subrogation documents upon
payment. They also sent a P37,521.95 managers check that the SSS refused to
accept.[20]
On November 8, 1994 the Vegas filed an action for consignation, damages, and
injunction with application for preliminary injunction and temporary
restraining order against the SSS, the PDC, the sheriff of RTC Branch 19, and
the Register of Deeds before the RTC of Las Pias in Civil Case 94-2943. Still,
while the case was pending, on December 27, 1994 the SSS released the
mortgage to the PDC.[21] And on August 22, 1996 the Register of Deeds issued
TCT T-56657 to the PDC.[22] A writ of possession subsequently evicted the
Vegas from the property.
On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the Vegas. It
ruled that the SSS was barred from rejecting the Vegas final payment
of P37,521.95 and denying their assumption of Reyes debt, given the SSS
previous acceptance of payments directly from them. The Vegas were
subrogated to the rights of Reyes and substituted her in the SSS housing loan
and mortgage contract. That the Vegas had the receipts show that they were
the ones who made those payments. The RTC ordered the PDC to deliver to
the Vegas the certificate of title covering the property. It also held the SSS and
PDC solidarily liable to the Vegas for P300,000.00 in moral
damages, P30,000.00 in exemplary damages, and P50,000.00 in attorneys fees
and for costs of the suit.[23]
The SSS appealed to the Court of Appeals (CA) in CA G.R. CV 77582. On August
30, 2007 the latter court reversed the RTC decision[24] for the reasons that
the Vegas were unable to produce the deed of assignment of the property in
their favor and that such assignment was not valid as to PDC. Their motion for
reconsideration having been denied, the Vegas filed this petition for review
on certiorari under Rule 45.[25]
The Issues Presented
The issues in this case are:
1. Whether or not the Vegas presented adequate proof of Reyes sale of the
subject property to them;
2. In the affirmative, whether or not Reyes validly sold her SSS-mortgaged
property to the Vegas; and
3. In the affirmative, whether or not the sheriff validly sold the same at public
auction to satisfy Reyes debt to PDC.
The Rulings of the Court
One. The CA ruled that the Vegas were unable to prove that Reyes assigned
the subject property to them, given that they failed to present the deed of
assignment in their favor upon a claim that they lost it.[26] But the rule
requiring the presentation of the original of that deed of assignment is not
absolute. Secondary evidence of the contents of the original can be adduced,
as in this case, when the original has been lost without bad faith on the part of
the party offering it.[27]
Here, not only did the Vegas prove the loss of the deed of assignment in their
favor and what the same contained, they offered strong corroboration of the
fact of Reyes sale of the property to them. They took possession of the house
and lot after they bought it. Indeed, they lived on it and held it in the concept
of an owner for 13 years before PDC came into the picture. They also paid all
55
the amortizations to the SSS with Antonio Vegas personal check, even those
that Reyes promised to settle but did not. And when the SSS wanted to
foreclose the property, the Vegas sent a managers check to it for the balance
of the loan. Neither Reyes nor any of her relatives came forward to claim the
property. The Vegas amply proved the sale to them.
Two. Reyes acquired the property in this case through a loan from the SSS in
whose favor she executed a mortgage as collateral for the loan. Although the
loan was still unpaid, she assigned the property to the Vegas without notice to
or the consent of the SSS. The Vegas continued to pay the amortizations
apparently in Reyes name. Meantime, Reyes apparently got a cash loan from
Apex, which assigned the credit to PDC. This loan was not secured by a
mortgage on the property but PDC succeeded in getting a money judgment
against Reyes and had it executed on the property. Such property was still in
Reyes name but, as pointed out above, the latter had disposed of it in favor of
the Vegas more than 10 years before PDC executed on it.
The question is: was Reyes disposal of the property in favor of the Vegas valid
given a provision in the mortgage agreement that she could not do so without
the written consent of the SSS?
The CA ruled that, under Article 1237[28] of the Civil Code, the Vegas who paid
the SSS amortizations except the last on behalf of Reyes, without the latters
knowledge or against her consent, cannot compel the SSS to subrogate them
in her rights arising from the mortgage. Further, said the CA, the Vegas claim
of subrogation was invalid because it was done without the knowledge and
consent of the SSS as required under the mortgage agreement.[29]
But Article 1237 cannot apply in this case since Reyes consented to the
transfer of ownership of the mortgaged property to the Vegas. Reyes also
agreed for the Vegas to assume the mortgage and pay the balance of her
obligation to SSS. Of course, paragraph 4 of the mortgage contract covering
the property required Reyes to secure SSS consent before selling the
property. But, although such a stipulation is valid and binding, in the sense
that the SSS cannot be compelled while the loan was unpaid to recognize the
sale, it cannot be interpreted as absolutely forbidding her, as owner of the
mortgaged property, from selling the same while her loan remained
unpaid. Such stipulation contravenes public policy, being an undue
impediment or interference on the transmission of property.[30]
Besides, when a mortgagor sells the mortgaged property to a third person, the
creditor may demand from such third person the payment of the principal
obligation. The reason for this is that the mortgage credit is a real right, which
follows the property wherever it goes, even if its ownership changes. Article
2129[31] of the Civil Code gives the mortgagee, here the SSS, the option of
collecting from the third person in possession of the mortgaged property in
the concept of owner.[32] More, the mortgagor-owners sale of the property
does not affect the right of the registered mortgagee to foreclose on the same
even if its ownership had been transferred to another person. The latter is
bound by the registered mortgage on the title he acquired.
After the mortgage debt to SSS had been paid, however, the latter had no
further justification for withholding the release of the collateral and the
registered title to the party to whom Reyes had transferred her right as
owner. Under the circumstance, the Vegas had the right to sue for the
conveyance to them of that title, having been validly subrogated to Reyes
rights
Three. The next question is: was Reyes sale of the property to the Vegas
binding on PDC which tried to enforce the judgment credit in its favor on the
property that was then still mortgaged to the SSS?
The CA ruled that Reyes assignment of the property to the Vegas did not bind
PDC, which had a judgment credit against Reyes, since such assignment
neither appeared in a public document nor was registered with the register of
deeds as Article 1625 of the Civil Code required. Article 1625 reads:
Art. 1625. An assignment of a credit, right or action shall produce no effect as
against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property. (1526)
But Article 1625 referred to assignment of credits and other incorporeal
rights. Reyes did not assign any credit or incorporeal right to the Vegas. She
sold the Vegas her house and lot. They became owner of the property from
the time she executed the deed of assignment covering the same in their
favor. PDC had a judgment for money against Reyes only.A courts power to
enforce its judgment applies only to the properties that are indisputably
owned by the judgment obligor.[33] Here, the property had long ceased to
belong to Reyes when she sold it to the Vegas in 1981.
The PDC cannot take comfort in the fact that the property remained in Reyes
name when it bought the same at the sheriff sale. The PDC cannot assert that
it was a buyer in good faith since it had notice of the Vegas claim on the
property prior to such sale.
Under the circumstances, the PDC must reconvey the subject property to the
Vegas or, if this is no longer possible, pay them its current market value as the
trial court may determine with interest of 12 percent per annum from the date
of the determination of such value until it is fully paid. Further, considering the
distress to which the Vegas were subjected after the unlawful levy on their
property, aggravated by their subsequent ouster from it through a writ of
possession secured by PDC, the RTC was correct in awarding the Vegas moral
damages of P300,000.00, exemplary damages of P30,000.00 and attorneys
fees of P50,000.00 plus costs of the suit. But these are to be borne solely by
PDC considering that the SSS had nothing to do with the sheriffs levy on the
property. It released the title to the PDC simply because it had a sheriffs sale in
its favor.
The PDC is, however, entitled to reimbursement from the Vegas of the sum
of P37,820.15 that it paid to the SSS for the release of the mortgaged title.
WHEREFORE, the Court GRANTS the petition, REVERSES the assailed decision
of the Court of Appeals in CA-G.R. CV 77582 dated August 30, 2007, and in its
place DIRECTS respondent Pilar Development Corporation:
1. To convey to petitioner spouses Antonio and Leticia Vega the title to and
possession of the property subject of this case, covered by Transfer Certificate
of Title 56657 of the Register of Deeds of Las Pias City, for the issuance of a
new title in their names; and
2. To pay the same petitioner spouses moral damages of P300,000.00,
exemplary damages of P30,000.00, and attorneys fees of P50,000.00.
On the other hand, the Court DIRECTS petitioner spouses to reimburse
respondent Pilar Development Corp. the sum of P37,820.15, representing
what it paid the respondent SSS for the release of the mortgaged certificate of
title.
SO ORDERED.
56
FIRST DIVISION
G.R. No. 114172 August 25, 2003
JUANITA P. PINEDA, assisted by her husband, CRISPIN PINEDA, and LILIA
SAYOC, Petitioners,
vs.
COURT OF APPEALS and TERESITA A. GONZALES, assisted by her husband,
FRANCISCO G. GONZALES,Respondents.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari1 seeks to reverse the Decision2 of the
Court of Appeals dated 26 August 1993 in CA-G.R. SP No. 28651 as well as the
Resolution dated 4 March 1994 denying the motion for reconsideration. In its
assailed decision, the Court of Appeals declared void the orders3 of the
Regional Trial Court4 of Cavite City dated 10 January 1992, 5 February 1992
and 30 April 1992, and made the preliminary injunction permanent. In the first
order, the trial court declared that Teresita A. Gonzales, despite notice, failed
to appear at the hearing of the motion to surrender Transfer Certificate of Title
No. T-16084 and to file opposition to the motion. In the second order, the trial
court declared void the original and owner’s duplicate of Transfer Certificate of
Title No. T-16084 and ordered the reinstatement of Transfer Certificate of Title
No. T-8361. In the third order, the trial court denied the motions to lift the first
order and to reconsider the second order.
The Facts
On 4 January 1982, the Spouses Virgilio and Adorita Benitez ("Spouses
Benitez") mortgaged a house and lot ("Property") covered by Transfer
Certificate of Title No. T-8361 ("TCT 8361") in favor of Juanita P. Pineda
("Pineda") and Leila P. Sayoc ("Sayoc"). The real estate mortgage secured the
Spouses Benitez’s loan of ₱243,000 with a one-year maturity period.5 Pineda
and Sayoc did not register the mortgage with the Register of Deeds. The
Spouses Benitez delivered the owner’s duplicate of TCT 8361 to Pineda.
On 9 November 1983, with the consent of Pineda, the Spouses Benitez sold
the house,6 which was part of the Property, to Olivia G. Mojica ("Mojica"). On
the same date, Mojica filed a petition for the issuance of a second owner’s
duplicate of TCT 8361 alleging that she "purchased a parcel of land"7 and the
"owner’s duplicate copy of TCT No. T-8361 was lost."8
On 7 December 1983, the trial court granted the petition. The Register of
Deeds of Cavite City issued the second owner’s duplicate of TCT 8361 in the
name of the Spouses Benitez.
On 12 December 1983, the Spouses Benitez sold the lot9 covered by TCT 8361
to Mojica. With the registration of the deed of sale and presentation of the
second owner’s duplicate of TCT 8361, the Register of Deeds cancelled TCT
8361 and issued Transfer Certificate of Title No. T-13138 ("TCT 13138") in the
name of Mojica.
On 22 February 1985, Mojica obtained a loan of ₱290,000 from Teresita A.
Gonzales ("Gonzales"). Mojica executed a promissory note and a deed of
mortgage over the Property in favor of Gonzales. Gonzales registered this deed
of mortgage with the Register of Deeds of Cavite City who annotated the
mortgage on TCT 13138 as Entry No. 33209.
Meanwhile, on 8 May 1985, Pineda and Sayoc filed a complaint before the
Regional Trial Court10 of Cavite City, docketed as Civil Case No. 4654, against
the Spouses Benitez and Mojica. The complaint prayed for the cancellation of
the second owner’s duplicate of TCT 8361 and the award of moral damages
and attorney’s fees.
In their answer, the Spouses Benitez admitted selling to Mojica the Property
which was already subject to a previous mortgage in favor of Pineda and
Sayoc. The Spouses Benitez claimed that under the Acknowledgment of
Indebtedness,11 Mojica, with the conformity of Pineda and Sayoc, agreed to
assume the balance of the mortgage debt of the Spouses Benitez to Pineda
and Sayoc.
The Spouses Benitez denied any knowledge of Mojica’s petition for the
issuance of a second owner’s duplicate of TCT 8361. The Spouses Benitez
prayed for the dismissal of the complaint and the award of moral damages and
attorney’s fees. The Spouses Benitez also prayed that in case the court would
render judgment in favor of Pineda and Sayoc, only Mojica should be held
liable.
On the other hand, Mojica denied conspiring with the Spouses Benitez and
committing fraud in filing the petition for the issuance of a second owner’s
duplicate of TCT 8361. Mojica stated that the Spouses Benitez sold to her the
Property. Mojica claimed that upon the execution of the deed of sale, the
Spouses Benitez delivered to her the owner’s duplicate of TCT 8361. However,
Mojica alleged that the owner’s duplicate of TCT 8361 was lost.
Mojica also asserted that she verified with the Register of Deeds of Cavite City
the provision in the deed of sale that the Property was free from all liens and
encumbrances and found the same to be true. Mojica added that on learning
of the Spouses Benitez’s mortgage with Pineda and Sayoc, she signed the
Acknowledgment of Indebtedness. Mojica contended that since Pineda, for
herself and Sayoc, conformed to this agreement, Pineda and Sayoc had no
personality to file the complaint. Mojica further alleged that Pineda and Sayoc
were in estoppel from challenging the validity of the second owner’s duplicate
of TCT 8361 because Pineda and Sayoc, despite notice, failed to oppose the
reconstitution of the title.
Mojica maintained that the Spouses Benitez are indispensable parties because
TCT 8361 was in their name. Mojica also asserted that she did not breach the
Acknowledgment of Indebtedness since she had paid the Spouses Benitez an
amount more than their debt to Pineda and Sayoc. Mojica contended that had
the Spouses Benitez paid the amount to Pineda and Sayoc, there would have
been no obligation to assume. Mojica prayed for the dismissal of the
complaint and the award of moral and exemplary damages and attorney’s
fees.
During the pendency of the case, Pineda caused the annotation on 18 August
1986 of a notice of lis pendens on the original of TCT 8361 with the Register of
Deeds.
After trial, the trial court rendered a Decision dated 15 June 1987, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment
declaring the second owner’s duplicate of TCT No. T-8361 of the land records
of Cavite as null and void and the Register of Deeds of Cavite City is hereby
ordered upon payment of the corresponding legal fees the annotation of this
pronouncement in its record and the revival of the first owner’s duplicate with
the same faith and credit before its alleged loss. The counterclaim of
defendants Benitezes is hereby dismissed. No pronouncement as to costs.
SO ORDERED.12
On 7 December 1987, Mojica defaulted in paying her obligation to Gonzales.
Hence, Gonzales extrajudicially foreclosed the mortgage. On 27 January 1988,
Gonzales purchased at public auction the Property for ₱423,244.88.
For failure of Mojica to redeem the Property, Gonzales consolidated the title
to the Property. On 29 March 1989, Gonzales executed the corresponding
Affidavit of Consolidation.
On 30 March 1989, the Register of Deeds of Cavite City cancelled TCT 13138,
which was in Mojica’s name, and issued Transfer Certificate of Title No. T-
16084 ("TCT 16084") in the name of Gonzales. TCT 16084 contained Entry No.
35520, the notice of lis pendens dated 18 August 1986 in relation to Civil Case
No. 4654.13 The Register of Deeds annotated on TCT 16084 the notice of lis
pendens, even though TCT 13138 did not contain such annotation.
Meanwhile, dissatisfied with the trial court’s decision, the Spouses Benitez and
Mojica appealed to the Court of Appeals, docketed as CA-G.R. CV No. 15417.
On 29 January 1991, the Court of Appeals rendered a Decision14affirming the
trial court’s decision declaring void the second owner’s duplicate of TCT 8361.
57
The decision of the Court of Appeals became final and was entered in the Book
of Entries of Judgments on 17 June 1991.
The Court of Appeals returned the records of the case to the trial court on 10
July 1991. On motion of Pineda and Sayoc, the trial court issued a writ of
execution to enforce the judgment.
However, the writ of execution was returned unsatisfied. The Sheriff’s Return
of 12 September 1991 stated that the Register of Deeds could not implement
the writ of execution. The Sheriff’s Return showed that the Register of Deeds
had already cancelled TCT 8361 and issued TCT 16084 in the name of Gonzales
by virtue of the consolidation of title dated 29 March 1989.
Consequently, on 6 December 1991, Pineda and Sayoc filed a motion with the
trial court for the issuance of an order requiring Gonzales to surrender the
owner’s duplicate of TCT 16084 to the Register of Deeds of Cavite City.
In its Order dated 10 January 1992 ("first order"), the trial court declared that
Gonzales, despite notice, failed to appear at the hearing and to oppose the
motion to surrender TCT 16084. In the same order, the trial court directed
Gonzales to file a memorandum. Gonzales received this order on 20 January
1992.
Subsequently, Gonzales filed a motion to lift the first order alleging that since
she was not a party in Civil Case No. 4654, the decision did not bind her.
Gonzales also claimed that she did not receive notice of the hearing, copy of
the motion to surrender TCT 16084 and the order resetting the hearing
because she was in the United States of America. Gonzales finally alleged that
she was an innocent purchaser for value.
In an Order dated 5 February 1992 ("second order"), the trial court declared
void the original and the owner’s duplicate of TCT 16084 in the name of
Gonzales. The trial court ordered the reinstatement of TCT 8361 in the name
of the Spouses Benitez.
Gonzales filed a motion for reconsideration of the second order. On 30 April
1992, the trial court issued an Order ("third order") denying Gonzales’ motions
to lift the first order and to reconsider the second order.
Aggrieved by the trial court’s orders, Gonzales filed with the Court of Appeals a
petition for the issuance of a writ of prohibitory injunction.
On 26 August 1993, the Court of Appeals rendered a decision disposing as
follows:
WHEREFORE, the petition is granted. The assailed orders dated 10 January
1992, 5 February 1992, and 30 April 1992 are hereby declared NULL and VOID,
and the preliminary prohibitory injunction is made permanent.
SO ORDERED.15
Hence, the instant petition.
The Ruling of the Court of Appeals
In the Court of Appeals, Gonzales maintained that the trial court had no
jurisdiction over her person and property because Pineda and Sayoc did not
implead her as a party in Civil Case No. 4654. Insisting that the questioned
orders were procured through extrinsic or collateral fraud, Gonzales claimed
that the orders of the trial court were void. Gonzales further alleged that she
was an innocent purchaser for value making her title to the Property
indefeasible and imprescriptible.
Pineda and Sayoc, on the other hand, argued that the notice of lis pendens
annotated on the title of the Property bound Gonzales, as subsequent
purchaser of the Property, to the outcome of the case. Pineda and Sayoc
contended that Gonzales was not a purchaser in good faith because Gonzales
had constructive notice of the pending litigation when she purchased the
Property.
Moreover, Pineda and Sayoc argued that no separate action is necessary to
cancel the title because Gonzales is bound by the outcome of the litigation.
They contended that there was no extrinsic fraud because the notice of lis
pendens warned Gonzales of the pendency of Civil Case No. 4654 where she
could have intervened. Pineda and Sayoc further alleged that foreclosure and
sale, not a mortgage, vest title on a mortgagee. Foreclosure and sale, however,
are always subject to a notice of lis pendens.
In granting the petition, the Court of Appeals ruled that the trial court erred
when it voided TCT 16084 upon a mere motion for the surrender of the
owner’s duplicate of TCT 16084. The Court of Appeals further held that the
trial court erred in ordering the reinstatement of TCT 8361 in the name of the
Spouses Benitez.
The Court of Appeals held that Pineda and Sayoc should have filed the petition
to surrender TCT 16084 in the original case where the decree of registration of
TCT 16084 was entered and not in Civil Case No. 4654. The second paragraph
of Section 108 of Presidential Decree No. 152916 ("PD 1529") requires the
filing of such separate petition. The appellate court stated that it was beyond
the trial court’s authority to act on the matter on a mere motion to surrender
TCT 16084.
The Court of Appeals likewise ruled that the trial court did not acquire
jurisdiction over the person of Gonzales because she was not a party in Civil
Case No. 4654. The appellate court found that Gonzales could not have known
of, and appeared at, the hearing of the motion to surrender TCT 16084
because Gonzales was then out of the country.
Assuming that the trial court could validly act on the motion of Pineda and
Sayoc, the Court of Appeals declared that the orders nevertheless contravened
Section 107 of PD 1529. This provision of law requires a hearing before the
court can act on a petition to surrender a duplicate certificate of title.
The Issues
Petitioners raise the following issues for resolution:
1. Whether a notice of lis pendens binds a subsequent purchaser of the
property to the outcome of the pending case.
2. Whether TCT 13138 and TCT 16084, being derived from the void second
owner’s duplicate of TCT 8361, are also void.
3. Whether a separate action should be filed to cancel TCT 16084.
4. Whether Gonzales was an innocent purchaser for value.
5. Whether Gonzales was denied due process of law.
The Ruling of the Court
We deny the petition.
Validity of TCT 13138 and TCT 16084
Mojica filed a petition for reconstitution17 of the owner’s duplicate of TCT
8361 claiming that this owner’s duplicate was lost. However, contrary to
Mojica’s claims, the owner’s duplicate of TCT 8361 was not lost but in Pineda’s
possession. Since the owner’s duplicate of TCT 8361 was in fact not lost or
destroyed, there was obviously nothing to reconstitute or replace. Therefore,
the trial court correctly ruled that the reconstitution proceedings and the
second owner’s duplicate of TCT 8361 are void.18 As the Court held in New
Durawood Co., Inc. v. Court of Appeals:19
In the instant case, the owner’s duplicate certificates of title were in the
possession of Dy Quim Pong, the petitioner’s chairman of the board and
whose family controls the petitioner-corporation. Since said certificates were
not in fact "lost or destroyed", there was no necessity for the petition filed in
the trial court for the "Issuance of New Owner’s Duplicate Certificates of Title .
. ." In fact, the said court never acquired jurisdiction to order the issuance of
new certificates. Hence, the newly issued duplicates are themselves null and
void. (Emphasis supplied)
Mojica registered with the Register of Deeds the deed of sale executed by the
Spouses Benitez conveying the Property to her. Mojica also presented to the
Register of Deeds the second owner’s duplicate of TCT 8361. The Register of
58
Deeds cancelled TCT 8361 and issued on 14 December 1983 TCT 13138 in the
name of Mojica. However, since TCT 13138 is derived from the void second
owner’s duplicate of TCT 8361, TCT 13138 is also void. No valid transfer
certificate of title can issue from a void transfer certificate of title, unless an
innocent purchaser for value has intervened.20
Mojica was not a purchaser in good faith. Mojica alleged that the Spouses
Benitez gave her the owner’s duplicate of TCT 8361 on 9 November 1983, the
day the Spouses Benitez sold to her the house. However, in her petition for
reconstitution, which she also filed on the same day, 9 November 1983, Mojica
claimed that the owner’s duplicate of TCT 8361 was lost. In effect, Mojica
claimed that she received the owner’s duplicate of TCT 8361 from the Spouses
Benitez, lost the same, and filed the petition for reconstitution, all on the same
day, 9 November 1983.
In her petition for reconstitution, Mojica also claimed that she "purchased a
parcel of land" when in fact she only purchased on 9 November 1983 the
house, and not the lot covered by TCT 8361. Obviously, Mojica procured the
reconstitution of the second owner’s duplicate of TCT 8361 through
misrepresentation. Hence, Mojica was not a purchaser in good faith when she
later purchased on 12 December 1983 the lot since she knew of the
irregularity in the reconstitution of the second owner’s duplicate of TCT 8361.
Therefore, TCT 13138 issued in the name of Mojica is void. However, what is
void is the transfer certificate of title and not the title over the Property. The
title refers to the ownership of the Property covered by the transfer certificate
of title while the transfer certificate of title merely evidences that ownership.
A certificate of title is not equivalent to title as the Court explained in Lee Tek
Sheng v. Court of Appeals:21
xxx The certificate referred to is that document issued by the Register of Deeds
known as the Transfer Certificate of Title (TCT). By title, the law refers to
ownership which is represented by that document.Petitioner apparently
confuses certificate with title. Placing a parcel of land under the mantle of the
Torrens system does not mean that ownership thereof can no longer be
disputed. Ownership is different from a certificate of title. The TCT is only the
best proof of ownership of a piece of land. Besides, the certificate cannot
always be considered as conclusive evidence of ownership. Mere issuance of
the certificate of title in the name of any person does not foreclose the
possibility that the real property may be under co-ownership with persons not
named in the certificate or that the registrant may only be a trustee or that
other parties may have acquired interest subsequent to the issuance of the
certificate of title. To repeat, registration is not the equivalent of title, but is
only the best evidence thereof. Title as a concept of ownership should not be
confused with the certificate of title as evidence of such ownership although
both are interchangeable. xxx (Emphasis supplied)
Mojica’s Title
The prior mortgage of the Property by the Spouses Benitez to Pineda and
Sayoc did not prevent the Spouses Benitez, as owners of the Property, from
selling the Property to Mojica. A mortgage is merely an encumbrance on the
property and does not extinguish the title of the debtor who does not lose his
principal attribute as owner to dispose of the property.22 The law even
considers void a stipulation forbidding the owner of the property from
alienating the mortgaged immovable.23
Since the Spouses Benitez were the undisputed owners of the Property, they
could validly sell and deliver the Property to Mojica. The execution of the
notarized deed of sale between the Spouses Benitez and Mojica had the legal
effect of actual or physical delivery. Ownership of the Property passed from
the Spouses Benitez to Mojica.24The nullity of the second owner’s duplicate of
TCT 8361 did not affect the validity of the sale as between the Spouses Benitez
and Mojica.
Gonzales’ Title
After the sale of the Property to her, Mojica obtained a loan from Gonzales
secured by a real estate mortgage over the Property. Gonzales registered this
mortgage on 22 February 1985 with the Register of Deeds who annotated the
mortgage on the void TCT 13138 in Mojica’s name. The nullity of TCT 13138
did not automatically carry with it the nullity of the annotation of Gonzales’
mortgage. The rule is that a mortgage annotated on a void title is valid if the
mortgagee registered the mortgage in good faith.25 In Blanco v.
Esquierdo,26 the Court held:
That the certificate of title issued in the name of Fructuosa Esquierdo is a
nullity, the same having been secured thru fraud, is not here in question. The
only question for determination is whether the defendant bank is entitled to
the protection accorded to "innocent purchasers for value", which phrase,
according to sec. 38 of the Land Registration Law, includes an innocent
mortgagee for value. The question, in our opinion, must be answered in the
affirmative.
The trial court, in the decision complained of, made no finding that the
defendant mortgagee bank was a party to the fraudulent transfer of the land
to Fructuosa Esquierdo. Indeed, there is nothing alleged in the complaint
which may implicate said defendant mortgagee in the fraud, or justify a finding
that it acted in bad faith. On the other hand, the certificate of title was in the
name of the mortgagor Fructuosa Esquierdo when the land was mortgaged by
her to the defendant bank. Such being the case, the said defendant bank, as
mortgagee, had the right to rely on what appeared in the certificate and, in the
absence of anything to excite suspicion, was under no obligation to look
beyond the certificate and investigate the title of the mortgagor appearing on
the face of said certificate. (De Lara, et al. vs. Ayroso, 95 Phil., 185; 50 Off.
Gaz., [10] 4838, Joaquin vs. Madrid, et al., 106 Phil., 1060). Being thus an
innocent mortgagee for value, its right or lien upon the land mortgaged must
be respected and protected, even if the mortgagor obtained her title thereto
thru fraud. The remedy of the persons prejudiced is to bring an action for
damages against those causing the fraud, xxx. (Emphasis supplied)
Thus, the annotation of Gonzales’ mortgage on TCT 13138 was valid and
operated to bind the Property and the world, despite the invalidity of TCT
13138.
Gonzales registered her mortgage in good faith. Gonzales had no actual notice
of the prior unregistered mortgage in favor of Pineda and Sayoc. To bind third
parties to an unregistered encumbrance, the law requires actual notice.27The
fact that Mojica, who sold the Property to Gonzales, had actual notice of the
unregistered mortgage did not constitute actual notice to Gonzales, absent
proof that Gonzales herself had actual notice of the prior mortgage. Thus,
Gonzales acquired her rights as a mortgagee in good faith.
When Mojica defaulted in paying her debt, Gonzales caused the extrajudicial
foreclosure of the mortgaged Property. Gonzales purchased the mortgaged
Property as the sole bidder at the public auction sale. For Mojica’s failure to
redeem the foreclosed Property within the prescribed period, Gonzales
consolidated her title to the Property. Absent any evidence to the contrary,
the sale at public auction of the Property to Gonzales was valid. Thus, the title
or ownership of the Property passed from Mojica to Gonzales. At this point,
therefore, Gonzales became the owner of the Property.
When Gonzales purchased the Property at the auction sale, Pineda and Sayoc
had already annotated the lis pendens on the original of TCT 8361, which
remained valid. However, the mortgage of Gonzales was validly registered
prior to the notation of the lis pendens. The subsequent annotation of the lis
pendens could not defeat the rights of the mortgagee or the purchaser at the
auction sale who derived their rights under a prior mortgage validly registered.
The settled rule is that the auction sale retroacts to the date of the registration
of the mortgage,28 putting the auction sale beyond the reach of any
intervening lis pendens, sale or attachment. As the Court explained in Caviles,
Jr. v. Bautista:29
We have also consistently ruled that an auction or execution sale retroacts to
the date of levy of the lien of attachment. When the subject property was sold
on execution to the petitioners, this sale retroacted to the date of inscription
of petitioners’ notice of attachment on October 6, 1982. The earlier
registration of the petitioners’ levy on preliminary attachment gave them
superiority and preference in rights over the attached property as against
respondents.
Accordingly, we rule that the execution sale in favor of the petitioner Caviles
spouses was anterior and superior to the sale of the same property to the
respondent Bautista spouses on October 18, 1982. The right of petitioners to
the surrender of the owner’s duplicate copy of TCT No. 57006 covering the
subject property for inscription of the certificate of sale, and for the
59
cancellation of said certificate of title and the issuance of a new title in favor of
petitioners cannot be gainsaid.
A contrary rule would make a prior registration of a mortgage or any lien
meaningless.30 The prior registered mortgage of Gonzales prevails over the
subsequent notice of lis pendens, even if the auction sale took place after the
notation of the lis pendens. Consequently, TCT 16084, issued to Gonzales after
she presented the sheriff’s certificate of sale and her affidavit of consolidation,
is valid.
WHEREFORE, the petition is DENIED. The Decision dated 26 August 1993 and
the Resolution dated 4 March 1994 of the Court of Appeals in CA–G.R. SP No.
28651 are AFFIRMED. Petitioners Juanita P. Pineda and Lilia Sayoc are directed
to surrender the owner’s duplicate of Transfer Certificate of Title No. 8361 to
the Register of Deeds of Cavite City for cancellation. Transfer Certificate of
Title No. 16084 in the name of Teresita A. Gonzales is declared valid. This is
without prejudice to any action petitioners Juanita P. Pineda and Lilia Sayoc
may file against the Spouses Virgilio and Adorita Benitez as well as Olivia G.
Mojica. No pronouncement as to costs.

What remained with Pineda and Sayoc after the foreclosure was the SO ORDERED.
mortgagor’s residual rights over the foreclosed Property, which rights are the
equity of redemption31 and a share in the surplus fund, if any.32 Since Mojica
was not a purchaser in good faith, the residual rights of Mojica were subject to
the claim of Pineda and Sayoc. Of course, Pineda and Sayoc may still file an
action to recover the outstanding debt of the Spouses Benitez, and even go
after Mojica for her assumption of obligation under the Acknowledgment of
Indebtedness.

The Equities Favor Gonzales over Pineda and Sayoc

Pineda and Sayoc were negligent in not registering their mortgage, which
ultimately led to this controversy.1âwphi1 Had Pineda and Sayoc registered
their mortgage, their rights as prior mortgagees would have prevailed over
that of Gonzales. Pineda and Sayoc were also negligent in not foreclosing their
mortgage ahead of Gonzales, when they could have done so as early as 4
January 1983 after the Spouses Benitez defaulted on their loan.33 In contrast,
the loan of Mojica fell due only on 7 December 1987.

Since Gonzales vigilantly exercised her right to foreclose the mortgaged

Property ahead of Pineda and Sayoc, Gonzales’ mortgage would still prevail
over the mortgage of Pineda and Sayoc even if Gonzales’ mortgage was not
validly registered. The unregistered mortgage of Pineda and Sayoc was
extinguished upon foreclosure of Gonzales’ mortgage even assuming for the
sake of argument that the latter mortgage was unregistered. Between two
unregistered mortgagees, both being in good faith, the first to foreclose his
mortgage prevails over the other.

Even assuming that Gonzales’ mortgage was not validly registered, the notice
of lis pendens could still not defeat Gonzales’ right under the foreclosure sale.
The effect of the notice of lis pendens was to subject Gonzales, as the
subsequent purchaser of the Property, to the outcome of the case. The
outcome of the case is the cancellation of the second owner’s duplicate of TCT
8361. The complaint of Pineda and Sayoc simply prayed for the cancellation of
the second owner’s duplicate of TCT 8361 and the award of
damages.34 1âwphi1

The notice of lis pendens would only bind Gonzales to the declaration of nullity
of the second owner’s duplicate of TCT 8361. Gonzales could not use TCT
13138, as a void issue of the void second owner’s duplicate of TCT 8361, to
secure a new TCT in her name. This is the legal consequence of the notice of lis
pendens, which would have bound Gonzales had the registration of her
mortgage been void. However, the declaration of nullity of TCT 13138 would
still not make the mortgage of Pineda and Sayoc preferred over that of
Gonzales. Since Gonzales foreclosed her mortgage ahead of Pineda and Sayoc,
she would still have a better right than Pineda and Sayoc who slept on their
rights as mortgagees.

Conclusion

The nullity of TCT 13138 did not affect the validity of the title or ownership of
Mojica or Gonzales as subsequent transferees of the Property. What is void is
the transfer certificate of title, not the title or ownership itself of Mojica or
Gonzales. The notice of lis pendens could not defeat Gonzales’ rights over the
Property for two reasons. First, Gonzales registered in good faith her mortgage
before the notation of the lis pendens, making the registration of her
mortgage valid despite the invalidity of TCT 13138. Second, since Gonzales’
mortgage was valid, the auction sale retroacted to the date of registration of
her mortgage, making the auction sale prior in time to the notice of lis
pendens. Thus, TCT 16084, issued to Gonzales as a result of the foreclosure
sale, is valid.

60
THIRD DIVISION
[G.R. No. 137792. August 12, 2003]
SPOUSES RICARDO ROSALES and ERLINDA SIBUG, petitioners, vs. 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 vs. Alfonso and Lourdes Suba.
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:
WHEREFORE, judgment is rendered:
(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.
Petitioners failed to pay the amount. On March 25, 1998, the trial court issued
a writ of 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 P176,176.06 from the proceeds of the auction sale, prompting
petitioners to file a motionpraying 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 vs. 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:
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.
61
SEC. 3. Sale of mortgaged property, effect. When the defendant, after being WHEREFORE, the petition is DENIED. The Resolutions of the Court of Appeals
directed to do so as provided in the next preceding section, fails to pay the dated November 25, 1998 and February 26, 1999 in CA G.R. SP No. 49634 are
amount of the judgment within the period specified therein, the court, upon AFFIRMED.
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 SO ORDERED.
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.

In Huerta Alba Resort, Inc. vs. Court of Appeals,[7] we held that the right of
redemption is not recognized in a judicial foreclosure, thus:

The right of redemption in relation to a mortgageunderstood in the sense of a

prerogative to re-acquire mortgaged property after registration of the
foreclosure saleexists 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, x x x 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, x x x 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 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.

xxx

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.

62
FIRST DIVISION
G.R. No. 125838 June 10, 2003
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and EMERALD RESORT HOTEL
CORPORATION, respondents.
CARPIO, J.:
The Case
This petition for review on certiorari1 seeks to reverse the Joint Decision2 of
the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 dated 31 January
1996 and the Resolution dated 30 July 1996 denying the motion for
reconsideration. The Court of Appeals affirmed the Decision3 of the Regional
Trial Court of Iriga City, Branch 36, declaring the foreclosure of the mortgaged
properties void for failure to comply with the statutory requisites.
The Facts
Private respondent Emerald Resort Hotel Corporation ("ERHC") obtained a
loan from petitioner Development Bank of the Philippines ("DBP"). DBP
released the loan of P3,500,000.00 in three installments: P2,000,000.00 on 27
September 1975, P1,000,000.00 on 14 June 1976 and P500,000.00 on 14
September 1976. To secure the loan, ERHC mortgaged its personal and real
properties to DBP.
On 18 March 1981, DBP approved a restructuring of ERHC’s loan subject to
certain conditions.4 On 25 August 1981, DBP allegedly cancelled the
restructuring agreement for ERHC’s failure to comply with some of the
material conditions5 of the agreement.
Subsequently, ERHC delivered to DBP three stock certificates of ERHC
aggregating 3,477,052 shares with a par value of P1.00 per share. ERHC first
delivered to DBP on 20 October 1981 Stock Certificate No. 30 covering
1,862,148 shares. Then ERHC delivered on 3 November 1981 Stock Certificate
No. 31 covering 691,052 shares, and on 27 November 1981 Stock Certificate
No. 32 covering 923,852 shares.
On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the
Office of the Sheriff, Regional Trial Court of Iriga City, an Application for Extra-
judicial Foreclosure of Real Estate and Chattel Mortgages.
Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the required
notices of public auction sale of the personal and real properties. However,
Sheriffs Ramos and Galeon failed to execute the corresponding certificates of
posting of the notices. On 10 July 1986, the auction sale of the personal
properties proceeded.
The Office of the Sheriff scheduled on 12 August 1986 the public auction sale
of the real properties. The Bicol Tribune published on 18 July 1986, 25 July
1986 and 1 August 1986 the notice of auction sale of the real properties.
However, the Office of the Sheriff postponed the auction sale on 12 August
1986 to 11 September 1986 at the request of ERHC. DBP did not republish the
notice of the rescheduled auction sale because DBP and ERHC signed an
agreement to postpone the 12 August 1986 auction sale.6 ERHC, however,
disputes the authority of Jaime Nuevas who signed the agreement for ERHC.
In a letter dated 24 November 1986, ERHC informed DBP of its intention to
lease the foreclosed properties.7
On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a
complaint for annulment of the foreclosure sale of the personal and real
properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC alleged
that the foreclosure was void mainly because (1) DBP failed to comply with the
procedural requirements prescribed by law; and (2) the foreclosure was
premature. ERHC maintained that the loan was not yet due and demandable
because the DBP had restructured the loan.
DBP moved to dismiss the complaint because it stated no cause of action and
ERHC had waived the alleged procedural defenses. The trial court denied the
motion to dismiss. Consequently, DBP filed its answer, claiming that it
complied with the legal requirements for a valid foreclosure. DBP further
claimed that it cancelled the conditional restructuring of ERHC’s loan because
ERHC failed to comply with some material conditions of the restructuring
agreement.
Meanwhile, acting on ERHC’s application for the issuance of a writ of
preliminary injunction, the trial court granted the writ on 20 August 1990.
Accordingly, the trial court enjoined DBP from enforcing the legal effects of the
foreclosure of both the chattel and real estate mortgages.
Thereafter, trial on the merits ensued. After the parties presented their
evidence, the trial court rendered a Decision8dated 28 January 1992, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff corporation and against the defendants:
1. Declaring as null and void the foreclosure and auction sale of the personal
properties of plaintiff corporation held on July 10, 1986;
2. Declaring as null and void the foreclosure and auction sale of the real
properties of plaintiff corporation covered by TCT No. RT-1075 (19980); TCT
No. RT-1076 (19981); TCT No. RT-1077 (22367) and TCT No. 10244 of the
Register of Deeds of Camarines Sur (now Iriga City) in the auction sale thereof
held on September 11, 1986, and all the improvements therein;
3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to cancel
the annotations of the Sheriff’s Certificate of Sale on the aforestated titles as
null and void and without any legal effect;
4. Ordering the defendant Development Bank of the Philippines to comply
with the restructuring of plaintiff corporation’s loans retroactively as though
the foreclosure had not taken place in the interest of justice and equity; and
5. Ordering the defendant DBP to pay plaintiff corporation moral damages in
the amount of P500,000.00 for initiating what was a clearly illegal foreclosure
and causing the said plaintiff corporation to suffer needlessly anguish,
opprobrium and disrepute as a consequence thereto.
SO ORDERED.
Both ERHC and DBP appealed the trial court’s decision to the Court of Appeals.
ERHC anchored its appeal on the insufficiency of the moral damages awarded
by the trial court and the absence of any award of temperate, nominal or
exemplary damages. DBP’s appeal, on the other hand, assailed the decision as
well as the order dismissing its petition for a writ of possession.
The Court of Appeals, which consolidated the appeals, affirmed the decision of
the trial court.9 DBP filed a Motion for Reconsideration which the Court of
Appeals denied.10
Hence, this petition.
The Ruling of the Court of Appeals
The Court of Appeals sustained the trial court’s ruling that the foreclosure was
void. The Court of Appeals affirmed the trial court’s finding that DBP failed to
comply with the posting and publication requirements under the applicable
laws. The Court of Appeals held that the non-execution of the certificate of
posting of the notices of auction sale and the non-republication of the notice
of the rescheduled 11 September 1986 auction sale invalidated the
foreclosure.
The Court of Appeals also found that the parties perfected the restructuring
agreement and that ERHC substantially complied with its conditions based on
the following "circumstances":
(a) The transmittal letter dated October 20, 1981 which relates to the progress
of the restructuring of the mortgage account of Emerald Resort Hotel
Corporation and that the same has been approved by the SEC (Exh. "D")
63
(b) The transfer of shares of stocks to appellant DBP, the value of which are
broken as follows:
1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. "D"
and "D-1");
2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. "F" and
"F-1");
3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs. "M"
and "M-5").
(c) The acceptance of the foregoing by the DBP without raising the fact of
delay as embodied in condition no. 7 of Exh. "B".
(d) No rejection was made by the defendant-appellant DBP at the time the
shares of stocks were being held by the latter.
(e) The belated rejection of the shares of stocks was interposed only at the
time the instant suit was filed which was long after the expiration of the 90-
day period extended by DBP to Emerald.
(f) No rejection was also made when plaintiff corporation did not avail of the
additional loan which was allegedly part of the package accommodation.11
The Court of Appeals also affirmed the trial court’s award of moral damages
but denied ERHC’s claim for temperate and exemplary damages. The Court of
Appeals found that DBP’s intrusion, assisted by sheriffs and several armed
men, into Hotel Ibalon and the sheriffs’ inventory of the hotel’s furniture and
fixtures caused fear and anxiety to the hotel owner, staff and guests. These
acts, according to the Court of Appeals, debased the hotel’s goodwill and
undermined its viability warranting the award of moral damages.
Finding the foreclosure void, the Court of Appeals also denied DBP’s petition
for a deficiency claim and a writ of possession.
The Issues
DBP presents the following issues for resolution:
1. Whether DBP complied with the posting and publication requirements
under applicable laws for a valid foreclosure.
2. Whether the restructuring agreement between DBP and ERHC was
perfected and implemented by the parties before the foreclosure.
3. Whether ERHC’s offer to lease the foreclosed properties constitutes a
waiver of its right to question the validity of the foreclosure.
4. Whether the award of moral damages to ERHC, a juridical person, is proper.
The Court’s Ruling
The petition is partly meritorious.
First Issue:
Compliance with the posting and publication requirements under applicable
laws
Posting requirement under Acts Nos. 3135 and 1508
In alleging that the foreclosure was valid, DBP maintains that it complied with
the mandatory posting requirement under applicable laws.12 DBP insists that
the non-execution of the certificate of posting of the auction sale notices did
not invalidate the foreclosure.
We agree.
This Court ruled in Cristobal v. Court of Appeals13 that a certificate of posting
is not required, much less considered indispensable for the validity of an
extrajudicial foreclosure sale of real property under Act No. 3135. Cristobal
merely reiterated the doctrine laid down in Bohanan v. Court of Appeals.14 In
the present case, the foreclosing sheriffs failed to execute the certificate of
posting of the auction sale notices. However, this fact alone does not prove
that the sheriffs failed to post the required notices. As held in Bohanan, "the
fact alone that there is no certificate of posting attached to the sheriff's
records is not sufficient to prove the lack of posting."15
Based on the records, DBP presented sufficient evidence to prove that the
sheriffs posted the notices of the extrajudicial sale. The trial and appellate
courts glaringly erred and gravely abused its discretion in disregarding the
sheriffs’ partial report and the sheriffs’ certificate of sale executed after the
auction sale. A careful examination of these two documents clearly shows that
the foreclosing sheriffs posted the required notices of sale.
The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and
Deputy Sheriff Ruperto Galeon states in part:
That on July 1, 1986, the undersigned sheriffs posted the notice of public
auction sale of chattel mortgage in the conspicuous places, and at the Iriga City
Hall Bulletin Board, including Ibalon Hotel, Iriga City xxx.16 (Emphasis supplied)
Similarly, the certificate of sale of the real properties signed by both Sheriff
Ramos and Deputy Sheriff Galeon on 11 September 1986 states in part:
I, FURTHERMORE CERTIFY that the Notice of Sale was published in BICOL
TRIBUNE, a newspaper of general circulation in the province of Camarines Sur,
for three (3) consecutive weeks and three (3) copies of the notices of sale were
posted in three (3) public places of the City where the properties are located
for no less than twenty (20) days before the sale. 17 (Emphasis supplied)
Deputy Sheriff Galeon also testified that he, together with Sheriff
Ramos,18 actually posted the notices of sale.19Indisputably, there is clear and
convincing evidence of the posting of the notices of sale. What the law
requires is the posting of the notice of sale, which is present in this case, and
not the execution of the certificate of posting.
Moreover, ERHC bore the burden of presenting evidence that the sheriffs
failed to post the notices of sale.20 In the absence of contrary evidence, as in
this case, the presumption prevails that the sheriffs performed their official
duty of posting the notices of sale. Consequently, we hold that the non-
execution of the certificate of posting cannot nullify the foreclosure of the
chattel and real estate mortgages in the instant case.
Publication requirement under Act No. 3135
Having shown that there was posting of the notices of auction sale, we shall
now resolve whether there was publication of the notice of sale of the real
properties in compliance with Act No. 3135.21
There is no question that DBP published the notice of auction sale scheduled
on 12 August 1986. However, no auction sale took place on 12 August 1986
because DBP, at the instance of ERHC, agreed to postpone the same to 11
September 1986. DBP contends that the agreement to postpone dispensed
with the need to publish again the notice of auction sale. Thus, DBP did not
anymore publish the notice of the 11 September 1986 auction sale. DBP insists
that the law does not require republication of the notice of a rescheduled
auction sale. Consequently, DBP argues vigorously that the extrajudicial
foreclosure of the real estate mortgage is valid.
We do not agree.
The Court held recently in Ouano v. Court of Appeals22 that republication in
the manner prescribed by Act No. 3135 is necessary for the validity of a
postponed extrajudicial foreclosure sale. Another publication is required in
case the auction sale is rescheduled, and the absence of such republication
invalidates the foreclosure sale.
The Court also ruled in Ouano that the parties have no right to waive the
publication requirement in Act No. 3135. The Court declared thus:
Petitioner further contends that republication may be waived voluntarily by
the parties.
This argument has no basis in law. The issue of whether republication may be
waived is not novel, as we have passed upon the same query in Philippine
64
National Bank v. Nepomuceno Productions Inc. Petitioner therein sought
extrajudicial foreclosure of respondent’s mortgaged properties with the
Sheriff’s Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the
auction sale was rescheduled several times without republication of the notice
of sale, as stipulated in their Agreements to Postpone Sale. Finally, the auction
sale proceeded on December 20, 1976, with petitioner as the highest bidder.
Aggrieved, respondents sued to nullify the foreclosure sale. The trial court
declared the sale void for non-compliance with Act No. 3135. This decision was
affirmed in toto by the Court of Appeals. Upholding the conclusions of the trial
and appellate courts, we held:
Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135.
xxx
Publication, therefore, is required to give the foreclosure sale a reasonably
wide publicity such that those interested might attend the public sale. To allow
the parties to waive this jurisdictional requirement would result in converting
into a private sale what ought to be a public auction.
DBP further asserts that Section 24, Rule 39 of the Rules of Court, which allows
adjournment of execution sales by agreement of the parties, applies to the
present case. Section 24 of Rule 39 provides:
Sec. 24. Adjournment of Sale – By written consent of debtor and creditor, the
officer may adjourn any sale upon execution to any date agreed upon in
writing by the parties. Without such agreement, he may adjourn the sale from
day to day, if it becomes necessary to do so for lack of time to complete the
sale on the day fixed in the notice.
The Court ruled in Ouano that Section 24 of Rule 39 does not apply to
extrajudicial foreclosure sales, thus:
Petitioner submits that the language of the abovecited provision23 implies
that the written request of the parties suffices to authorize the sheriff to reset
the sale without republication or reposting.
At the outset, distinction should be made of the three different kinds of sales
under the law, 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. Rule 68 of the Rules
of Court applies in cases of judicial foreclosure sale. 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 extrajudicial foreclosure sale. A different
set of law applies to each class of sale mentioned. The cited provision in the
Rules of Court hence does not apply to an extrajudicial foreclosure sale.
(Emphasis supplied)
DBP also maintains that ERHC’s act of requesting postponement of the 12
August 1986 auction sale estops ERHC from challenging the absence of
publication of the notice of the rescheduled auction sale.
We do not agree.
ERHC indeed requested postponement of the auction sale scheduled on 12
August 1986.24 However, the records are bereft of any evidence that ERHC
requested the postponement without need of republication of the notice of
sale. In Philippine National Bank v. Nepomuceno Productions Inc.,25 the Court
held that:
x x x To request postponement of the sale is one thing; to request it without
need of compliance with the statutory requirements is another. Respondents,
therefore, did not commit any act that would have estopped them from
questioning the validity of the foreclosure sale for non-compliance with Act
No. 3135. x x x
The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-
200226 issued by the Office of the Court Administrator on 22 January 2002.
Section 4(a) of Circular No. 7-2002 provides that:
Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of
mortgage was raffled shall do the following:
a. Prepare a Notice of Extra-judicial Sale using the following form:
"NOTICE OF EXTRA-JUDICIAL SALE"
"Upon extra-judicial petition for sale under Act 3135/1508 filed _________
against (name and address of Mortgagor/s) to satisfy the mortgage
indebtedness which as of ___________ amounts to P __________ excluding
penalties, charges, attorney’s fees and expenses of foreclosure, the
undersigned or his duly authorized deputy will sell at public auction on (date of
sale) ________ at 10:00 A.M. or soon thereafter at the main entrance of the
________ (place of sale) to the highest bidder, for cash or manager’s check
and in Philippine Currency, the following property with all its improvements, to
wit:
"(Description of Property")
"All sealed bids must be submitted to the undersigned on the above stated
time and date."
"In the event the public auction should not take place on the said date, it shall
be held on___________,______ without further notice."
__________ (date)
"SHERIFF" (Emphasis supplied)
The last paragraph of the prescribed notice of sale allows the holding of a
rescheduled auction sale without reposting or republication of the notice.
However, the rescheduled auction sale will only be valid if the rescheduled
date of auction is clearly specified in the prior notice of sale. The absence of
this information in the prior notice of sale will render the rescheduled auction
sale void for lack of reposting or republication. If the notice of auction sale
contains this particular information, whether or not the parties agreed to such
rescheduled date, there is no more need for the reposting or republication of
the notice of the rescheduled auction sale.
The Office of the Court Administrator issued Circular No. 7-2002 pursuant to
the 14 December 1999 Resolution of this Court in A.M. No. 99-10-05-0, as
amended by the Resolutions of 30 January 2001 and 7 August 2001. The Court
issued these Resolutions for two reasons.
First, the Court seeks to minimize the expenses which the mortgagee incurs in
publishing the notice of extrajudicial sale. With the added information in the
notice of sale, the mortgagee need not cause the reposting and republication
of the notice of the rescheduled auction sale. There is no violation of the
notice requirements under Acts Nos. 3135 and 1508 precisely because the
interested parties as well as the public are informed of the schedule of the
next auction sale, if the first auction sale does not proceed. Therefore, the
purpose of a notice of sale, which is to notify the mortgagor and the public of
the foreclosure sale, is satisfied.
Second, the Court hopes to deter the practice of some mortgagors in
requesting postponement of the auction sale of real properties, then later
attacking the validity of the foreclosure for lack of republication. This practice
will only force mortgagees to deny outright requests for postponement by
mortgagors since it will only mean added publication expense on the part of
mortgagees. Such development will eventually work against mortgagors
because mortgagees will hesitate to grant postponements to mortgagors.
In the instant case, there is no information in the notice of auction sale of any
date of a rescheduled auction sale. Even if such information were stated in the
notice of sale, the reposting and republication of the notice of sale would still
be necessary because Circular No. 7-2002 took effect only on 22 April 2002.
There were no such guidelines in effect during the questioned foreclosure.
Clearly, DBP failed to comply with the publication requirement under Act No.
3135. There was no publication of the notice of the rescheduled auction sale
of the real properties. Therefore, the extrajudicial foreclosure of the real
estate mortgage is void.
65
DBP, however, complied with the mandatory posting of the notices of the
auction sale of the personal properties. Under the Chattel Mortgage
Law,27 the only requirement is posting of the notice of auction sale. There was
no postponement of the auction sale of the personal properties and the
foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of the
chattel mortgage in the instant case suffers from no procedural infirmity.
Second Issue:
Perfection and implementation of the restructuring agreement between DBP
and ERHC
ERHC consistently argues that its restructuring agreement with DBP was
perfected and even implemented by the parties. ERHC maintains that the
delivery of its certificates of stocks to DBP was part of its compliance with the
conditions of the restructuring agreement.
We do not agree.
Contrary to ERHC’s allegations and the Court of Appeals’ findings, the
restructuring agreement was never perfected. ERHC failed to comply with the
material conditions for the perfection of the restructuring agreement. As
specified in DBP Resolution No. 956 dated 19 March 198128 approving the
restructuring agreement, the following are the conditions for the restructuring
agreement:
RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) –
Conversion Into Common and/or Preferred Shares of P2,786,000.00
Representing 40% of the Total Outstanding Obligations; a Third Additional
Loan of P679,000.00 and Restructuring of the Account.
xxx
In view thereof and as favorably recommended by the Manager of the
Industrial Projects Department III in her memorandum dated February 24,
1981, the Board, upon motion made and duly seconded, APPROVED in favor of
Emerald Resort Hotel Corporation (Hotel Ibalon) the following:
1. Immediate conversion into common and/or preferred shares at borrower’s
option, of P2,786,000.00 representing 40% of the total outstanding obligation
as of May 15, 1980, in the reduced amount of P6,965,000.00 composed of
outstanding principal balance of P3,500,000.00 and total arrearages on
interest and other charges of P3,465,000.00, the conversion price to be equal
to the par value of the shares;
2. A third additional loan of Six Hundred Seventy-Nine Thousand Pesos
(P679,000.00), payable quarterly under the same restructured terms of the
original and two (2) additional loans, at 18% interest per annum; and
3. Restructuring of the firm’s total outstanding principal obligation of
P3,500,000.00 in the form of extension of grace period on principal repayment
from two (2) years to nine (9) years to make a maximum loan term of nineteen
(19) years, regular amortizations to commence three (3) months after the end
of the extended grace period on October 31, 1985 and payable quarterly at
the following interest rates:
Original Loan - P1,425,800 at 16% interest per annum
- 574,200 at 18% interest per annum
1st Additional Loan - 1,000,000 at 18% interest per annum
- 500,000 at 18% interest per annum
Total - P3,500,000
subject to the following terms and conditions:
A. For the P679,000.00 Additional Loan
a. That subject-firm shall first pay the amount of P473.00 to reduce its total
arrearages on interest and other charges of P3,465,473.00 as of May 15, 1980
to P3,465,000.00; and
b. That the proceeds of this additional loan shall be applied to subject-firm’s
accrued interest and other charges due DBP as of May 15, 1980 not otherwise
covered by the proposed equity conversion of P2,786,000.00.
B. For Both Additional Loan and Restructuring
a. That a quasi-reorganization shall first be undertaken for the purpose of
eliminating existing deficits, which should be formally authorized by the
stockholders of the corporation, should comply with legal requirements, and
should be approved by the Securities and Exchange Commission which sees to
it that the rights of creditors are not prejudiced.
xxx
e. That subject-firm shall apply with SEC for an amendment of its authorized
capitalization to include preferred shares in case immediate conversion into
equity of 40% of the total outstanding obligation as of May 15, 1980 will
include preferred shares.
xxx (Emphasis supplied)
A careful review of the facts and the evidence presented by the parties
discloses that ERHC failed to comply with the terms and conditions set forth in
DBP Resolution No. 956.
First, ERHC failed to comply with the important condition of converting into
equity 40 percent of its outstanding debt to DBP. ERHC did not present any
evidence to show that it complied with this particular requirement. While it is
true that ERHC delivered to DBP certificates of stocks, it was to comply with
ERHC’s commitment under the original mortgage contracts.29 ERHC
committed to pledge or assign to DBP at least 67 percent of its outstanding
shares to secure the original loan accommodation. The original mortgage
contracts contain the following condition:
xxx
c. By an assignment to the Mortgagee of not less than 67% of the total
subscribed and outstanding voting shares of the company. The said
percentages of shares assigned shall be maintained at all times and the said
assignment to subsist for as long as the Assignee may deem necessary during
the existence of the Mortgagee’s approved accommodation. xxx30
On 17 April 1985, DBP informed ERHC that it had not complied with the
condition in the original mortgage contract on the assignment of 67 percent of
its outstanding shares to DBP. The letter of DBP states in part:
2. The condition requiring ERHC to assign in favor of DBP at least 67% of the
subscribed and outstanding voting shares of company has not been met.
Of the 4,917,500 outstanding voting shares as of December 31, 1982, only
911,800 shares have been assigned instead of 3,294,725 (67% of 4,917,000),
more of the outstanding voting shares have increased. 31
The deficiency of 2,382,925 shares (3,294,725 - 911,800) may however be
covered by the 2,786,000 shares you transferred in the name of DBP as an
alternative compliance with 65% requirement. (Emphasis supplied)
In its reply letter dated 11 June 1985 to DBP, ERHC signified its readiness to
assign 67 percent of its outstanding shares to DBP. Thus, ERHC’s reply letter,
signed by its President Atty. Jose C. Reyes, states in part:
With reference to your letter dated 17 April 1985 which could not be
seasonably acted upon on account of my absence from the country for medical
reasons, I am pleased to inform your goodself of the action taken on the
various items thereon enumerated, to wit:
1. x x x
2. Assignment of 67% of outstanding voting shares.
66
We are ready to bring up the assigned shares in favor of DBP to 67% of the
corporation’s outstanding voting shares of 4,917,500 as of December 31, 1982
or total of 3,294,725 shares.
The corporation will maintain its previous assignment of 911,800 shares.
Moreover, the corporation is agreeable that Stock Certificate No. 030 for
1,862,148 shares which had been transferred to DBP be considered as an
alternative compliance to the raising of DBP’s assigned shares to the full 67%
or 3,294,725 shares. Your formal conformity to this arrangement is likewise
requested.
Finally, the corporation will further assign to DBP another 520,777 shares in
exchange of Stock Certificate No. 032 for 923,852 shares which was
transferred to DBP conditionally. This Stock Certificate has to be surrendered
to the corporation for cancellation before we can issue by way of further
assignment the 520,777 shares. In short, the 3 blocks of shares mentioned
above would result as follows:
1. 911,800 shares
2. 1,862,148 shares
3. 520,777 shares
Total 3,294,725 shares of 67% outstanding voting
– shares
x x x. 32
Clearly, when ERHC delivered the certificates of stocks, it was to comply with
ERHC’s commitment under the original mortgage contracts, not the
restructuring agreement.
Besides, there is a vast difference between an assignment of shares to DBP by
existing stockholders and conversion of DBP’s loan into equity of ERHC. In the
first, the paid-up capital of ERHC remains the same. In the latter, the paid-up
capital of ERHC, as well as its liabilities, changes in that the liabilities are
transferred to the capital account to the extent of the conversion. The latter
case, which is the conversion of debt into equity required under the
restructuring agreement, never happened. The delivery to DBP of stock
certificates representing 3,294,725 ERHC shares did not reduce the liabilities of
ERHC. The reason for the requirement to convert P2,786,000.00 in liabilities of
ERHC into equity was to reduce ERHC’s debt to equity ratio, which the
assignment and delivery of the stock certificates did not and could not have
achieved.
Second, ERHC did not avail of the P679,000.00 additional loan, despite this
being a material condition of the restructuring agreement. ERHC could not
simply refuse to avail of the additional loan because the proceeds of this loan
were to pay the balance of ERHC’s accrued interest and other charges due DBP
as of 15 May 1980. Clearly, ERHC’s refusal to avail of the additional loan,
intended to up-date ERHC’s loan account, prevented the perfection of the
restructuring agreement.
Lastly, ERHC failed to comply with the quasi-reorganization requirement, as
clearly admitted in ERHC’s letter dated 3 November 1982 to DBP, thus:
3. On July 31, 1981, we once more communicated with your Naga Branch
advising of the Emerald Resort Hotel Corporation’s Stockholders Resolution
approving the quasi-reorganization and the Petition filed with the Securities
and Exchange Commission requesting approval of the corporation’s resolution
on quasi-reorganization and the transfer of 1,862,148 shares in favor of the
DBP, copy whereof is attached as Annex "C";
4. On September 7, 1981, we received by personal delivery a letter from
Manager Mario C. Leaño, copy whereof is attached as Annex "D". In our
conversation had on this occasion, I reiterated our request in our letter dated
19 June 1981 that in view of the circumstances affecting our papers in the
Securities and Exchange Commission there was need to extend our period of
compliance.
xxx
It will thus be noted from the foregoing communications that we have exerted
our utmost best to comply with the conditions for the re-structuring of our
loan accounts and all have been complied, with the exception of the quasi-
reorganization, for reasons beyond our legal control since it is the SEC that
passes upon the question as to whether or not we meet the SEC guidelines for
a quasi-reorganization. Unfortunately, for the reasons stated in Annex "H" and
the enclosures thereto, the SEC felt that ERHC was not within their guidelines
for a quasi-reorganization.33 (Emphasis supplied)
The quasi-reorganization is required specifically to eliminate ERHC’s existing
deficits. However, the SEC must first approve the quasi-reorganization which
approval ERHC admittedly failed to secure. Through no fault of DBP, SEC
disapproved ERHC’s application for quasi-reorganization.
Considering that ERHC failed to comply with the material conditions of the
restructuring agreement, the agreement was never implemented or even
perfected. The perfection and implementation of the restructuring agreement
were expressly subject to the following conditions embodied in DBP Resolution
No. 956 and in DBP’s notice of approval to ERHC, respectively:
t. x x x Implementation of the restructuring scheme as approved shall take
effect upon compliance with the terms and conditions and with all the legal
and documentation requirements;34
xxx xxx xxx
7. All documents for this loan approval shall be executed and perfected within
90 days from the date of this notice; otherwise, this accommodation shall be
automatically cancelled.35
The trial and appellate courts gravely misapprehended the facts and made
manifestly mistaken inferences in finding that the parties had perfected the
restructuring agreement. Consequently, when DBP filed the application for
extrajudicial foreclosure of the chattel and real estate mortgages, ERHC was
already in default in paying its debt to DBP.
Third Issue:
ERHC’s offer to lease the foreclosed properties
ERHC offered to lease from DBP the foreclosed properties after the auction
sale. DBP argues that when ERHC offered to lease from DBP the foreclosed
properties, ERHC waived its right to question the validity of the foreclosure.
We do not agree.
To constitute a waiver, the intent to waive must be shown clearly and
convincingly.36 A mere offer to lease the foreclosed properties cannot
constitute a waiver of ERHC’s right to contest the validity of the foreclosure on
the ground of non-compliance with the statutory requisites. ERHC’s offer to
lease does not relinquish ERHC’s right to challenge the validity of the
foreclosure. The offer to lease the foreclosed properties cannot validate or
ratify a void foreclosure. ERHC’s intention to lease the foreclosed properties
cannot simply outweigh DBP’s failure to comply with the statutory requisite
for a valid extrajudicial foreclosure. As the Court of Appeals correctly ruled,
"there can be no waiver of the posting and publication requirements in
foreclosure proceedings because the same is contrary to law and public
order."
Fourth Issue:
Award of moral damages
DBP maintains that ERHC, a juridical person, is not entitled to moral damages.
ERHC counters that its reputation was debased when the sheriffs and several
armed men intruded into Hotel Ibalon’s premises and inventoried the
furniture and fixtures in the hotel.
The Court of Appeals erred in awarding moral damages to ERHC. The Court of
Appeals’ sole basis for its ruling is a quoted portion of the testimony of ERHC’s
President, Atty. Jose Reyes. The testimony was not even offered to prove the
justification and amount of damages which ERHC claims against DBP. In other
words, ERHC failed to present evidence to warrant the award of moral
67
damages. In a long line of decisions, this Court has held that the claimant for
moral damages must present concrete proof to justify its award, thus:

xxx while no proof of pecuniary loss is necessary in order that moral damages
may be awarded, the amount of indemnity being left to the discretion of the
court (Art. 2216), it is, nevertheless, essential that the claimant satisfactorily
prove the existence of the factual basis of the damage (Art. 2217) and its
causal relation to defendant’s acts. This is so because moral damages, though
incapable of pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.37 (Emphasis supplied)

In the body of its decision, the trial court gave no basis to justify the award of
moral damages. The trial court simply awarded moral damages in the
dispositive portion of its decision.38

Moreover, as a general rule, moral damages are not awarded to a corporation,

thus:

The award of moral damages cannot be granted in favor of a corporation

because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot, therefore,
experience physical suffering and mental anguish, which can be experienced
only be one having a nervous system. The statement in People v. Manero and
Mambulao Lumber Co. v. PNB that a corporation may recover moral damages
if it "has a good reputation that is debased, resulting in social humiliation" is
an obiter dictum. On this score alone the award for damages must be set
aside, since RBS is a corporation.39

WHEREFORE, the Joint Decision of the Court of Appeals in CA-G.R. CV Nos.

38569 and 38604 is AFFIRMED with MODIFICATION. The extrajudicial
foreclosure of the chattel mortgage is valid whereas the extrajudicial
foreclosure of the real estate mortgage is void. The award of moral damages is
deleted for lack of basis. No costs.

SO ORDERED.

68
FIRST DIVISION —

G.R. No. 129279 March 4, 2003 (SGD.) JULIETA M.

OUANO
ALFREDO M. OUANO, petitioner, (Mortgagor)
vs. Address: Opao,
COURT OF APPEALS, and HEIRS OF JULIETA M. OUANO, respondents. Mandaue City

AZCUNA, J.:
On December 3, 1980, two days prior to the date of the sale as published, the
parties executed and filed with the sheriff the Agreement to Postpone Sale
Before us is a petition for review on certiorari against the decision and moving the date of sale from December 5, 1980 to February 5, 1981.8 On
resolution of the Court of Appeals on CA-GR CV No. 334991 affirming the
February 5, 1981, however, no sale occurred.
decision of the Regional Trial Court of Cebu, Branch 19, in Civil Case No. CEB-
596, which set aside the extrajudicial foreclosure proceedings involving
Eight days later, on February 13, 1981, the parties executed and filed for the
respondents' properties.
second time a similar agreement moving the date of sale to February 28,
1981.9 Again, on February 28, 1981, no sale occurred.
From the documentary evidence and the Stipulation of Facts2 filed by the
parties before the Regional Trial Court of Cebu, the facts of the case are, as
Ten days later, on March 10, 1981, the parties executed and filed for the third
follows:
time a similar agreement moving the date of sale to March 30, 1981.10 No sale
occurred on this date.
On June 8, 1977, respondent Julieta M. Ouano (Julieta), now deceased,
obtained a loan from the Philippine National Bank (PNB) in the amount of
On March 30, 1981, the parties executed for the fourth time a similar
P104,280.00. As security for said loan, she executed a real estate mortgage
agreement moving the date of sale to May 29, 1981.11 This agreement was
over two parcels of land located at Opao, Mandaue City.3 She defaulted on her
filed with the sheriff on April 30, 1981.
obligation. On September 29, 1980, PNB filed a petition for extrajudicial
foreclosure with the City Sheriff of Mandaue City.
In all these postponements, no new notice of sale was issued, nor was there
any republication or reposting of notice for the rescheduled dates.
On November 4, 1980, the sheriff prepared a notice of sale setting the date of
public auction of the two parcels of land on December 5, 1980 at 9:00 a.m. to
Finally, on May 29, 1981, the sheriff conducted the auction sale, awarding the
4:00 p.m.4 He caused the notice to be published in the Cebu Daily Times, a
two parcels of land to PNB, the only bidder. He executed a Certificate of Sale
newspaper of general circulation in Mandaue City, in its issues of November
certifying the sale for and in consideration of P195, 510.50.12
13, 20 and 27, 1980.5 He likewise posted copies thereof in public places in
Mandaue City and in the place where the properties are located.6
As Julieta failed to redeem the properties within the one year period from
registration of sale, PNB consolidated its title on February 12, 1983.13 On
However, the sale as scheduled and published did not take place as the
February 23 of the same year, it conveyed the properties to herein petitioner
parties, on four separate dates, executed Agreements to Postpone Sale
Alfredo Ouano, the brother of Julieta, under a Deed of Promise to Sell payable
(Agreements).7 These Agreements were addressed to the sheriff, requesting
in five years.14
the latter to defer the auction sale to another date at the same time and place,
"without any further republication of the Notice." The first of the four pro-
On March 28, 1983, Julieta sent demand letters to PNB and petitioner,
forma Agreements reads, as follows:
pointing out irregularities in the foreclosure sale.15 On April 18, 1983, Julieta
filed a complaint with the Regional Trial Court (RTC) of Cebu for the
AGREEMENT TO POSTPONE SALE
nullification of the May 29, 1981 foreclosure sale.16 Petitioner filed a motion
for leave to intervene in said case, and filed his Answer in Intervention to
Provincial Sheriff
protect his rights over the properties.17
Mandaue City
While the case was pending, on February 25, 1986, PNB executed a Deed of
Sir:
Sale in favor of petitioner.18 The Register of Deeds of Mandaue City
accordingly cancelled the TCTs in PNB's name and issued in lieu thereof TCTs in
In accordance with this agreement of the parties in the above named case, it is the name of petitioner over the two parcels of land.19
respectfully requested that the auction sale of the properties of the
mortgagor, scheduled to take place on December 5 1980 at 9:00 o'clock in the
On January 29, 1990, the Regional Trial Court of Cebu rendered a decision in
morning at Office of the City Sheriff of Mandaue City be postponed
favor of Julieta, holding that the lack of republication rendered the foreclosure
to February 5, 1981, at the same time and place, without any further
sale void. The dispositive portion of said decision state:
republication of the notice of sale as required by law. [italics supplied]
WHEREFORE, judgment is hereby rendered,
Cebu City, December 11, 1980.
1. declaring as null and void:
PHILIPPINE
NATIONAL BANK a) the auction sale by the City Sheriff of Mandaue City on May 29, 1981 over
(Mortgagee) the aforesaid properties of plaintiff Julieta Ouano;

By: b) the Certificate of Sale (Exhibit K) issued by the City Sheriff of Mandaue City
on May 29, 1981, in favor of the Philippine National Bank;
—————————
— c) the Deed of Sale (Exhibit L) executed by PNB to itself;

(SGD.) F.B. Briones d) the Deed of Promise to Sell (Exhibit O) executed by PNB on February 23,
Cebu Branch 1983 in favor of Alfredo Ouano
Branch Attorney
e) the Deed of Sale (Exhibit 24) executed by PNB on February 5, 1986 in favor
————————— of Alfredo Ouano;

69
f) TCT No. 17929 (Exhibit M) and TCT No. 17930 (Exhibit N) in the name of
PNB;
g) TCT No. 21982 (Exhibit 21) and TCT No. 21987 (Exhibit 22) in the name of
Alfredo Ouano;
2. ordering the Register of Deeds of Mandaue City to cancel the
aforementioned titles (TCT Nos. 17929 and 17930, as well as TCT Nos. 21982
and 21987), and to reinstate TCT Nos. 15724 (5033) and 24377 (6876) in the
name of Julieta Ouano;
3. ordering the City Sheriff of Mandaue City to conduct a new auction sale
strictly complying with the requirements for publication and posting as
required by Act 3135, as amended by Act 4118;
4. ordering PNB to return to Alfredo Ouano all amounts the latter has paid to
the said bank;
5. ordering Alfredo Ouano to vacate the premises in question and turn them
over to Julieta Ouano;
6. ordering PNB to pay the plaintiff the sum equivalent to 10% of the market
value of the properties in question as indicated in Tax Declaration Nos. 01134
and 00510, as attorney's fees, and to pay the costs.
SO ORDERED.20
Not satisfied, PNB and petitioner brought the case to the Court of
Appeals.21 In its decision dated February 17, 1997, said court affirmed the trial
court's ruling on the same ground that there was no compliance with the
mandatory requirements of posting and publication of notice of
sale.22 Petitioner filed a motion for reconsideration, which was denied for lack
of merit by the same court on April 15, 1997.23
PNB and petitioner filed their own petitions for review on certiorari before us.
PNB's petition however was dismissed on July 21, 1997 for being filed out of
time and for lack of certification of non-forum-shopping.24 The petition herein
remaining is the one filed by petitioner.
Petitioner assigns the following errors:
I. RESPONDENT COURT OF APPEALS ERRED IN SUSTAINING THE FINDING OF
THE LOWER COURT THAT THE POSTPONED AUCTION SALE OF SUBJECT
PROPERTIES HELD ON MAY 29, 1981 UPON WRITTEN AGREEMENT OF THE
PARTIES WAS NULL AND VOID FOR LACK OF PUBLICATION OF NOTICE OF SALE
ON THE SAID DATE ALTHOUGH THE REQUIREMENTS OF PUBLICATION OF
NOTICE OF SALE ON THE ORIGINALLY INTENDED DATE [WERE] FULLY
COMPLIED WITH.
II. RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE PROVISION
OF SEC. 24, RULE 39 OF THE RULES OF COURT WHICH ALLOWS THE SHERIFF TO
ADJOURN ANY SALE UPON EXECUTION TO ANY DATE AGREED UPON BY THE
PARTIES IS NOT APPLICABLE TO THIS CASE.
III. RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT JULIETA M.
OUANO IS NOT ESTOPPED FROM CHALLENGING THE VALIDITY OF THE
AUCTION SALE SINCE THE SALE WAS REPEATEDLY POSTPONED UPON HER
REQUEST AND WRITTEN AGREEMENT[S] THAT THERE WOULD BE NO
REPUBLICATION OF THE NOTICE OF SALE.
IV. RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF
THE LOWER COURT ALTHOUGH JULIETA M. OUANO FILED HER COMPLAINT
AFTER ALMOST TWO YEARS FROM THE DATE OF THE AUCTION SALE.25
The main issue before us is whether or not the requirements of Act No. 3135
were complied with in the May 29, 1981 foreclosure sale.
The governing law for extrajudicial foreclosures is Act No. 3135 as amended by
Act No. 4118. The provision relevant to this case is Section 3, which provides:
SEC. 3. Notice shall be given by posting notices of the sale for not less than
twenty (20) 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 of city.
It is a well-settled rule that statutory provisions governing publication of notice
of mortgage foreclosure sales must be strictly complied with, and that even
slight deviations therefrom will invalidate the notice and render the sale at
least voidable.26 In a number of cases, we have consistently held that failure
to advertise a mortgage foreclosure sale in compliance with statutory
requirements constitutes a jurisdictional defect invalidating the
sale.27Consequently, such defect renders the sale absolutely void and no title
passes.28
Petitioner, however, insists that there was substantial compliance with the
publication requirement, considering that prior publication and posting of the
notice of the first date were made.
In Tambunting v. Court of Appeals,29 we held that republication in the manner
prescribed by Act No. 3135 is necessary for the validity of a postponed
extrajudicial foreclosure sale. Thus we stated:
Where required by the statute or by the terms of the foreclosure decree,
public notice of the place and time of the mortgage foreclosure sale must be
given, a statute requiring it being held applicable to subsequent salesas well as
to the first advertised sale of the property. [emphasis supplied].
Petitioner further contends that republication may be waived voluntarily by
the parties.30
This argument has no basis in law. The issue of whether republication may be
waived is not novel, as we have passed upon the same query in Philippine
National Bank v. Nepomuceno Productions Inc,.31 Petitioner therein sought
extrajudicial foreclosure of respondent's mortgaged properties with the
Sheriff's Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the
auction sale was rescheduled several times without republication of the notice
of sale, as stipulated in their Agreements to Postpone Sale. Finally, the auction
sale proceeded on December 20, 1976, with petitioner as the highest bidder.
Aggrieved, respondents sued to nullify the foreclosure sale. The trial court
declared the sale void for non-compliance with Act No. 3135. This decision was
affirmed in toto by the Court of Appeals. Upholding the conclusions of the trial
and appellate court, we categorically held:
Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135.
In People v. Donato, the Court expounded on what rights and privileges may
be waived, viz.:
xxx xxx xxx
[T]he principle is recognized that everyone has a right to waive, and agree to
waive, the advantage of a law or rule made solely for the benefit and
protection of the individual in his private capacity, if it can be dispensed with
and relinquished without infringing on any public right, and without detriment
to the community at large.
xxx xxx xxx
Although the general rule is that any right or privilege conferred by statute or
guaranteed by constitution may be waived, a waiver in derogation of a
statutory right is not favored, and a waiver will be inoperative and void if it
infringes on the rights of others, or would be against public policy or morals
and the public interest may be waived.
xxx xxx xxx
The principal object of a notice of sale in a foreclosure of mortgage is not so
much to notify the mortgagor as to inform the public generally of the nature
and condition of the property to be sold, and of the time, place, and terms of
the sale. Notices are given to secure bidders and prevent a sacrifice of the
property. Clearly, the statutory requirements of posting and publication are
mandated, not for the mortgagor's benefit, but for the public or third persons.
In fact, personal notice to the mortgagor in extrajudicial foreclosure
70
proceedings is not even necessary, unless stipulated. As such, it is imbued with
public policy considerations and any waiver thereon would be inconsistent
with the intent and letter of Act No. 3135.
Publication, therefore, is required to give the foreclosure sale a reasonably
wide publicity such that those interested might attend the public sale.32 To
allow the parties to waive this jurisdictional requirement would result in
converting into a private sale what ought to be a public auction.
Moreover, assuming arguendo that the written waivers are valid, we find
noticeable flaws that would nevertheless invalidate the foreclosure
proceedings. First, the Agreements, as worded, only waived "further
republication of the notice of sale." Nothing in the Agreements indicates that
the parties likewise dispensed with the reposting of the notices of sale. As
there was no reposting of notice of the May 29, 1981 sale, the foreclosure fell
short of the requirements of Act No. 3135. Second, we observe that the
Agreements were executed and filed with the sheriff several days after each
rescheduled date. As stated in the facts, the first agreement was timely filed,
two days prior to the originally scheduled sale on December 5, 1980. The
second agreement, however, was executed and filed eight days after the
rescheduled sale on February 5, 1981. The third agreement was executed and
filed ten days after the rescheduled sale on February 28, 1981. The fourth
agreement was timely executed, but was filed with the sheriff one month after
the rescheduled sale on March 30, 1981. On the rescheduled dates, therefore,
no public sale occurred, nor was there any request to postpone filed with the
sheriff, except for the first one. In short, the Agreements are clearly defective
for having been belatedly executed and filed with the sheriff. The party who
may be said to be at fault for this failure, and who should bear the
consequences, is no other than PNB, the mortgagee in the case at bar. It is the
mortgagee who causes the mortgaged property to be sold, and the date of
sale is fixed upon his instruction.33 We have held that the mortgagee's right to
foreclose a mortgage must be exercised according to the clear mandate of the
law. Every requirement of the law must be complied with, lest the valid
exercise of the right would end.34 PNB's inaction on the scheduled date of sale
and belated filing of requests to postpone may be deemed as an abandonment
of the petition to foreclose it filed with the sheriff. Consequently, its right to
foreclose the mortgage based on said petition lapsed.
In a vain attempt to uphold the validity of the aforesaid waiver, petitioner
asserts that the Court of Appeals should have applied Rule 39, Section 24 of
the Rules of Court, which allows adjournment of execution sales by agreement
of the parties. The said provision provides:
Sec. 24. Adjournment of Sale — By written consent of debtor and creditor, the
officer may adjourn any sale upon execution to any date agreed upon in
writing by the parties. Without such agreement, he may adjourn the sale from
day to day, if it becomes necessary to do so for lack of time to complete the
sale on the day fixed in the notice.35
Petitioner submits that the language of the abovecited provision implies that
the written request of the parties suffices to authorize the sheriff to reset the
sale without republication or reposting.36
At the outset, distinction should be made of the three different kinds of sales
under the law, 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. Rule 68 of the Rules
of Court applies in cases of judicial foreclosure sale. 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 extrajudicial foreclosure sale. A different
set of law applies to each class of sale mentioned.37The cited provision in the
Rules of Court hence does not apply to an extrajudicial foreclosure sale.
Moreover, even assuming that the aforecited provision applies, all it
authorizes is the adjournment of the execution sale by agreement of the
parties. Nowhere does it state that republication and reposting of notice for
the postponed sale may be waived. Thus, it cannot, by any means, sanction
the waiver in the case at bar.
Next, petitioner maintains that Julieta's act of requesting the postponement
and repeatedly signing the Agreements had placed her under estoppel, barring
her from challenging the lack of publication of the auction sale.38
We rule otherwise. Julieta did request for the postponement of the
foreclosure sale to extend the period to settle her obligation.39 However, the
records do not show that she requested the postponement without need of
republication and reporting of notice of sale. In Nepomuceno,40 we held:
. . . To request postponement of the sale is one thing; to request it without
need of compliance with the statutory requirements is another. Respondents,
therefore, did not commit any act that would have estopped them from
questioning the validity of the foreclosure sale for non-compliance with Act
No. 3135. . . .
In addition, we observe herein that the Agreements prepared by the counsel
of PNB were in standard forms of the bank, labeled as "Legal Form No.41."
The Nepomuceno41 case likewise involved an "Agreement to Postpone Sale"
that was in a ready-made form, and the only participation of respondents
therein was to affix or "adhere" their signatures thereto. We therefore held
that said agreement partakes of the nature of a contract of adhesion, i.e., one
in which one of the contracting parties imposes a ready-made form of contract
which the other party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party merely affixes
his signature or his "adhesion" thereto, giving no room for negotiation, and
depriving the latter of the opportunity to bargain on equal footing.42 As such,
their terms are construed strictly against the party who drafted it.43
More importantly, the waiver being void for being contrary to the express
mandate of Act No. 3135, such cannot be ratified by estoppel.44 Estoppel
cannot give validity to an act that is prohibited by law or one that is against
public policy.45 Neither can the defense of illegality be waived.46
Petitioner, moreover, makes much of the fact that Julieta filed her complaint
with the trial court after almost two years from the May 29, 1981 auction sale,
thus arguing that the delayed filing was a clear case of laches.47
Laches is the failure or neglect, for an unreasonable and unexplained length of
time, to do that which by exercising due diligence, could or should have been
done earlier.48 In the case at bar, Julieta only realized the defect in the
foreclosure sale upon conferring with her counsel who discovered the
irregularity.49 Thus, on March 25, 1983, Julieta filed her adverse claim with
the Registrar of Deeds.50 Three days after, she sent demand letters to PNB
and petitioner.51 Soon after they replied on April 6 and 7, 1983,52 she
promptly sued to nullify the foreclosure sale in the Regional Trial Court of
Mandaue City on April 20, 1983.53 She likewise filed a suit for forcible entry
against petitioner in the Municipal Trial Court of Mandaue City.54 Considering
all these, we find the delay of almost two years not unreasonable. Julieta
cannot be guilty of laches. Her prompt actions upon discovering her cause of
action negate the claim that she has abandoned her right to claim the
properties. Besides, this defense lacks merit in light of the Civil Code stating
that an action or defense for the declaration of the inexistence of a contract
does not prescribe.55
WHEREFORE, premises considered, the Decision dated February 17, 1997 in
CA-G.R. CV No. 33499 and the Resolution therein dated April 15, 1997 are
AFFIRMED. No costs.
SO ORDERED.
71
FIRST DIVISION
G.R. No. 198800 December 11, 2013
JOSE T. RAMIREZ, Petitioner,
vs.
THE MANILA BANKING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
We have consistently held that unless the parties stipulate, personal notice to
the mortgagor in extrajudicial foreclosure proceedings is not necessary
because Section 31 of Act No. 31352 only requires the posting of the notice of
sale in three public places and the publication of that notice in a newspaper of
general circulation.3
Before us is a petition for review on certiorari under Rule 45 of the
Decision4 dated November 26, 2010 and Resolution5 dated September 28,
2011 of the Court of Appeals (CA) in CA-G.R. CV No. 80616.
The facts of the case are as follows:
Petitioner Jose T. Ramirez mortgaged two parcels of land located at
Bayanbayanan, Marikina City and covered by Transfer Certificate of Title (TCT)
Nos. N-107226 and N-230337 in favor of respondent The Manila Banking
Corporation to secure his ₱265,000 loan. The real estate mortgage provides
that all correspondence relative to the mortgage including notifications of
extrajudicial actions shall be sent to petitioner Ramirez at his given address, to
wit:
N) All correspondence relative to this MORTGAGE, including demand letters,
summons, subpoenas or notifications of any judicial or extrajudicial actions
shall be sent to the MORTGAGOR at the address given above or at the address
that may hereafter be given in writing by the MORTGAGOR to the
MORTGAGEE, and the mere act of sending any correspondence by mail or by
personal delivery to the said address shall be valid and effective notice to the
MORTGAGOR for all legal purposes and the fact that any communication is not
actually received by the MORTGAGOR, or that it has been returned unclaimed
to the MORTGAGEE, or that no person was found at the address given, or that
the address is fictitious or cannot be located, shall not excuse or relieve the
MORTGAGOR from the effects of such notice.8
Respondent filed a request for extrajudicial foreclosure of real estate
mortgage9 before Atty. Hipolito Sañez on the ground that Ramirez failed to
pay his loan despite demands. During the auction sale on September 8, 1994,
respondent was the only bidder for the mortgaged properties.10 Thereafter, a
certificate of sale11 was issued in its favor as the highest bidder.
In 2000, respondent demanded that Ramirez vacate the properties.12
Ramirez sued respondent for annulment of sale and prayed that the certificate
of sale be annulled on the ground, among others, that paragraph N of the real
estate mortgage was violated for he was not notified of the foreclosure and
auction sale.13
In its answer, respondent claimed that the foreclosure proceedings were valid.
The trial court ruled that the extrajudicial foreclosure proceedings were null
and void and the certificate of sale is invalid. The fallo of the Decision14 dated
June 30, 2003 of the Regional Trial Court, Branch 193, Marikina City, in Civil
Case No. 2001-701-MK reads:
Premises considered, judgment is hereby rendered in favor of the plaintiff
[Ramirez] and against the defendant [bank], whose counterclaim is hereby
dismissed, declaring the Certificate of Sale of the properties covered by TCT
Nos. N-10722 and N-23033, as null and void and ordering the defendant [bank]
to pay the following:
1) One Hundred Thousand (₱100,000.00) Pesos as moral damages;
2) Fifty Thousand (₱50,000.00) Pesos as exemplary damages;
3) Fifty Thousand (₱50,000.00) Pesos as Attorney’s fees; and
4) Costs of suit.
SO ORDERED.15
The CA reversed the trial court’s decision and ruled that absence of personal
notice of foreclosure to Ramirez as required by paragraph N of the real estate
mortgage is not a ground to set aside the foreclosure sale.16 The fallo of the
assailed CA Decision reads:
WHEREFORE, the appealed decision dated June 30, 2003 of the Regional Trial
Court of Marikina, Branch 193 is hereby REVERSED and SET ASIDE, and a new
one is entered AFFIRMING the validity of the Certificate of Sale of the
properties covering TCT Nos. N-10722 and N-23033.
SO ORDERED.17
Ramirez’s motion for reconsideration was denied in the assailed CA
Resolution.
Hence, this petition raising a lone issue:
What is the legal effect of violating paragraph N of the deed of mortgage
which requires personal notice to the petitioner-mortgagor by the respondent-
mortgagee bank?18
Ramirez insists that the auction sale as well as the certificate of sale issued to
respondent are null and void since no notice of the foreclosure and sale by
public auction was personally given to him in violation of paragraph N of the
real estate mortgage which requires personal notice to him of said
extrajudicial foreclosure.19
In its comment, respondent counters that under Section 3 of Act No. 3135, no
personal notice to the mortgagor is required in case of a foreclosure sale. The
bank claims that paragraph N of the real estate mortgage does not impose an
additional obligation to it to provide personal notice to the mortgagor
Ramirez.20
We agree with Ramirez and grant his petition.
The CA erred in ruling that absence of notice of extrajudicial foreclosure sale
to Ramirez as required by paragraph N of the real estate mortgage will not
invalidate the extrajudicial foreclosure sale. We rule that when respondent
failed to send the notice of extrajudicial foreclosure sale to Ramirez, it
committed a contractual breach of said paragraph N sufficient to render the
extrajudicial foreclosure sale on September 8, 1994 null and void. Thus, we
reverse the assailed CA Decision and Resolution.
In Carlos Lim, et al. v. Development Bank of the Philippines,21 we held
that unless the parties stipulate, personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary because Section 3 of Act
No. 3135 only requires the posting of the notice of sale in three public places
and the publication of that notice in a newspaper of general circulation. In this
case, the parties stipulated in paragraph N of the real estate mortgage that all
correspondence relative to the mortgage including notifications of
extrajudicial actions shall be sent to mortgagor Ramirez at his given address.
Respondent had no choice but to comply with this contractual provision it has
entered into with Ramirez. The contract is the law between them. Hence, we
cannot agree with the bank that paragraph N of the real estate mortgage does
not impose an additional obligation upon it to provide personal notice of the
extrajudicial foreclosure sale to the mortgagor Ramirez.
As we explained in Metropolitan Bank v. Wong,22 the bank’s violation of
paragraph N of the real estate mortgage is sufficient to invalidate the
extrajudicial foreclosure sale:
[A] contract is the law between the parties and … absent any showing that its
provisions are wholly or in part contrary to law, morals, good customs, public
order, or public policy, it shall be enforced to the letter by the courts. Section
3, Act No. 3135 reads:
72
"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
and city."
The Act only requires (1) the posting of notices of sale in three public places,
and (2) the publication of the same in a newspaper of general circulation.
Personal notice to the mortgagor is not necessary. Nevertheless, the parties to
the mortgage contract are not precluded from exacting additional
requirements. In this case, petitioner and respondent in entering into a
contract of real estate mortgage, agreed inter alia:
"all correspondence relative to this mortgage, including demand letters,
summonses, subpoenas, or notifications of any judicial or extra-judicial action
shall be sent to the MORTGAGOR…."
of costs of suit. Needless to stress, the purpose of paragraph N of the real
estate mortgage is to apprise the mortgagor, Ramirez, of any action that the
mortgagee-bank might take on the subject properties, thus according him the
opportunity to safeguard his rights. 37
WHEREFORE, we GRANT the petition, REVERSE and SET ASIDE the Decision
dated November 26, 2010 and Resolution dated September 28, 2011 of the
Court of Appeals in CA-G.R. CV No. 80616. The extrajudicial foreclosure
proceedings and auction sale conducted by Atty. Hipolito Safiez on September
8, 1994 and the Certificate of Sale over the mortgaged properties covered by
TCT Nos. N-10722 and N-23033, issued in favor of respondent The Manila
Banking Corporation, are hereby DECLARED NULL and VOID.
Costs against respondent The Manila Banking Corporation.
SO ORDERED.

Precisely, the purpose of the foregoing stipulation is to apprise respondent of

any action which petitioner might take on the subject property, thus according
him the opportunity to safeguard his rights. When petitioner failed to send the
notice of foreclosure sale to respondent, he committed a contractual breach
sufficient to render the foreclosure sale on November 23, 1981 null and
void.1âwphi1

We reiterated the Wong ruling in Global Holiday Ownership Corporation v.

Metropolitan Bank and Trust Company23and recently, in Carlos Lim, et al. v.
Development Bank of the Philippines.24 Notably, all these cases involved
provisions similar to paragraph N of the real estate mortgage in this case.

On another matter, we note that the trial court awarded moral and exemplary
damages, attorney’s fees and costs of suit to Ramirez. In granting said
monetary awards, the trial court noted that if the bank followed strictly the
procedure in the extrajudicial foreclosure of the real estate mortgage and had
not filed prematurely an unlawful detainer case against Ramirez, he would not
have been forced to litigate and incur expenses.25

We delete aforesaid monetary awards, except the award of costs of suit.

Nothing supports the trial court’s award of moral damages. There was no
testimony of any physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury26 suffered by Ramirez. The award of moral damages must be
anchored on a clear showing that Ramirez actually experienced mental
anguish, besmirched reputation, sleepless nights, wounded feelings or similar
injury.27 Ramirez’s testimony28 is also wanting as to the moral damages he
suffered.

Similarly, no exemplary damages can be awarded since there is no basis for the
award of moral damages and there is no award of temperate, liquidated or
compensatory damages.29 Exemplary damages are imposed by way of
example for the public good, in addition to moral, temperate, liquidated or
compensatory damages.30

We likewise delete the trial court’s award of attorney’s fees since the trial
court failed to state in the body of its decision the factual or legal reasons for
said award.31

Indeed, even the instant petition32 does not offer any supporting fact or
argument for us to affirm the award of moral and exemplary damages and
attorney’s fees.

However, we agree, with the trial court’s award of costs of suit to Ramirez.
Costs shall be allowed to the prevailing party as a matter of course unless
otherwise provided in the Rules of Court.33 These costs Ramirez may recover
are those stated in Section 10, Rule 142 of the Rules of Court.34 For instance,
Ramirez may recover the lawful fees he paid in docketing his action for
annulment of sale before the trial court. We add thereto the amount of ₱3,530
or the amount of docket and lawful fees paid by Ramirez for filing this petition
before this Court.35 We deleted the award of moral and exemplary damages;
hence, the restriction under Section 7, Rule 142 of the Rules of Court36 would
have prevented Ramirez to recover any cost of suit. But we certify, in
accordance with said Section 7, that Ramirez’s action for annulment of sale
involved a substantial and important right such that he is entitled to an award

73
FIRST DIVISION
G.R. No. 115068 November 28, 1996
FORTUNE MOTORS (PHILS.) INC. petitioner,
vs.
METROPOLITAN BANK AND TRUST COMPANY, and THE COURT OF
APPEALS, respondents.
Before us is a petition for review of the decision of the Court of Appeals in CA
— G.R CV No. 38340 entitled "Fortune Motors (Phils.) Inc., v. Metropolitan
Bank and Trust Company et al.1 The appellate court's decision reversed the
decision in Civil Case No. 89-5637 of Branch 150 of the Regional Trial Court of
Makati City.
It appears that Fortune Motors (Phils.) Inc. obtained the following loans from
the Metropolitan Bank and Trust Company: (1) P20 Million, on March 31,
1982; (2) P8 Million, on April 30, 1983; (3) P2,500,000.00, on June 8, 1983 and;
(4) P3 Million, on August 16, 1983.
On January 6, 1984, respondent bank consolidated the loans of P8 Million and
P3 Million into one promissory note, which amounted to P12,650,000.00. This
included the interest that had accrued thereon in the amount of
P1,650,000.00.
To secure the obligation in the total amount of P34,150,000.00, petitioner
mortgaged certain real estate in favor of respondent bank.
Due to financial constraints, petitioner failed to pay the loan upon maturity.
Consequently on May 25, 1984, respondent bank initiated extrajudicial
foreclosure proceedings and in effect, foreclosed the real estate mortgage.
The extrajudicial foreclosure was actually conducted by Senior Deputy Sheriff
Pablo Y. Sy who had sent copies of the Notice of Extrajudicial Sale to the
opposing parties by registered mail. In accordance with law, he posted copies
of the Notice of Sheriff's Sale at three conspicuous public places in Makati —
the office of the Sheriff, the Assessor's Office and the Register of Deeds in
Makati. He thereafter executed the Certificates of Posting on May 20, 1984.
The said notice was in fact published on June 2, 9 and 16, 1984 in three issues
of "The New Record." An affidavit of publication, dated June 19, 1984,2 was
executed by Teddy F. Borres, publisher of the said newspaper.
Subsequently, the mortgaged property was sold at public auction for
P47,899,264.91 to the mortgagee bank, the highest bidder.
Petitioner failed to redeem the mortgaged property within the one-year
redemption period and so, the titles thereto were consolidated in the name of
respondent bank by which token the latter was entitled to the possession of
the property mortgaged and, in fact possessed the same.
Petitioner then filed a complaint for the annulment of the extrajudicial
foreclosure, which covered TCT Nos. 461087, 432685, 457590, 432684, S-
54185, S-54186, S-54187, and S-54188.
On December 27, 1991, the trial court rendered judgment annulling the
extrajudicial foreclosure of the mortgage.
On May 14, 1992, an appeal was interposed by the respondent to the Court of
Appeals. Acting thereon, the Court of Appeals reversed the decision rendered
by the lower court. Subsequently, the Motion for Reconsideration filed by
petitioner was denied on April 26, 1994.
Aggrieved by the decision rendered by the Court of Appeals, petitioner
appealed before this Court. On May 30, 1994, however, we issued a Resolution
denying said petition. Hence, this motion for reconsideration.
Petitioner raises the following issues before us, to wit:
I. THAT THE COURT OF APPEALS ERRED IN DECLARING THAT
THE PUBLICATION OF THE NOTICE OF EXTRAJUDICIAL
FORECLOSURE WAS VALID.3
II. THAT THE RESPONDENT COURT OF APPEALS ERRED IN
DECLARING THAT THE NOTICES OF EXTRAJUDICIAL
FORECLOSURE, AND SALE WERE DULY RECEIVED BY THE
PETITIONER.4
III. THAT THE COURT OF APPEALS ERRED IN FAILING TO ADJUDGE
THE IRREGULARITIES IN THE BIDDING, POSTING,
PUBLICATION, AND THE SALE OF FORTUNE BUILDING.5
IV. THAT THE RESPONDENT COURT OF APPEALS ERRED IN
RENDERING A JUDGMENT BASED ON PRESUMPTION.6
Petitioner contends that the newspaper "Daily Record" 7 where the notice of
extrajudicial foreclosure was published does not qualify as a newspaper of
general circulation.
It further contends that the population that can be reached by the "Daily
Record" is only .004% as its circulation in Makati in 1984, was 1000 to 1500 per
week. Hence, it concludes that only 1648 out of a population of 412,069 were
probable readers of the "Daily Record," and that this is not the standard
contemplated by law when it refers to a newspaper of general circulation.
In the case of Bonnevie v. Court of Appeals,8 we had already made a ruling on
this point:
The argument that the publication of the notice in the "Luzon Weekly Courier"
was not in accordance with law as said newspaper is not of general circulation
must likewise be disregarded. The affidavit of publication, executed by the
publisher, business/advertising manager of the Luzon Weekly Courier, states
that it is "a newspaper of general circulation in . . . Rizal; and that the Notice of
Sheriffs sale was published in said paper on June 30, July 7 and July 14, 1968."
This constitutes prima facie evidence of compliance with the requisite
publication. (Sadang v. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for
the dissemination of local news and general information; that it has a bona
fide subscription list of paying subscribers; that it is published at regular
intervals." (Basa v. Mercado, 61 Phil. 632). The newspaper need not have the
largest circulation so long as it is of general circulation. (Banta v. Pacheco, 74
Phil. 67).
In the case at bench, there was sufficient compliance with the requirements of
the law regarding publication of the notice in a newspaper of general
circulation. This is evidenced by the affidavit of publication executed by the
New Record's publisher, Teddy F. Borres, which stated that it is a newspaper
edited in Manila and Quezon City and of general circulation in the cities of
Manila, Quezon City et. al., and in the Provinces of Rizal . . . , published every
Saturday by the Daily Record, Inc. This was affirmed by Pedro Deyto, who was
the executive editor of the said newspaper and who was a witness for
petitioner. Deyto testified: a) that the New Record contains news; b) that it has
subscribers from Metro Manila and from all over the Philippines; c) that it is
published once a week or four times a month; and d) that he had been
connected with the said paper since 1958, an indication that the said
newspaper had been in existence even before that year.9
Another contention posited by petitioner is that the New Record is published
and edited in Quezon City and not in Makati where the foreclosed property is
situated, and that, when New Record's publisher enumerated the places
where said newspaper is being circulated, Makati was not mentioned.
This contention of petitioner is untenable. In 1984, when the publisher's
affidavit relied upon by petitioner was executed, Makati, Mandaluyong, San
Juan, Parañaque et. al., were still part of the province of Rizal. Apparently, this
is the reason why in the New Record's affidavit of publication executed by its
publisher, the enumeration of the places where it was being circulated, only
the cities of Manila, Quezon, Caloocan, Pasay, Tagaytay et. al., were named.
Furthermore, as aptly ratiocinated by the Court of Appeals:
The application given by the trial court to the provisions of P.D. No. 1079 is, to
our mind, too narrow and restricted and could not have been the intention of
the said law. Were the interpretation of the trial court (sic) to be followed,
even the leading dailies in the country like the "Manila Bulletin," the
"Philippine Daily Inquirer," or "The Philippine Star" which all enjoy a wide
circulation throughout the country, cannot publish legal notices that would be
honored outside the place of their publication. But this is not the
74
interpretation given by the courts. For what is important is that a paper should
be in general circulation in the place where the properties to be foreclosed are
located in order that publication may serve the purpose for which it was
intended.10
Petitioner also claims that the New Record is not a daily newspaper because it
is published only once a week.
A perusal of Presidential Decree (P.D.) No. 1079 and Act 3135 shows that the
said laws do not require that the newspaper which publishes judicial notices
should be a daily newspaper. Under P.D. 1079, for a newspaper to qualify, it is
enough that it be a "newspaper or periodical which is authorized by law to
publish and which is regularly published for at least one (1) year before the
date of publication" which requirement was satisfied by New Record. Nor is
there a requirement, as stated in the said law, that the newspaper should have
the largest circulation in the place of publication.
Petitioner claims that, when its representative went to a newspaper stand to
look for a copy of the new Record, he could not find any. This allegation can
not be made a basis to conclude that the newspaper "New Record" is not of
general circulation. By its own admission, petitioner's representative was
looking for a newspaper named "Daily Record." Naturally, he could not find a
newspaper by that name as the newspaper's name is "New Record" and not
"Daily Record." Although it is the Daily Record Inc. which publishes the New
Record, it does not mean that the name of the newspaper is Daily Record.
Petitioner contends that, since it was the Executive Judge who caused the
publication of the notice of the sale and not the Sheriff, the extrajudicial
foreclosure of the mortgage should be deemed annulled.
Petitioner's contention in this regard is bereft of merit, because Sec. 2 of P.D.
No. 1079 clearly provides that:
The executive judge of the court of first instance shall designate a regular
working day and a definite time each week during which the said judicial
notices or advertisements shall be distributed personally by him 11 for
publication to qualified newspapers or periodicals . . . , which distribution shall
be done by raffle.
The said provision of the law is clear as to who should personally distribute the
judicial notices or advertisements to qualified newspapers for publication.
There was substantial compliance with the requirements when it was the
Executive Judge of the Regional Trial Court of Makati who caused the
publication of the said notice by the newspaper selected by means of raffle.
the authorized person signed the return card to acknowledge his receipt of the
mail matter. Even the trial court in its decision ruled that:
. . . the Court finds no cogent reason to overcome the presumption that Sheriff
Pablo Sy performed his task regularly and in accordance with the rules. A
closer look at the assailed xerox copy of the registry receipt and the original
form which said xerox was admittedly copied would indeed show that the
xerox is not a faithful reproduction of the original since it does not bear the
complete signature of the addressee as appearing on the original. It does not,
however, follow that the xerox is a forgery. The same bears slight traces of the
signature appearing on the original but, there is no indication that the one was
altered to conform to the other. Rather, there must have been only a misprint
of the xerox but not amounting to any attempt to falsify the same.13
Petitioner also claims that it had transferred to a different location but the
notice was sent to its old address. Petitioner failed to notify respondent of its
supposed change of address. Needless to say, it can be surmised that
respondent had sent the notice to petitioner's official address.
Anent its third assigned error, petitioner assails the posting of the notices of
sale by the Sheriff in the Office of the Sheriff, Office of the Assessor and the
Register of Deeds as these are not the conspicuous public places required by
law. Furthermore, it also questions the non-posting of the notice of sale on the
property itself which was to be sold.
Apparently, this assigned error of petitioner is tantamount to a last ditch effort
to extricate itself from the quagmire it is in. Act 3135 does not require posting
of the notice of sale on the mortgaged property. Section 3 of the said law
merely requires that the notice of the sale be posted for not less than twenty
days in at least three public places of the municipality or city where the
property is situated. The aforementioned places, to wit: the Sheriff's Office,
the Assessor's Office and the Register of Deeds are certainly the public places
contemplated by law, as these are places where people interested in
purchasing real estate congregate.
With regard to the fourth assigned error of petitioner, we do not subscribe to
the latter's view that the decision of the Court of Appeals was mainly based on
the presumption of the regularity of the performance of official function of the
officers involved. A perusal of the records indubitably shows that the
requirement of Act No. 3135 on the extrajudicial foreclosure of real estate
mortgage had been duly complied with by Senior Deputy Sheriff Sy.
WHEREFORE, the petition is DENIED and the decision rendered in CA-G.R CV
No. 38340 is hereby AFFIRMED.

With regard to the second assigned error wherein petitioner claims that it did SO ORDERED.
not personally receive the notices of extrajudicial foreclosure and sale
supposedly sent to it by Metrobank, we find the same unmeritorious.

Settled is the rule that personal notice to the mortgagor in extrajudicial

foreclosure proceedings is not necessary. Section 3 of Act No. 3135 governing
extrajudicial foreclosure of real estate mortgages, as amended by Act No.
4118, requires only the posting of the notice of sale in three public places and
the publication of that notice in a newspaper of general circulation. It is
pristine clear from the above provision that the lack of personal notice to the
mortgagor, herein petitioner, is not a ground to set aside the foreclosure
sale.12

Petitioner's expostulation that it did not receive the mailed notice to it of the
sale of the mortgaged property should be brushed aside. The fact that
respondent was able to receive the registry return card from the mail in
regular course shows that the postal item represented by the return card had
been received by the addressee. Otherwise, as correctly contended by
respondent, the mailed item should have been stamped "Returned to Sender,"
still sealed with all the postal markings, and the return card still attached to it.

As to the contention that the signature appearing on the registry return card
receipt appears to be only a dot and that the photostat copy does not contain
a signature at all we find, after a close scrutiny of the registry return card, that
there are strokes before and after the dot. These strokes appear to be a
signature which signifies: a) that the registry claim card was received at the
given address; b) that the addressee had authorized a person to present the
claim card at the post office and receive the registered mail matter; and c) that

75
FIRST DIVISION
G.R. No. 133366 August 5, 1999
UNIONBANK OF THE PHILIPPINES, petitioner,
vs.
THE COURT OF APPEALS and FERMINA S. DARIO and REYNALDO S.
DARIO, respondents.
DAVIDE, JR., CJ.:
Unionbank of the Philippines (hereafter UNIONBANK) appeals, by way
of certiorari, the Decision1 of the Court of Appeals (CA) of 26 June 1997 and its
Resolution of 7 April 19982. The CA nullified the Regional Trial Court's (RTC)
Order3 of 7 August 1995 denying private respondents' application for
preliminary injunction as UNIONBANK's consolidation of ownership divested
private respondents of their property without due process of law. It also
ordered the register of deeds to cancel UNIONBANK's title and the trial court
to hear private respondents prayer for injunctive relief.1âwphi1.nêt
This case stemmed from a real estate mortgage executed on 17 December
1991 by spouses Leopoldo and Jessica Dario (hereafter mortgagors) in favor of
UNIONBANK to secure a P3 million loan, including interest and other charges.
The mortgage covered a Quezon City property with Transfer Certificate of Title
(TCT) No. 41828 in Leopoldo Dario's name and was annotated on the title on
18 December 1991. For non-payment of the principal obligation, UNIONBANK
extrajudicially foreclosed the property mortgaged on 12 August 1993 and sold
the same at public auction, with itself posting the highest bid.
On 4 October 1994, one week before the one-year redemption period expired,
private respondents filed a complaint with the RTC of Quezon City against the
mortgagors, UNIONBANK, the Register of Deeds and the City Sheriff of Quezon
City. Docketed as Civil Case No. Q-94-21830, the complaint was for annulment
of sale and real estate mortgage reconveyance and prayer for restraining
notice of lis pendens was annotated on the title.
On 10 October 1994, RTC, Branch 81, through Presiding Judge (later CA Justice)
Celia Lipana-Reyes, issued a temporary restraining order (TRO) enjoining the
redemption of property within the statutory period and its consolidation
under UNIONBANK's name. At a hearing four days later, UNIONBANK's counsel
orally moved for dismissal of the complaint alleging that a certification of non-
forum shopping-is prescribed by SC-Circular 4-944 was not attached thereto.
Judge Lipana-Reyes settled the motion in favor of UNIONBANK and
dismissed5 the complaint on 17 October 1994.
Aggrieved, private respondents filed a motion for reconsideration6 of the
dismissal on 20 October 1994 and prayed that they be permitted to amend
their verified complaint to comply with the requisites of Circular 4-94. Upon
the appointment of Judge Lipana-Reyes to the CA, pairing Judge Agustin S.
Dizon took over the case and on 15 November 1994 allowed private
respondents to incorporate the mandatory formal requirements of SC
Administrative Circular 4-94 to their complaint.
In the meantime, without notifying private respondents, UNIONBANK
consolidated its title over the foreclosed property on 24 October 1994, TCT No.
41828 was cancelled and TCT No. 120929 in UNIONBANK's name was issued in
its stead.
Private respondents filed an amended complaint7 on 9 December 1994,
alleging that they, not the mortgagors, are the true owners of the property
mortgaged and insisting on the invalidity of both the mortgage and its
subsequent extrajudicial foreclosure. They claimed that the original title, TCT
No. 61571, was entrusted to a certain Atty. Reynaldo Singson preparatory to
its administrative reconstitution after a fire gutted the Quezon City Hall
building. Mortgagor Leopoldo, private respondent Fermina's son, obtained the
property from Atty. Singson, had the title reconstituted under his name
without private respondents' knowledge, executed an ante-dated deed of sale
in his favor and mortgaged the property to UNIONBANK.
On 19 December 1994, Judge Ignacio M. Capulong to whom this case was
assigned admitted the aforementioned amended complaint and set the
application for writ of preliminary injunction for hearing. After UNIONBANK's
motion for reconsideration of said Order was denied on 17 January 1995, it
filed a petition for certiorari with the CA questioning the admission of the
amended complaint. The CA upheld Judge Capulong's order admitting the
amended complaint on 24 April 1995, UNIONBANK thereafter elevated its
cause to this Court.
Meanwhile, on 9 February 1995 UNIONBANK filed its answer ad
cautelam asserting its status as an innocent mortgagee for value whose right
or lien upon the property mortgaged must be respected even if, the mortgagor
obtained his title through fraud. It also averred that the action had become
"moot and academic by the consolidation of the foreclosed property on 24
October 1994" in its name, resulting to the issuance of TCT No. 120929 by the
Register of Deeds of Quezon City. In reaction to UNIONBANK's revelation,
private respondents moved to declare UNIONBANK's counsel in indirect
contempt attacking his disobedience to the TRO.
On 19 May 1995, private respondents moved to declare the other defendants
in default for their non-filing of responsive pleadings within the mandatory
period and to set the application for preliminary injunction and indirect
contempt for pre-trial and trial.
On 14 June 1995 the second division of this Court denied the petition
for certiorari, which it considered as a petition for review under Rule 45, "for
failure to show that the CA had committed any reversible error" in judgment.
In its 19 August 1995 Order, the RTC held the mortgagors and the City Sheriff
of Quezon City in default and sustained UNIONBANK's contention that the act
sought to be enjoined had been enforced, negating the need of hearing the
application for preliminary injunction. Private respondents filed a lengthy
motion for reconsideration to this Order.
The annulment case was re-raffled to Branch 227 under Presiding Judge
Vicente Q. Roxas upon the creation of new salas. Judge Roxas, on 25 March
1996, denied the motion to reconsider the 19 August 1995 Order but
suggested that private respondents amend their application from prohibitory
to mandatory injunction.
As private respondents were unable to amend their application, the RTC
denied the motion for reconsideration and their motion for indirect contempt,
"in the interest of free speech and tolerance" on 9 July 1996. Asserting grave
abuse of discretion, private respondents brought the denial of their motion for
reconsideration with the Court of Appeals on 6 September 1996.
After considering the arguments presented by the parties, the CA ruled that
despite its knowledge that the ownership of the property was being
questioned, UNIONBANK took advantage of private respondents' procedural
error by consolidating title to the property, which "smack[ed] of bad faith" and
"evince[d] a reprobate disposition of the part of its counsel to advance his
client's cause by fair means or foul." As a result thereof the transfer of title
was vitiated by non-adherence to procedural due process.8
On 26 June 1997, CA nullified the consolidation of ownership, ordered the
Register of Deeds to cancel the certificate of title in UNIONBANK's name and
to reinstate TCT No. 41828 with the notice of lis pendens annotated at the
back. The CA also set aside the portion of the assailed RTC Orders that
declared private respondents' prayer for writ of preliminary injunction as moot
and academic. UNIONBANK's motion for reconsideration of the above-
mentioned decision was likewise rejected for lack of merit on 7 April 1998.
Hence, UNIONBANK came to this Court claiming to be a mortgagee in good
faith and for value with a right to consolidate ownership over the foreclosed
property with the redemption period having expired and there having been no
redemptioners. UNIONBANK contends that the TRO which provisionally
enjoined the tolling of the redemption period was automatically dissolved
upon dismissal of the complaint on 17 October 1994. Conformably,
consolidation of title in its name and the issuance of TCT No. 120929 rendered
further proceedings on the application for injunction academic. Moreover, the
alleged fraudulent mortgage was facilitated through private respondents'
negligence so they must bear the loss. It also contends that since private
respondents had filed several pleadings, due process, being an opportunity to
be heard either through pleadings or oral arguments, was observed.
Private respondents maintain that UNIONBANK's consolidation of the title in
its name was in bad faith, vitiated a standing court order, is against the law,
76
thus void ab initio. The application for preliminary injunction was not rendered
moot and academic by consolidation, which took place during the lifetime of
the TRO, and did not follow the proper legal procedure due to the
surreptitious manner it was accomplished. By treating the application for
preliminary injunction as moot and academic and denying the motion for
indirect contempt without hearing, the RTC order ran afoul with the
requirements of due process.
Two main issues can be gleaned from the posturing and claims of the parties,
to wit, was the consolidation of title in UNIONBANK's name proper, and was
the dismissal of the application for preliminary prohibitory injunction valid.
The issues must be answered in the affirmative.
UNIONBANK's consolidation of title over the property on 24 October 1994 was
proper, though precipitate. Contrary to private respondents' allegation
UNIONBANK violated no standing court order. The only bar to consolidation
was the temporary restraining order issued by Justice Lipana-Reyes on 10
October 1994 which effectively halted the tolling of the redemption period 7
days short of its expiration. When private respondents' original complaint was
dismissed on 17 October 1994 for failure to append a certification of non-
forum shopping, the TRO, as an ancillary order that cannot stand independent
of the main proceeding, became functus officio. Thus the tolling of the 12-
month redemption period, interrupted by the filing of the complaint and the
TRO, recommenced and eventually expired 7 days thereafter or on 24 October
1994, the date of the disputed consolidation.
The motion for reconsideration and to amend complaint filed by private
respondent on 20 October 1994 was of no moment, this Court recognizing that
"a dismissal, discontinuance or non-suit of an action in which a restraining
order or temporary injunction has been granted operates as a dissolution of
the restraining order or temporary injunction,"9 regardless of whether the
period for filing a motion for reconsideration of the order dismissing the case
or appeal therefrom has expired.10 The rationale therefor is that even in cases
where an appeal is taken from a judgment dismissing an action on the merits,
the appeal does not suspend the judgment, hence the general rule applies that
a temporary injunction terminates automatically on the dismissal of the
action.11
We disagree with the appellate court's observation that consolidation
deprived private respondents of their property without due process. It is
settled that the buyer in a foreclosure sale becomes the absolute owner of the
property purchased if it is not redeemed during the period of one year after
the registration of the sale.12 Consolidation took place as a matter of right
since there was no redemption of the foreclosed property and the TRO expired
upon dismissal of the complaint. UNIONBANK need not have informed private
respondent that it was consolidaint its title over the property, upon the
expiration of the redemption period, without the judgment debtor having
made use of his right of redemption, the ownership of the property sold
becomes consolidated in the purchaser.13 Notice to the mortgagors and with
more reason, to private respondents who are not even parties to the mortgage
contract nor to the extra judicial sale is not necessary.
In real estate mortgage, when the principal obligation is not paid when due,
the mortgage has the right to foreclose the mortgage and to have the property
seized and sold with a view to applying the proceeds to the payment of the
principal obligation.14 Foreclosure may be effected either judicially or
extrajudicially.
In a public bidding during extra-judicial foreclosure, the creditor —mortgagee,
trustee, or other person authorized to act for the creditor may participate and
purchase the mortgaged property as any other bidder. Thereafter the
mortgagor has one year within which to redeem the property from and after
registration of sale with the Register of Deeds.15 In case of non-redemption,
the purchaser at foreclosure sale shall file with the Register of Deeds, either a
final deed of sale executed by the person authorized by virtue of the power of
attorney embodied in the deed or mortgage, or his sworn statement attesting
to the fact of non-redemption; whereupon, the Register of Deeds Shall issue a
new certificate of title in favor of the purchaser after the owner's duplicate of
the certificate has been previously delivered and canceled.16 Thus, upon
failure to redeem foreclosed realty, consolidation of title becomes a matter of
right on the part of the auction buyer,17 and the issuance of a certificate of
title in favor of the purchaser becomes ministerial upon the Register of Deeds.
There is, moreover, nothing erroneous with the denial of private respondents'
application for preliminary prohibitory injunction. The acts complained of have
already been consummated. It is impossible to restrain the performance of
consummated acts through the issuance of prohibitory injunction. When the
act sought to be prevented had long been consummated, the remedy of
injunction could no longer be entertained,18 hearing the application for
preliminary injunction would just be an exercise in futility.
In addition, to be entitled to the injunctive writ, movant must show that there
exists a right to be protected which is directly threatened by an act sought to
be enjoined. Furthermore, there must be a showing that the invasion of the
right is material and substantial and that there is an urgent and paramount
necessity for the writ to prevent a serious damage.19 The injunctive remedy
prevents a threatened or continuous irremediable injury to some of the parties
before their claim can be thoroughly investigated and advisedly adjudicated; it
is resorted to only when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard
compensation.20
In the case at bar, the consolidation of ownership over the mortgaged
property in favor of UNIONBANK and the issuance of a new title in its name
during the pendency of an action for annulment and reconveyance will not
cause irreparable injury to private respondents who are plaintiffs in the said
preliminary injunction. This is because .as purchaser at a public auction,
UNIONBANK is only substituted to and acquires the right, title, interest and
claim of the judgment debtors or mortgagors to the property at the time of
levy.21 Perforce, the judgment in the main action for reconveyance will not be
rendered ineffectual by the consolidation of ownership and the issuance of
title in the name of UNIONBANK.
More importantly, with the main action for reconveyance pending before the
RTC, the notice of lis pendens, which despite consolidation remains annotated
on UNIONBANK's transfer certificate of title subject to the outcome of the
litigation, sufficiently protects private respondents interest over the property.
A transferee pendente lite stands exactly in the shoes of the transferor and is
bound by any judgment or decree which may be rendered for or against the
transferor. Once a notice of lis pendens has been duly registered, any
cancellation or issuance of the title of the land involved as well as any
subsequent transaction affecting the same, would have to be subject to the
outcome of the litigation. In other words, upon the termination of the
litigation there can be no risk of losing the property or any part thereof as a
result of any conveyance of the land or any encumbrance that may be made
thereon posterior to the filing of the notice of lis pendens.22
Finally, as to the issue of who between private respondents and UNIONBANK is
negligent and hence must bear the loss, the same is not the proper subject of
the present petition and can only be resolved by the trial court after the trial
on the merit of the main case.
WHEREFORE, the assailed Decision of the Court of Appeals of 26 June 1997
nullifying the consolidation of ownership and ordering the Register of Deeds of
Quezon City to cancel TCT No. 120929 and reinstate TCT No. 41828 is hereby
REVERSED and SET ASIDE. The order of the trial court dated 7 August 1999,
declaring UNIONBANK's prayer for writ of preliminary injunction moot and
academic, is hereby REINSTATED. Let this case be remanded to the Regional
Trial Court for trial on the merits.
No pronouncement as to costs.1âwphi1.nêt
SO ORDERED.
77
SECOND DIVISION
CUA LAI CHU, CLARO G. CASTRO G.R. No. 169190
and JUANITA CASTRO,
- versus -
DEL CASTILLO,
ABAD, and
HON. HILARIO L. LAQUI, Presiding PEREZ, JJ.
Judge, Regional Trial Court, Branch 218,
Quezon City and PHILIPPINE BANK OF COMMUNICATION,
. February 11, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
The Case
This is a petition for review[1] of the 29 April 2005 and 4 August 2005
Resolutions[2] of the Court of Appeals in CA-G.R. SP No. 88963. In its 29 April
2005 Resolution, the Court of Appeals dismissed the petition for
certiorari[3] of petitioner spouses Claro G. Castro and Juanita Castro and
petitioner Cua Lai Chu (petitioners). In its 4 August 2005 Resolution, the Court
of Appeals denied petitioners motion for reconsideration.
The Facts
In November 1994, petitioners obtained a loan in the amount of P3,200,000
from private respondent Philippine Bank of Communication. To secure the
loan, petitioners executed in favor of private respondent a Deed of Real Estate
Mortgage[4] over the property of petitioner spouses covered by Transfer
Certificate of Title No. 22990. In August 1997, petitioners executed an
Amendment to the Deed of Real Estate Mortgage[5] increasing the amount of
the loan by P1,800,000, bringing the total loan amount to P5,000,000.
For failure of petitioners to pay the full amount of the outstanding loan upon
demand,[6] private respondent applied for the extrajudicial foreclosure of the
real estate mortgage.[7]Upon receipt of a notice[8] of the extrajudicial
foreclosure sale, petitioners filed a petition to annul the extrajudicial
foreclosure sale with a prayer for temporary restraining order (TRO). The
petition for annulment was filed in the Regional Trial Court of Quezon City and
docketed as Q-02-46184.[9]
The extrajudicial foreclosure sale did not push through as originally scheduled
because the trial court granted petitioners prayer for TRO. The trial court
subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29
May 2002. At the foreclosure sale, private respondent emerged as the highest
bidder. A certificate of sale[10] was executed on 4 June 2002 in favor of
private respondent. On 7 June 2002, the certificate of sale was annotated as
Entry No. 1855[11] on TCT No. 22990 covering the foreclosed property.
After the lapse of the one-year redemption period, private respondent filed in
the Registry of Deeds of Quezon City an affidavit of consolidation to
consolidate its ownership and title to the foreclosed property. Forthwith, on 8
July 2003, the Register of Deeds cancelled TCT No. 22990 and issued in its
stead TCT No. 251835[12] in the name of private respondent.
On 18 August 2004, private respondent applied for the issuance of a writ of
possession of the foreclosed property.[13] Petitioners filed an
opposition.[14] The trial court granted private respondents motion for a
declaration of general default and allowed private respondent to present
evidence ex parte. The trial court denied petitioners notice of appeal.
Undeterred, petitioners filed in the Court of Appeals a petition for certiorari.
The appellate court dismissed the petition. It also denied petitioners motion
for reconsideration.
The Orders of the Trial Court
The 8 October 2004 Order[15] granted private respondents motion for a
declaration of general default and allowed private respondent to present
evidence ex parte. The 6 January 2005 Order[16] denied petitioners motion for
reconsideration of the prior order. The 24 February 2005 Order[17] denied
petitioners notice of appeal.
The Ruling of the Court of Appeals
The Court of Appeals dismissed on both procedural and substantive grounds
the petition for certiorari filed by petitioners. The appellate court noted that
the counsel for petitioners failed to indicate in the petition the updated PTR
Number, a ground for outright dismissal of the petition under Bar Matter No.
1132. Ruling on the merits, the appellate court held that a proceeding for the
issuance of a writ of possession is ex parte in nature. As such, petitioners right
to due process was not violated even if they were not given a chance to file
their opposition. The appellate court also ruled that there was no violation of
the rule against forum shopping since the application for the issuance of a writ
of possession is not affected by a pending case questioning the validity of the
extrajudicial foreclosure sale.
The Issue
Petitioners raise the question of whether the writ of possession was properly
issued despite the pendency of a case questioning the validity of the
extrajudicial foreclosure sale and despite the fact that petitioners were
declared in default in the proceeding for the issuance of a writ of possession.
The Court’s Ruling
The petition has no merit.
Petitioners contend they were denied due process of law when they were
declared in default despite the fact that they had filed their opposition to
private respondents application for the issuance of a writ of possession.
Further, petitioners point out that the issuance of a writ of possession will
deprive them not only of the use and possession of their property, but also of
its ownership. Petitioners cite Bustos v. Court of Appeals[18] and Vda. De
Legaspi v. Avendao[19] in asserting that physical possession of the
property should not be disturbed pending the final determination of the more
substantial issue of ownership. Petitioners also allege forum shopping on the
ground that the application for the issuance of a writ of possession was filed
during the pendency of a case questioning the validity of the extrajudicial
foreclosure sale.
Private respondent, on the other hand, maintains that the application for the
issuance of a writ of possession in a foreclosure proceeding is ex parte in
nature. Hence, petitioners right to due process was not violated even if they
were not given a chance to file their opposition. Private respondent argues
that the issuance of a writ of possession may not be stayed by a pending case
questioning the validity of the extrajudicial foreclosure sale. It contends that
the former has no bearing on the latter; hence, there is no violation of the rule
against forum shopping. Private respondent asserts that there is no judicial
determination involved in the issuance of a writ of possession; thus, the same
cannot be the subject of an appeal.
At the outset, we must point out that the authorities relied upon by
petitioners are not in point and have no application here. In Bustos v. Court of
Appeals,[20] the Court simply ruled that the issue of possession was
intertwined with the issue of ownership in the consolidated cases of unlawful
detainer and accion reinvindicatoria. In Vda. De Legaspi v. Avendao,[21] the
Court merely stated that in a case of unlawful detainer, physical possession
should not be disturbed pending the resolution of the issue of
ownership. Neither case involved the right to possession of a purchaser at an
extrajudicial foreclosure of a mortgage.
Banco Filipino Savings and Mortgage Bank v. Pardo[22] squarely ruled on the
right to possession of a purchaser at an extrajudicial foreclosure of a
78
mortgage. This case involved a real estate mortgage as security for a loan
obtained from a bank. Upon the mortgagors default, the bank extrajudicially
foreclosed the mortgage. At the auction sale, the bank was the highest bidder.
A certificate of sale was duly issued and registered. The bank then applied for
the issuance of a writ of possession, which the lower court dismissed. The
Court reversed the lower court and held that the purchaser at the auction sale
was entitled to a writ of possession pending the lapse of the redemption
period upon a simple motion and upon the posting of a bond.
In Navarra v. Court of Appeals,[23] the purchaser at an extrajudicial
foreclosure sale applied for a writ of possession after the lapse of the one-year
redemption period. The Court ruled that the purchaser at an extrajudicial
foreclosure sale has a right to the possession of the property even during the
one-year redemption period provided the purchaser files an indemnity bond.
After the lapse of the said period with no redemption having been made, that
right becomes absolute and may be demanded by the purchaser even without
the posting of a bond. Possession may then be obtained under a writ which
may be applied for ex parte pursuant to Section 7 of Act No. 3135,[24] as
amended by Act No. 4118,[25]thus:
SEC. 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property
or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the
property for a period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion x x x and the court shall,
upon approval of the bond, order that a writ of possession issue, addressed to
the sheriff of the province in which the property is situated, who shall execute
said order immediately. (Emphasis supplied)
estion regarding the validity of the extrajudicial foreclosure sale and the
resulting cancellation of the writ may be determined in a subsequent
proceeding as outlined in Section 8 of Act No. 3135, as amended. Such
question should not be raised as a justification for opposing the issuance of a
writ of possession since under Act No. 3135, as amended, the proceeding for
this is ex parte.
Further, the right to possession of a purchaser at an extrajudicial foreclosure
sale is not affected by a pending case questioning the validity of the
foreclosure proceeding. The latter is not a bar to the former. Even pending
such latter proceeding, the purchaser at a foreclosure sale is entitled to the
possession of the foreclosed property.[29]
Lastly, we rule that petitioners claim of forum shopping has no basis. Under
Act No. 3135, as amended, a writ of possession is issued ex parte as a matter
of course upon compliance with the requirements. It is not a judgment on the
merits that can amount to res judicata, one of the essential elements in forum
shopping.[30]
The Court of Appeals correctly dismissed the petition for certiorari filed by
petitioners for lack of merit.
WHEREFORE, we DENY the petition for review. We AFFIRM the 29 April 2005
and 4 August 2005 Resolutions of the Court of Appeals in CA-G.R. SP No.
88963.
SO ORDERED.

In the present case, the certificate of sale of the foreclosed property was
annotated on TCT No. 22990 on 7 June 2002. The redemption period thus
lapsed on 7 June 2003, one year from the registration of the sale.[26] When
private respondent applied for the issuance of a writ of possession on 18
August 2004, the redemption period had long lapsed.Since the foreclosed
property was not redeemed within one year from the registration of the
extrajudicial foreclosure sale, private respondent had acquired an absolute
right, as purchaser, to the writ of possession. It had become the ministerial
duty of the lower court to issue the writ of possession upon mere motion
pursuant to Section 7 of Act No. 3135, as amended.

Moreover, once ownership has been consolidated, the issuance of the writ of
possession becomes a ministerial duty of the court, upon proper application
and proof of title.[27] In the present case, when private respondent applied
for the issuance of a writ of possession, it presented a new transfer certificate
of title issued in its name dated 8 July 2003. The right of private respondent to
the possession of the property was thus founded on its right of ownership. As
the purchaser of the property at the foreclosure sale, in whose name title over
the property was already issued, the right of private respondent over the
property had become absolute, vesting in it the corollary right of possession.

Petitioners are wrong in insisting that they were denied due process of law
when they were declared in default despite the fact that they had filed their
opposition to the issuance of a writ of possession. The application for the
issuance of a writ of possession is in the form of an ex parte motion. It issues
as a matter of course once the requirements are fulfilled. No discretion is left
to the court.[28]

Petitioners cannot oppose or appeal the courts order granting the writ of
possession in an ex parte proceeding. The remedy of petitioners is to have the
sale set aside and the writ of possession cancelled in accordance with Section
8 of Act No. 3135, as amended, to wit:

SEC. 8. The debtor may, in the proceedings in which possession was requested,
but not later than thirty days after the purchaser was given possession,
petition that the sale be set aside and the writ of possession cancelled,
specifying the damages suffered by him, because the mortgage was not
violated or the sale was not made in accordance with the provisions hereof. x x
x

Any qu

79
FIRST DIVISION
G.R. No. 157659 Petitioner, January 25, 2010
ELIGIO P. MALLARI,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM and THE PROVINCIAL SHERIFF
OF PAMPANGA,Respondents.
DECISION
BERSAMIN, J.:
By petition for review on certiorari, the petitioner appeals the decision
promulgated on March 17, 2003, whereby the Court of Appeals (CA) dismissed
his petition for certiorari.
Antecedents
In 1968, the petitioner obtained two loans totaling ₱34,000.00 from
respondent Government Service Insurance System (GSIS). To secure the
performance of his obligations, he mortgaged two parcels of land registered
under his and his wife Marcelina Mallari’s names. However, he paid GSIS about
ten years after contracting the obligations only ₱10,000.00 on May 22, 1978
and ₱20,000.00 on August 11, 1978.1
What followed thereafter was the series of inordinate moves of the petitioner
to delay the efforts of GSIS to recover on the debt, and to have the
unhampered possession of the foreclosed property.
After reminding the petitioner of his unpaid obligation on May 2, 1979, GSIS
sent on November 2, 1981 a telegraphic demand to him to update his account.
On November 10, 1981, he requested a final accounting, but did not do
anything more. Nearly three years later, on March 21, 1984, GSIS applied for
the extrajudicial foreclosure of the mortgage by reason of his failure to settle
his account. On November 22, 1984, he requested an updated computation of
his outstanding account. On November 29, 1984, he persuaded the sheriff to
hold the publication of the foreclosure notice in abeyance, to await action on
his pending request for final accounting (that is, taking his payments of
₱30,000.00 made in 1978 into account). On December 13, 1984, GSIS
responded to his request and rendered a detailed explanation of the account.
On May 30, 1985, it sent another updated statement of account. On July 21,
1986, it finally commenced extrajudicial foreclosure proceedings against him
because he had meanwhile made no further payments.
On August 22, 1986, the petitioner sued GSIS and the Provincial Sheriff of
Pampanga in the Regional Trial Court (RTC), Branch 44, in San Fernando,
Pampanga, docketed as Civil Case No. 7802,2 ostensibly to enjoin them from
proceeding against him for injunction (with an application for preliminary
injunction). The RTC ultimately decided Civil Case No. 7802 in his favor,
nullifying the extrajudicial foreclosure and auction sale; cancelling Transfer
Certificate of Title (TCT) No. 284272-R and TCT No. 284273-R already issued in
the name of GSIS; and reinstating TCT No. 61171-R and TCT No. 54835-R in his
and his wife’s names.3
GSIS appealed the adverse decision to the CA, which reversed the RTC on
March 27, 1996.4
The petitioner elevated the CA decision to this Court via petition for review on
certiorari (G.R. No. 124468).5
On September 16, 1996, this Court denied his petition for review.6 On January
15, 1997, this Court turned down his motion for reconsideration.7
As a result, the CA decision dated March 27, 1996 became final and executory,
rendering unassailable both the extrajudicial foreclosure and auction sale held
on September 22, 1986, and the issuance of TCT No. 284272-R and TCT No.
284273-R in the name of GSIS.
GSIS thus filed an ex parte motion for execution and for a writ of possession on
September 2, 1999.8 Granting the ex parte motion on October 8, 1999,9 the
RTC issued a writ of execution cum writ of possession on October 21,
1999,10 ordering the sheriff to place GSIS in possession of the properties.
The sheriff failed to serve the writ, however, partly because of the petitioner’s
request for an extension of time within which to vacate the properties. It is
noted that GSIS acceded to the request.111avvphi1
Yet, the petitioner did not voluntarily vacate the properties, but instead filed a
motion for reconsideration and/or to quash the writ of execution on March 27,
2000.12 Also, the petitioner commenced a second case against GSIS and the
provincial sheriff in the RTC in San Fernando, Pampanga (Civil Case No. 12053),
ostensibly for consignation (coupled with a prayer for a writ of preliminary
injunction or temporary restraining order). However, the RTC dismissed Civil
Case No. 12053 on November 10, 2000 on the ground of res judicata, impelling
him to appeal the dismissal to the CA (C.A.-G.R. CV No. 70300).13
In the meanwhile, the petitioner filed a motion dated April 5, 2000 in Civil Case
No. 7802 to hold GSIS, et al.14 in contempt of court for painting the fence of
the properties during the pendency of his motion for reconsideration and/or
to quash the writ of execution.15 He filed another motion in the same case,
dated April 17, 2000, to hold GSIS and its local manager Arnulfo B. Cardenas in
contempt of court for ordering the electric company to cut off the electric
services to the properties during the pendency of his motion for
reconsideration and/or to quash the writ of execution.16>
To prevent the Presiding Judge of Branch 44 of the RTC from resolving the
pending incidents in Civil Case No. 7802, GSIS moved to inhibit him for alleged
partiality towards the petitioner as borne out by his failure to act on
the motion for reconsideration and/or to quash writ of execution, motions for
contempt of court, and motion for issuance of break open order for more than
a year from their filing, praying that the case be re-raffled to another branch of
the RTC.17 Consequently, Civil Case No. 7802 was re-assigned to Branch 48,
whose Presiding Judge then denied the motions for contempt of court on July
30, 2001, and directed the Branch Clerk of Court to cause the re-
implementation of the writ of execution cum writ of possession dated October
21, 1999.18
The petitioner sought reconsideration,19 but the Presiding Judge of Branch 48
denied his motion for reconsideration on February 11, 2002.20
Ruling of the CA
By petition for certiorari dated March 15, 2002 filed in the CA, the petitioner
assailed the orders of February 11, 2002, July 30, 2001, October 21, 1999, and
October 8, 1999.21
On March 17, 2003, however, the CA dismissed the petition for certiorari for
lack of merit,22 stating:
We find the instant petition patently devoid of merit. This Court is not
unaware of the legal tactics and maneuvers employed by the petitioner in
delaying the disposition of the subject case (Civil Case No. 7802) which has
already become final and executory upon the final resolution by the Supreme
Court affirming the judgment rendered by the Court of Appeals. We construe
the actuation of the petitioner in resorting to all kinds of avenues accorded by
the Rules of Court, through the filing of several pleadings and/or motions in
litigating this case, as running counter to the intendment of the Rules to be
utilized in promoting the objective of securing a just, speedy and inexpensive
disposition of every action and proceeding.
The issues raised in the present controversy have already been settled in our
existing jurisprudence on the subject. In the case of De Jesus vs. Obnamia,
Jr., the Supreme Court ruled that "generally, no notice or even prior hearing of
a motion for execution is required before a writ of execution is issued when a
decision has already become final."
The recent accretion to the corpus of our jurisprudence has established the
principle of law, as enunciated in Buaya vs. Stronghold Insurance Co., Inc. that
"once a judgment becomes final and executory, the prevailing party can have
it executed as a matter of right, and the issuance of a Writ of Execution
becomes a ministerial duty of the court."
The rule is also firmly entrenched in the aforecited Buaya case that "the
effective and efficient administration of justice requires that once a judgment
has become final, the prevailing party should not be deprived of the fruits of
the verdict by subsequent suits on the same issues filed by the same parties.
80
Courts are duty-bound to put an end to controversies. Any attempt to prolong,
resurrect or juggle them should be firmly struck down. The system of judicial
review should not be misused and abused to evade the operation of final and
executory judgments."
As succinctly put in Tag Fibers, Inc. vs. National Labor Relations Commission,
the Supreme Court is emphatic in saying that "the finality of a decision is a
jurisdictional event that cannot be made to depend on the convenience of a
party."
We find no cogent reason to discompose the findings of the court below. Thus,
we sustain the assailed Orders of the court a quo since no abuse of discretion
has been found to have been committed by the latter in their issuance.
Moreover, this Court finds this petition to be part of the dilatory tactics of the
petitioner to stall the execution of a final and executory decision in Civil Case
No. 7802 which has already been resolved with finality by no less than the
highest tribunal of the land.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED
for lack of merit. Costs against the petitioner.
SO ORDERED.23
Issues
Hence, this appeal.
The petitioner insists herein that the CA gravely erred in refusing "to accept
the nullity of the following orders" of the RTC, to wit:
1. THE ORDER OF THE TRIAL COURT DATED OCTOBER 8, 1999, GRANTING THE
EX-PARTE MOTION FOR EXECUTION AND/OR ISSUANCE OF THE WRIT OF
EXECUTION OF POSSESSION IN FAVOR OF THE RESPONDENT GSIS;
2. THE ORDER OF THE TRIAL COURT DATED OCTOBER 21, 1999 GRANTING THE
ISSUANCE AND IMPLEMENTATION OF THE WRIT OF EXECUTION CUM WRIT OF
POSSESSION IN FAVOR OF RESPONDENT GSIS;
3. THE ORDER OF THE TRIAL COURT DATED JULY 30, 2001 DIRECTING TO
CAUSE THE RE-IMPLEMENTATION OF THE WRIT OF EXECUTION CUM WRIT OF
POSSESSION IN FAVOR OF THE RESPONDENT GSIS; and
4. THE ORDER OF THE TRIAL COURT DATED FEBRUARY 11, 2002, DENYING THE
MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 14, 2001,
IN RELATION TO THE COURT ORDER DATED JULY 30, 2001.24
Ruling of the Court
The petition for review on certiorari absolutely lacks merit.
I Petition for Certiorari in CA Was Filed Beyond Reglementary Period
The petition assailed before the CA on certiorari the following orders of the
RTC, to wit:
1. The order dated October 8, 1999 (granting the ex parte motion for
execution and/or issuance of the writ of execution cum writ of possession of
GSIS);25
2. The order dated October 21, 1999 (directing the issuance of the writ of
execution cum writ of possession in favor of GSIS);26
3. The order dated July 30, 2001 (requiring the Branch Clerk of Court to cause
the re-implementation of the writ of execution cum writ of possession, and
dismissing the motions to hold GSIS, et al. in contempt);27 and
4. The order dated February 11, 2002 (denying the motion for reconsideration
dated August 17, 2001 seeking the reconsideration of the order dated July 30,
2001).28
The July 30, 2001 order denied the petitioner’s motion for reconsideration
and/or to quash writ of execution, and motion to hold GSIS, Tony Dimatulac, et
al. and Arnulfo Cardenas in contempt; and declared GSIS’s motion for issuance
of break open order and for designation of special sheriff from GSIS Legal
Services Group as premature. In turn, the motion for reconsideration and/or to
quash writ of execution denied by the order of July 30, 2001
hadmerely challenged the orders of October 8, 1999 and October 21, 1999
(granting the writ of execution cum writ of possession as a matter of course).
Considering that the motion for reconsideration dated August 17, 2001 denied
by the order dated February 11, 2002 was in reality and effect a prohibited
second motion for reconsideration vis-à-vis the orders dated October 21, 1999
and October 8, 1999, the assailed orders dated July 30, 2001, October 21,
1999, and October 8, 1999 could no longer be subject to attack by certiorari.
Thus, the petition for certiorari filed only in March 2002 was already improper
and tardy for being made beyond the 60-day limitation defined in Section 4,
Rule 65, 1997 Rules of Civil Procedure, as amended,29 which requires a
petition for certiorari to be filed "not later than sixty (60) days from notice of
the judgment, order or resolution," or, in case a motion for reconsideration or
new trial is timely filed, whether such motion is required or not, "the sixty (60)
day period shall be counted from notice of the denial of the said motion."
It is worth emphasizing that the 60-day limitation is considered inextendible,
because the limitation has been prescribed to avoid any unreasonable delay
that violates the constitutional rights of parties to a speedy disposition of their
cases.30
II Nature of the Writ of Possession
and its Ministerial Issuance
The petitioner claims that he had not been notified of the motion seeking the
issuance of the writ of execution cum writ of possession; hence, the writ was
invalid.
As earlier shown, the CA disagreed with him.
We sustain the CA, and confirm that the petitioner, as defaulting mortgagor,
was not entitled under Act 3135, as amended, and its pertinent jurisprudence
to any prior notice of the application for the issuance of the writ of possession.
A writ of possession, which commands the sheriff to place a person in
possession of real property, may be issued in: (1) land registration proceedings
under Section 17 of Act No. 496; (2) judicial foreclosure, provided the debtor is
in possession of the mortgaged property, and no third person, not a party to
the foreclosure suit, had intervened; (3) extrajudicial foreclosure of a real
estate mortgage, pending redemption under Section 7 of Act No. 3135, as
amended by Act No. 4118; and (4) execution sales, pursuant to the last
paragraph of Section 33, Rule 39 of the Rules of Court.31
Anent the redemption of property sold in an extrajudicial foreclosure sale
made pursuant to the special power referred to in Section 132 of Act No.
3135,33 as amended, the debtor, his successor-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 has the right to redeem the property at anytime within the
term of one year from and after the date of the sale, such redemption to be
governed by the provisions of Section 464 to Section 466 of the Code of Civil
Procedure, to the extent that said provisions were not inconsistent with the
provisions of Act 3135.34
In this regard, we clarify that the redemption period envisioned under Act
3135 is reckoned from the date of the registration of the sale, not from and
after the date of the sale, as the text of Act 3135 shows. Although the original
Rules of Court (effective on July 1, 1940) incorporated Section 464 to Section
466 of the Code of Civil Procedure as its Section 25 (Section 464); Section 26
(Section 465); and Section 27 (Section 466) of Rule 39, with Section 27 still
expressly reckoning the redemption period to be "at any time within twelve
months after the sale;" and although the Revised Rules of Court (effective on
January 1, 1964) continued to provide in Section 30 of Rule 39 that the
redemption be made from the purchaser "at any time within
twelve (12) months after the sale,"35 the 12-month period of redemption
came to be held as beginning "to run not from the date of the sale but from
the time of registration of the sale in the Office of the Register of
Deeds."36 This construction was due to the fact that the sheriff’s sale of
81
registered (and unregistered) lands did not take effect as a conveyance, or did
not bind the land, until the sale was registered in the Register of Deeds.37
Desiring to avoid any confusion arising from the conflict between the texts of
the Rules of Court (1940 and 1964) and Act No. 3135, on one hand, and the
jurisprudence clarifying the reckoning of the redemption period in judicial
sales of real property, on the other hand, the Court has incorporated in
Section 28 of Rule 39 of the current Rules of Court (effective on July 1, 1997)
the foregoing judicial construction of reckoning the redemption period from
the date of the registration of the certificate of sale, to wit:
Sec. 28. Time and manner of, and amounts payable on, successive
redemptions; notice to be given and filed. — The judgment obligor, or
redemptioner, may redeem the property from the purchaser, at any time
within one (1) year from the date of the registration of the certificate of sale,
by paying the purchaser the amount of his purchase, with one per centum per
month interest thereon in addition, up to the time of redemption, together
with the amount of any assessments or taxes which the purchaser may have
paid thereon after purchase, and interest on such last named amount at the
same rate; and if the purchaser be also a creditor having a prior lien to that of
the redemptioner, other than the judgment under which such purchase was
made, the amount of such other lien, with interest.
Property so redeemed may again be redeemed within sixty (60) days after the
last redemption upon payment of the sum paid on the last redemption, with
two per centum thereon in addition, and the amount of any assessments or
taxes which the last redemptioner may have paid thereon after redemption by
him, with interest on such last-named amount, and in addition, the amount of
any liens held by said last redemptioner prior to his own, with interest. The
property may be again, and as often as a redemptioner is so disposed,
redeemed from any previous redemptioner within sixty (60) days after the last
redemption, on paying the sum paid on the last previous redemption, with two
per centum thereon in addition, and the amounts of any assessments or taxes
which the last previous redemptioner paid after the redemption thereon, with
interest thereon, and the amount of any liens held by the last redemptioner
prior to his own, with interest.
Written notice of any redemption must be given to the officer who made the
sale and a duplicate filed with the registry of deeds of the place, and if any
assessments or taxes are paid by the redemptioner or if he has or acquires any
lien other than that upon which the redemption was made, notice thereof
must in like manner be given to the officer and filed with the registry of deeds;
if such notice be not filed, the property may be redeemed without paying such
assessments, taxes, or liens. (30a) (Emphasis supplied).
Accordingly, the mortgagor or his successor-in-interest must redeem the
foreclosed property within one year from the registration of the sale with the
Register of Deeds in order to avoid the title from consolidating in the
purchaser. By failing to redeem thuswise, the mortgagor loses all interest over
the foreclosed property.38 The purchaser, who has a right to possession that
extends beyond the expiration of the redemption period, becomes the
absolute owner of the property when no redemption is made,39 that it is no
longer necessary for the purchaser to file the bond required under Section 7 of
Act No. 3135, as amended, considering that the possession of the land
becomes his absolute right as the land’s confirmed owner.40 The
consolidation of ownership in the purchaser’s name and the issuance to him of
a new TCT then entitles him to demand possession of the property at any time,
and the issuance of a writ of possession to him becomes a matter of right upon
the consolidation of title in his name.
The court can neither halt nor hesitate to issue the writ of possession. It
cannot exercise any discretion to determine whether or not to issue the writ,
for the issuance of the writ to the purchaser in an extrajudicial foreclosure sale
becomes a ministerial function.41 Verily, a marked distinction exists between
a discretionary act and a ministerial one. A purely ministerial act or duty is one
that an officer or tribunal performs in a given state of facts, in a prescribed
manner, in obedience to the mandate of a legal authority, without regard to or
the exercise of his own judgment upon the propriety or impropriety of the act
done. If the law imposes a duty upon a public officer and gives him the right to
decide how or when the duty shall be performed, such duty is discretionary,
not ministerial. The duty is ministerial only when its discharge requires neither
the exercise of official discretion nor the exercise of judgment.42
The proceeding upon an application for a writ of possession is ex parte and
summary in nature, brought for the benefit of one party only and without
notice being sent by the court to any person adverse in interest. The relief is
granted even without giving an opportunity to be heard to the person against
whom the relief is sought.43 Its nature as an ex parte petition under Act No.
3135, as amended, renders the application for the issuance of a writ of
possession a non-litigious proceeding.44
It is clear from the foregoing that a non-redeeming mortgagor like the
petitioner had no more right to challenge the issuance of the writ of execution
cum writ of possession upon the ex parte application of GSIS. He could not also
impugn anymore the extrajudicial foreclosure, and could not undo the
consolidation in GSIS of the ownership of the properties covered by TCT No.
284272-R and TCT No. 284273-R, which consolidation was already irreversible.
Hence, his moves against the writ of execution cum writ of possession were
tainted by bad faith, for he was only too aware, being his own lawyer, of the
dire consequences of his non-redemption within the period provided by law
for that purpose.
III Dismissal of Petitioner’s Motion for Indirect Contempt Was Proper and In
Accord with the Rules of Court
The petitioner insists that the RTC gravely erred in dismissing his charges for
indirect contempt against GSIS, et al.; and that the CA should have
consequently granted his petition for certiorari.
The petitioner’s insistence is plainly unwarranted.
First of all, Section 4, Rule 71, 1997 Rules of Civil Procedure, provides as
follows:
Section 4. How proceedings commenced. — Proceedings for indirect contempt
may be initiated motu proprio by the court against which the contempt was
committed by an order or any other formal charge requiring the respondent to
show cause why he should not be punished for contempt.
In all other cases, charges for indirect contempt shall be commenced by a
verified petition with supporting particulars and certified true copies of
documents or papers involved therein, and upon full compliance with the
requirements for filing initiatory pleadings for civil actions in the court
concerned. If the contempt charges arose out of or are related to a principal
action pending in the court, the petition for contempt shall allege that fact but
said petition shall be docketed, heard and decided separately, unless the court
in its discretion orders the consolidation of the contempt charge and the
principal action for joint hearing and decision. (n) (Emphasis supplied).
Indeed, a person may be charged with indirect contempt only by either of two
alternative ways, namely: (1) by a verified petition, if initiated by a party; or (2)
by an order or any other formal charge requiring the respondent to show
cause why he should not be punished for contempt, if made by a court against
which the contempt is committed. In short, a charge of indirect contempt
must be initiated through a verified petition, unless the charge is directly made
by the court against which the contemptuous act is committed.
Justice Regalado has explained why the requirement of the filing of a verified
petition for contempt is mandatory:45
1. This new provision clarifies with a regulatory norm the proper procedure for
commencing contempt proceedings. While such proceeding has been
classified as a special civil action under the former Rules, the heterogeneous
practice, tolerated by the courts, has been for any party to file a mere motion
without paying any docket or lawful fees therefor and without complying with
the requirements for initiatory pleadings, which is now required in the second
paragraph of this amended section. Worse, and as a consequence of
unregulated motions for contempt, said incidents sometimes remain pending
for resolution although the main case has already been decided. There are
other undesirable aspects but, at any rate, the same may now be eliminated
by this amendatory procedure.
Henceforth, except for indirect contempt proceedings initiated motu
proprio by order of or a formal charge by the offended court, all charges shall
be commenced by a verified petition with full compliance with the
82
requirements therefor and shall be disposed of in accordance with the second SO ORDERED.
paragraph of this section. (Emphasis supplied).

Clearly, the petitioner’s charging GSIS, et al. with indirect contempt by mere
motions was not permitted by the Rules of Court.

And, secondly, even assuming that charges for contempt could be initiated by
motion, the petitioner should have tendered filing fees. The need to tender
filing fees derived from the fact that the procedure for indirect contempt
under Rule 71, Rules of Court was an independent special civil action. Yet, the
petitioner did not tender and pay filing fees, resulting in the trial court not
acquiring jurisdiction over the action. Truly, the omission to tender filing fees
would have also warranted the dismissal of the charges.

It seems to be indubitable from the foregoing that the petitioner initiated the
charges for indirect contempt without regard to the requisites of the Rules of
Court simply to vex the adverse party. He thereby disrespected the orderly
administration of justice and committed, yet again, an abuse of procedures.

IV Petitioner Was Guilty of

Misconduct As A Lawyer

The CA deemed it unavoidable to observe that the petition for certiorari

brought by the petitioner to the CA was "part of the dilatory tactics of the
petitioner to stall the execution of a final and executory decision in Civil Case
No. 7802 which has already been resolved with finality by no less than the
highest tribunal of the land."46

The observation of the CA deserves our concurrence.

Verily, the petitioner wittingly adopted his aforedescribed worthless and

vexatious legal maneuvers for no other purpose except to delay the full
enforcement of the writ of possession, despite knowing, being himself a
lawyer, that as a non-redeeming mortgagor he could no longer impugn both
the extrajudicial foreclosure and the ex parte issuance of the writ of execution
cum writ of possession; and that the enforcement of the duly-issued writ of
possession could not be delayed. He thus deliberately abused court
procedures and processes, in order to enable himself to obstruct and stifle the
fair and quick administration of justice in favor of mortgagee and purchaser
GSIS.

His conduct contravened Rule 10.03, Canon 10 of the Code of Professional

Responsibility, by which he was enjoined as a lawyer to "observe the rules of
procedure and xxx not [to] misuse them to defeat the ends of justice." By his
dilatory moves, he further breached and dishonored his Lawyer’s Oath,
particularly:47

xxx I will not wittingly or willingly promote or sue any groundless, false or
unlawful suit, nor give aid nor consent to the same; I will delay no man for
money or malice, and will conduct myself as a lawyer according to the best of
my knowledge and discretion with all good fidelity as well to the courts as to
my clients xxx

We stress that the petitioner’s being the party litigant himself did not give him
the license to resort to dilatory moves. His zeal to defend whatever rights he
then believed he had and to promote his perceived remaining interests in the
property already lawfully transferred to GSIS should not exceed the bounds of
the law, for he remained at all times an officer of the Court burdened to
conduct himself "with all good fidelity as well to the courts as to [his]
clients."48His true obligation as a lawyer should not be warped by any
misplaced sense of his rights and interests as a litigant, because he was, above
all, bound not to unduly delay a case, not to impede the execution of a
judgment, and not to misuse Court processes.49 Consequently, he must be
made to account for his misconduct as a lawyer.

WHEREFORE, we deny the petition for review on certiorari for lack of merit,
and affirm the decision of the Court of Appeals promulgated on March 17,
2003, with the costs of suit to be paid by the petitioner. The Committee on Bar
Discipline of the Integrated Bar of the Philippines is directed to investigate the
petitioner for what appear to be (a) his deliberate disregard of the Rules of
Court and jurisprudence pertinent to the issuance and implementation of the
writ of possession under Act No. 3135, as amended; and (b) his witting
violations of the Lawyer’s Oath and the Code of Professional Responsibility.

83
FIRST DIVISION
G.R. No. 196864 July 8, 2015
SPOUSES VICTOR P. DULNUAN and JACQUELINE P. DULNUAN, Petitioners,
vs.
METROPOLITAN BANK & TRUST COMPANY, Respondent.
This is a Petition for Review on Certiorari1 filed by petitioners Spouses Victor
Dulnuan and Jacqueline Dulnuan (Spouses Dulnuan) seeking to reverse and set
aside the 14 January 2011 Decision2 of the Court of Appeals. and its 29 April
2011 Resolution3 in CA-G.R. SP No. 108628. The assailed decision and
resolution reversed the 3 December 2008 Order of the Regional Trial Court
(RTC) of La Trinidad, Benguet, which, in turn, enjoined the extrajudicial
foreclosure sale or' a parcel of land covered by Transfer Certificate of Title
(TCT) No. T-46390 registered under the name of the Spouses Dulnuan. The
dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, the petition is GRANTED. The Order dated December 3, 2008 of
the Regional Trial Court, Branch 63 of La Trinidad, Benguet in Civil Case No. 08-
CV-2470 which granted [the Spouses Dulnuan’s] application for writ of
preliminary injunction and the RTC’s Order dated March 24, 2009, which
denied [Metropolitan Bank and Trust Company’s] motion for reconsideration,
are hereby REVERSED and SET ASIDE.4
The Facts
On several occasions, the Spouses Dulnuan obtained loans from Metropolitan
Bank and Trust Company (Metrobank), the total of which reached the sum
₱3,200,000.00, as evidenced by promissory notes executed by them.5
As a security for the loan obligations, the Spouses Dulnuan executed a Real
Estate Mortgage (REM) over a parcel of land covered by TCT No. 46390
registered under their names and located at La Trinidad, Benguet with an area
of 392 square meters (subject property).6 Subsequently, however, the Spouses
Dulnuan incurred default and therefore the loan obligations became due and
demandable.
On 22 April 2008, Metrobank filed an application for extra-judicial foreclosure
proceedings over the subject property before the RTC of La Trinidad, Benguet.
After due notice and publication, the mortgaged property was sold at a public
auction where Metrobank was declared as the highest bidder after tendering
the bid of ₱6,189,000.00, as shown in the Certificate of Sale.7 In order to
validly effect the foreclosure, a copy of the said Notice of Public Auction Sale
was posted on the bulletin boards of Barangay Betag, Municipal Hall of La
Trinidad, Benguet, Provincial Capitol Benguet.8 Before the expiration of the
one-year redemption period allowed by law, Metrobank filed a Petition for the
Issuance of Writ of Possession docketed as LRC Case No. 08-60 which was
raffled before Branch 63 of the RTC.9
On 30 September 2008, the Spouses Dulnuan instituted a Complaint seeking
the issuance of a temporary restraining order and preliminary and final
injunction and, for the annulment of extra-judicial foreclosure and real estate
mortgage before the RTC of LaTrinidad, Benguet, Branch 10, which case was
docketed as Civil Case No. 08-CV-2470. The complaint alleged that the
mortgage constituted over the property is null and void because at the time
the agreement was entered on 18October 2000, no contract of loan was yet
executed by the parties. It was only on 19 December 2003 that they received
the proceeds of the loan, as evidenced by the Promissory Note. In other
words, there is no principal obligation upon which the ancillary contract of
mortgage was attached to.
Upon motion of the Spouses Dulnuan, Civil Case No. 08-CV-2470 was
consolidated before Branch 63 of the RTC wherein the LRC Case No. 08-60 was
pending. After summary hearing, the court a quoin an Order dated 5
November 2008, issued a Temporary Restraining Order and set the hearing for
the issuance of Writ of Preliminary Injunction. Both parties proceeded to
adduce evidence for and against the issuance of the writ of preliminary
injunction.
Finding an imperative need to protect and preserve the rights of the Spouses
Dulnuan during the pendency of the principal action, the RTC issued an Order
dated 3 December 2008, enjoining Metrobank from taking possession of the
subject property until the final disposition of the annulment of mortgage case.
The decretal portion of the Order reads:
WHEREFORE, premises considered, and finding compelling reason at this point
in time to grant for the application for preliminary injunction, the same is
hereby granted upon posting of preliminary injunction bond in the amount of
₱200,000.00 duly approved by the court, let the writ of preliminary injunction
be issued to take effect pendente lite, commanding the [Metrobank] including
its agents and representatives, as well as persons acting under its control,
supervision, instruction, order or authorization, to desist from entering,
occupying, possessing, using, or from performing any act of possession and
occupation of the aforedescribed property, as well as from causing the
cancellation of the existing transfer certificate of title of the [Spouses Dulnuan]
and from securing in lieu thereof a transfer certificate of title over the
aforedescribed property in its favor.10
In an Order dated 24 March 2009, the RTC refused to reconsider its earlier
Order.
Arguing that the RTC gravely abused its discretion in enjoining its taking of
possession over the subject realties, Metrobank filed a Petition for Certiorari
before the Court of Appeals.
On 14 January 2011, the Court of Appeals rendered a Decision reversing the
questioned Orders and declared that the issuance of the writ of preliminary
injunction is unjustified under the circumstances. The appellate court made a
pronouncement that as the highest bidder at the auction sale, Metrobank is
entitled to occupy the subject property, and, any question regarding the
validity of the mortgage or the foreclosure thereof shall not preclude the
purchaser from taking possession. The disquisition the Court of Appeals reads:
WHEREFORE, the petition is GRANTED. The Order dated December 3, 2008 of
the Regional Trial Court, Branch 63 of La Trininidad, Benguet in Civil Case 08-
CV-2470 which granted respondents’ application for writ of preliminary
injunction and the RTC’s Order dated March 24, 2009 which denied
[Metrobank’s] motion for reconsideration are hereby RESERVED and SET
ASIDE.11
For lack of merit, the Spouses Dulnuan’s Motion for Reconsideration was
denied by the Court of Appeals in a Resolution dated 29 April 2011.
The Spouses Dulnuan is now before this Court via this instant Petition for
Review on Certiorari seeking the reversal of the Court of Appeals Decision and
Resolution on the following grounds:
I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
AND SERIOUS ERROR IN OVERLOOKING THE UNDISPUTED
FACT THAT THE PETITION FOR WRIT OF POSSESSION WAS
FILED DURING THE REDEMPTION PERIOD AND NO BOND HAD
BEEN POSTED BY RESPONDENT TO WARRANT ITS ISSUANCE;
AND
II. THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE
AND SERIOUS ERROR IN OVERLOOKING THE FACT THAT CIVIL
CASE NO. 08-CV-2470 AND LRC CASE NO. 08-60 WERE
CONSOLIDATED.12
The Court's Ruling
The Court is urged to resolve the issue of whether or not the Court of Appeals
erred in dissolving the writ of preliminary injunction issued against Metrobank.
The writ of preliminary injunction enjoined Metrobank from entering,
occupying, possessing, using, or performing any act of possession and
occupation over the subject property. Without going into the merits of this
case, the Court will confine itself in the determination of the propriety of the
preliminary injunction, such being a preservative remedy for the protection of
substantive rights or interests, is not a cause of action in itself but merely a
provisional remedy, an adjunct to a main suit.13
A writ of preliminary injunction and a TRO are injunctive reliefs and
preservative remedies for the protection of substantive rights and
interests.1âwphi1 An application for the issuance of a writ of preliminary
injunction and/or TRO may be granted upon the filing of a verified application
showing facts entitling the applicant to the relief demanded.14 The purpose of
84
injunction is to prevent threatened or continuous irremediable injury to some
of the parties before their claims can be thoroughly studied and educated. Its
sole aim is to preserve the status quo until the merits of the case is heard
fully.15
The status quo is the last actual, peaceable and uncontested situation which
precedes a controversy.16 The status quo should be that existing at the time
of the filing of the case. A preliminary injunction should not establish new
relations between the parties, but merely maintain or re-establish the pre-
existing relationship between them.
Pertinent are the provisions of Section 3, Rule 58 of the Rules of Court,
enumerates the grounds for the issuance of a writ of preliminary injunction, to
wit:
SEC. 3. Grounds for issuance of preliminary injunction.— A preliminary
injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part
of such relief consists in restraining the commission or continuance of the act
or acts complained of, or in requiring the performance of an act or acts, either
for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the
applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject of the
action or proceeding, and tending to render the judgment ineffectual.
Thus, to be entitled to the injunctive writ, petitioners must show that (1) there
exists a clear and unmistakable right to be protected; (2) this right is directly
threatened by an act sought to be enjoined; (3) the invasion of the right is
material and substantial; and (4) there is an urgent and paramount necessity
for the writ to prevent serious and irreparable damage.17
As such, a writ of preliminary injunction may be issued only upon clear
showing of an actual existing right to be protected during the pendency of the
principal action. The requisites of a valid injunction are the existence of the
right and its actual or threatened violations. Thus, to be entitled to an
injunctive writ, the right to be protected and the violation against the right
must be shown.18
Extant from the pleadings of the parties is the failure of the Spouses Dulnuan
to establish the essential requisites for the issuance of the writ of preliminary
injunction.
First. The court a quo cannot enjoin Metrobank, at the instance of the Spouses
Dulnuan, from taking possession of the subject property simply because the
period of redemption has not yet expired. As the highest bidder in the
foreclosure sale upon whom a certificate sale was issued by the sheriff,
Metrobank has the right to be placed in possession of the subject property
even during the redemption period provided that the necessary amount of
bond is posted. As elucidated by the Court in Spouses Tolosa v. United Coconut
Planters Bank:19
A writ of possession is simply an order by which the sheriff is commanded by
the court to place a person in possession of a real or personal property. Under
Section 7 of Act No. 3135, as amended, a writ of possession may be issued in
favor of a purchaser in a foreclosure sale either (1) within the one-year
redemption period, upon the filing of a bond; or (2) after the lapse of the
redemption period, without need of a bond. Within the one-year redemption
period, the purchaser may apply for a writ of possession by filing a petition in
the form of an ex parte motion under oath, in the registration or cadastral
proceedings of the registered property. The law requires only that the proper
motion be filed, the bond approved and no third person is involved. After the
consolidation of title in the buyer’s name for failure of the mortgagor to
redeem the property, entitlement to the writ of possession becomes a matter
of right. In the latter case, the right of possession becomes absolute because
the basis thereof is the purchaser’s ownership of the property.
It is an established rule that the purchaser in an extra-judicial foreclosure sale
is entitled to the possession of the property and can demand that he be placed
in possession of the same either during (with bond) or after the expiration
(without bond) of the redemption period therefor.20 The non-expiration of
the period of redemption shall not preclude the purchaser from taking
possession of the property provided that the necessary is posted. The buyer
can in fact demand possession of the land even during the redemption period
except that he has to post a bond in accordance with Section 721 of Act No.
3135, as amended. In the case at bar, Metrobank manifested its willingness to
post a bond but its application for the issuance of the writ of possession was
unjustly denied by the RTC.
Second. The pendency of the action assailing the validity of the mortgage
should not bar the issuance of the writ of possession.1âwphi1 A pending
action for annulment of mortgage or foreclosure does not stay the issuance of
a writ of possession.22 Regardless of the pendency of such suit, the purchaser
remains entitled to a writ of possession, without prejudice, of course, to the
eventual outcome of the pending annulment case. Emphatic to the point is the
ruling of the Court in Spouses Fortaleza v. Spouses Lapitan:23
Lastly, we agree with the CA that any question regarding the regularity and
validity of the mortgage or its foreclosure cannot be raised as a justification for
opposing the petition for the issuance of the writ of possession. The said issues
may be raised and determined only after the issuance of the writ of
possession. Indeed, "[t]he judge with whom an application for writ of
possession is filed need not look into the validity of the mortgage or the
manner of its foreclosure." The writ issues as a matter of course. "The
rationale for the rule is to allow the purchaser to have possession of the
foreclosed property without delay, such possession being founded on the right
of ownership."
Without prejudice to the final disposition of the annulment case, Metrobank is
entitled to the writ of possession and cannot be barred from enjoying the
property, possession being one of the essential attributes of ownership.
Third. While the grant or denial of the preliminary injunction rests on the
sound discretion of the court taking cognizance of the case, and judicial
discretion of the court in injunctive matters should not be interfered with,24 in
the absence of clear and legal right, however, the issuance of a writ of
injunction constitutes a grave abuse of discretion.25
Grave abuse of discretion in the issuance of writs of preliminary injunction
implies a capricious and whimsical exercise of judgment equivalent to lack of
jurisdiction; or the exercise of power in an arbitrary despotic manner by
reason of passion, prejudice or personal aversion amounting to an evasion of a
positive duty or to a virtual refusal to perform a duty enjoined or to act at all in
contemplation of law.26 The burden is thus on petitioner to show in his
application that there is meritorious ground for the issuance of TRO in his
favor.27 When the complainant’s right is doubtful or disputed, he does not
have a clear legal right and, therefore, the issuance of injunctive writ is
improper.28Herein, the Spouses Dulnuan failed to show that they have clear
and unmistakable right to the issuance of writ in question.
In fine, we find that the Court of Appeals committed no reversible error in
reversing the injunction issued by the RTC. The record shows that Metrobank
caused the extrajudicial foreclosure of the mortgage on the subject realties as
a consequence of the Spouses Dulnuan's default on their mortgage obligation.
As the highest bidder at the foreclosure sale, Metrobank can exercise its right
of possession over the subject realty, and the issuance of writ of preliminary
injunction, enjoining the bank from occupying the property in question, is
erroneous. WHEREFORE, premises considered, the instant petition is hereby .
DENIED. The assailed Decision dated 14 January 2011 and Resolution dated 29
April 2011 of the Court of Appeals in CA-G.R. SP No. 108628 are hereby
AFFIRMED.
SO ORDERED.
85
THIRD DIVISION
[G.R. No. 133079. August 9, 2005]
SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI, petitioners, vs. THE
HONORABLE COURT OF APPEALS; SPS. BENJAMIN SAN DIEGO and
CARMENCITA SAN DIEGO; The EX-OFFICIO SHERIFF and CLERK OF COURT of
the Regional Trial Court, Makati City; and the REGISTER OF DEEDS, Makati
City, respondents.
Herein petitioners, the spouses Maximo Landrito, Jr. and Pacita Landrito, have
come to this Court via this petition for review on certiorari under Rule 45 of
the Rules of Court to seek the reversal and setting aside of the decision dated
12 December 1997[1] and resolution dated 10 March 1998[2] of the Court of
Appeals in CA-G.R. CV No. 48896, affirming an earlier order of the Regional
Trial Court at Makati City which granted the motion to dismiss filed by the
herein private respondents, the spouses Benjamin San Diego and Carmencita
San Diego, in its Civil Case No. 94-2950, a complaint for annulment of
extrajudicial foreclosure and auction sale, thereat commenced by them against
the San Diegos, the ex-officio sheriff and the Register of Deeds of Makati City.
The facts:
In July 1990, petitioners obtained a loan of P350,000.00 from respondent
Carmencita San Diego. To secure payment thereof, petitioners executed on 02
August 1990 in favor of the same respondent a deed of real estate mortgage
over their parcel of land located at Bayanan, Muntinlupa, Rizal and registered
in their names under Transfer Certificate of Title No. (432281) S-21000.
After making substantial payments, petitioners again obtained and were
granted by Carmencita San Diego an additional loan of One Million Pesos
(P1,000,000.00). To secure this additional loan, the parties executed on 13
September 1991 an Amendment of Real Estate Mortgage, whereunder they
stipulated that the loan shall be paid within six (6) months from 16 September
1991, and if not paid within said period, the mortgagee shall have the right to
declare the mortgage due and may immediately foreclose the same judicially
or extrajudicially, in accordance with law.
It appears that petitioners defaulted in paying their loan and continuously
refused to comply with their obligation despite repeated demands therefor,
prompting respondent Carmencita San Diego to send them on 27 April 1993, a
final notice of demand requiring them to settle their financial obligation which,
by then, already amounted to P1,950,000.00.
On 30 June 1993, after her efforts to collect proved futile, respondent
Carmencita San Diego filed with the Office of the Clerk of Court and Ex-Officio
Sheriff of RTC-Makati, a petition for the extrajudicial foreclosure of the
mortgage.
On 06 July 1993, said office sent to the parties a Notice of Sheriffs Sale, therein
announcing that petitioners mortgaged property will be sold in a public
auction to be conducted on 11 August 1993 at 10:00 oclock in the morning,
copies of which notice were posted in several conspicuous places within the
sheriffs territorial jurisdiction. As announced, on 11 August 1993, at 10:00
oclock in the morning, the public auction sale was held and the mortgaged
property sold to respondent Carmencita San Diego as the highest bidder
for P2,000,000.00, as evidenced by the Sheriffs Certificate of Sale issued in her
favor on 07 October 1993.
On 29 October 1993, respondent San Diego caused the registration of the
same sheriffs certificate of sale with the Office of the Register of Deeds,
Makati City, and duly inscribed on the same date at the dorsal side of the
petitioners TCT No. (432281) S-21000. With the petitioners having failed to
redeem their property within the 1-year redemption period from the date of
inscription of the sheriffs certificate of sale, as provided for in Act No. 3135, as
amended, the San Diegos caused the consolidation of title over the foreclosed
property in their names.
Then, on 09 November 1994, before the Regional Trial Court at Makati City,
petitioners filed their complaint for annulment of the extrajudicial foreclosure
and auction sale, with damages. In their complaint, thereat docketed as Civil
Case No. 94-2950, petitioners alleged that (1) said foreclosure and auction sale
were null and void for failure to comply with the requirements of notice and
publication, as mandated by Act 3135, as amended; (2) the mortgaged
property was illegally foreclosed in the light of the settled rule that an action
to foreclose a mortgage must be limited to the amount mentioned in the
mortgage document, in this case, P1,000,000.00, which amount was allegedly
bloated by respondent Carmencita San Diego to P1,950,000.00; and (3) the
San Diegos application for consolidation of title was premature because the
husband, Benjamin San Diego, allegedly granted them an extension of the
period of redemption up to 11 November 1994.
To the complaint, respondents interposed a Motion to Dismiss, therein
alleging that said complaint failed to state a cause of action as no primary right
of the petitioners had been violated since they actually failed to exercise their
right of redemption within the one-year redemption period, adding that
petitioners never took any action which may stall the running of the same
period, thereby leaving them no further right or interest in the property in
question.
In an order dated 13 January 1995, the trial court granted respondents motion
to dismiss and accordingly dismissed petitioners complaint, saying that the
latters cause of action, if any, is already barred by laches on account of their
failure or neglect for an unreasonable length of time to do that which, by
exercising due diligence, could or should have been done earlier. Further, the
trial court ruled that petitioners inaction constituted a waiver on their part.
Therefrom, petitioners went on appeal to the Court of Appeals in CA-G.R. CV
No. 48896.
As stated at the outset hereof, the appellate court, in its decision of 12
December 1997, dismissed petitioners appeal and affirmed in toto the trial
courts order of dismissal. With their motion for reconsideration having been
denied by the same court in its resolution of 10 March 1998,[3] petitioners are
now with us via the present recourse, faulting the Court of Appeals, as follows:
1. The Court of Appeals gravely erred in avoiding to resolve in the assailed
Decision and in the questioned Resolution the basic issue as to whether or not
the extra-judicial foreclosure and public auction sale of the subject parcel of
land are valid and lawful when the amount stated in letter-request or the
petition for extra-judicial foreclosure and in the notice of sheriff sale doubled
the amount stipulated in the Amendment of Real Estate Mortgage;
2. The Court of Appeals has similarly committed serious error in considering
that the complaint of the petitioner is a complaint for redemption when in the
caption; in the body; and in the prayer of the complaint, petitioner spouses
have sought the nullity as void ab initio the extra-judicial foreclosure and
auction sale of the subject property;
3. The respondent Appellate Court likewise incredulously erred to have
resolved the admissibility and probative value of the statement of account
attached as Annex E of the complaint when it was not yet presented in
evidence; because the stage of the case at the time the assailed dismissal
order was issued, was yet in the period of pleadings;
4. The Court of Appeals has grievously erred in affirming the assailed dismissal
order by declaring petitioner spouses to have been guilty of laches in failing to
redeem during the legal period of redemption the foreclosed parcel of land;
when the cause of the failure to redeem was the illegal increase by 100% of
the original obligation, stated in the Amendment of Real Estate Mortgage and
bloating of the redemption price from Two Million Pesos (P2,000,000.00) to
Three Million Four Hundred Ninety One Thousand Two Hundred Twenty Five &
98/100 Pesos (P3,491,225.98).
We DENY.
The records indubitably show that at the time of the foreclosure sale on 11
August 1993, petitioners were already in default in their loan obligation to
respondent Carmencita San Diego.
Much earlier, or on 27 April 1993, a final notice of demand for payment had
been sent to them, despite which they still failed to pay. Hence, respondent
Carmencita San Diegos resort to extrajudicial foreclosure, provided no less in
the parties Amendment of Real Estate Mortgage.
86
The rule has been, and still is, that in real estate mortgage, when the principal
obligation is not paid when due, the mortgagee has the right to foreclose on
the mortgage and to have the mortgaged property seized and sold with the
view of applying the proceeds thereof to the payment of the obligation.[4]
Here, the validity of the extrajudicial foreclosure on 11 August 1993 was
virtually confirmed by the trial court when it dismissed petitioners complaint,
and rightly so, what with the fact that petitioners failed to exercise their right
of redemption within the 1-year period therefor counted from the registration
of the sheriffs certificate of sale.
It is petitioners main submission, however, that the very reason why they did
not avail of their redemption right is because Mrs. San Diego bloated their
original loan of P1,000,000.00 to P1,950,000.00, an issue supposedly not
considered and/or addressed by the appellate court in the decision under
review. In this regard, petitioners argue that the Court of Appeals, in sustaining
the extrajudicial foreclosure proceedings, thereby go against the established
jurisprudence that an action for foreclosure must be limited to the amount
mentioned in the mortgage document, P1,000,000.00 in this case.
We do not take issue with petitioners submission that a mortgage may be
foreclosed only for the amount appearing in the mortgage document, more so
where, as here, the mortgage contract entered into by the parties is evidently
silent on the payment of interest.
However, contrary to petitioners claim, the appellate court did pass upon the
legal issue raised by them, albeit ruling that petitioners had been barred by
laches from raising the same. We quote from the challenged decision:
[Petitioners] next argued that the mortgaged property was illegally foreclosed
since it is a well settled rule that an action to foreclose a mortgage must be
limited to the amount mentioned in the mortgage.
The argument is without merit.
It appears from the evidence on record that despite due notice and publication
of the same in a newspaper of general circulation (Exhs. 5, 5-A and 5-B, pp. 53-
55, Record), [petitioners] did not bother to attend the foreclosure sale nor
raise any question regarding the propriety of the sale. It was only on
November 9, 1994, or more than one year from the registration of the Sheriffs
Certificate of Sale, that [petitioners] filed the instant complaint. Clearly,
[petitioners] had slept on their rights and are therefore guilty of laches, which
is defined as the failure or neglect for an unreasonable or explained length of
time to do that which, by exercising due diligence, could or should have been
done earlier, failure of which gives rise to the presumption that the person
possessed of the right or privilege has abandoned or has declined to assert the
same. (Words in bracket added.)
For sure, in the very petition they filed in this case, petitioners have not
offered any valid excuse why, despite notice to them of the petition for
extrajudicial foreclosure filed by the respondents, they failed to attend the
proceedings and there voiced out what they are now claiming. Truly, laches
has worked against them. The law on redemption of mortgaged property is
clear. Republic Act No. 3135 (An Act to Regulate the Sale of Property Under
Special Powers Inserted In Or Annexed to Real Estate Mortgages), as amended
by Republic Act No. 4118, provides in Section 6 thereof, thus:
Sec. 6. 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; xxx (Emphasis supplied)
In a long line of cases[5], this Court has consistently ruled that the one-year
redemption period should be counted not from the date of foreclosure sale,
but from the time the certificate of sale is registered with the Register of
Deeds. Here, it is not disputed that the sheriffs certificate of sale was
registered on 29 October 1993.
And under Article 13 of the New Civil Code[6], a year is understood to have
three hundred sixty-five (365) days each. Thus, excluding the first day and
counting from 30 October 1993 (under paragraph 3 of Article 13 of the New
Civil Code), and bearing in mind that 1994 was a leap year, petitioners had
only until 29 October 1994, the 365th day after registration of the sheriffs
certificate of sale on 29 October 1993, within which to redeem the foreclosed
property in accordance with law. And since 29 October 1994 fell on a Saturday,
petitioners had until the following working day, 31 October 1994, within which
to exercise their right of redemption.
From the foregoing, it is clear as day that even the complaint filed by the
petitioners with the trial court on 09 November 1994 was instituted beyond
the 1-year redemption period. In fact, petitioners no less acknowledged that
their complaint for annulment of extrajudicial foreclosure and auction sale was
filed about eleven (11) days after the redemption period had already expired
on 29 October 1994[7]. They merely harp on the alleged increase in the
redemption price of the mortgaged property as the reason for their failure to
redeem the same. However, and as already pointed out herein, they chose
not, despite notice, to appear during the foreclosure proceedings.
Of course, petitioners presently insist that they requested for and were
granted an extension of time within which to redeem their property, relying on
a handwritten note allegedly written by Mrs. San Diegos husband on
petitioners statement of account, indicating therein the date 11 November
1994 as the last day to pay their outstanding account in full. Even assuming,
in gratia argumenti, that they were indeed granted such an extension, the hard
reality, however, is that at no time at all did petitioners make a valid offer to
redeem coupled with a tender of the redemption price.
Even on this score, petitioners case must fall.
For, in Lazo v. Republic Surety & Insurance Co., Inc.[8], this Court has made it
clear that it is only where, by voluntary agreement of the parties, consisting of
extensions of the redemption period, followed by commitment by the debtor
to pay the redemption price at a fixed date, will the concept of legal
redemption be converted into one of conventional redemption.
Here, there is no showing whatsoever that petitioners agreed to pay the
redemption price on or before 11 November 1994, as allegedly set by Mrs. San
Diegos husband. On the contrary, their act of filing their complaint on 09
November 1994 to declare the nullity of the foreclosure sale is indicative of
their refusal to pay the redemption price on the alleged deadline set by the
husband. At the very least, if they so believed that their loan obligation was
only for P1,000,000.00, petitioners should have made an offer to redeem
within one (1) year from the registration of the sheriffs certificate of sale,
together with a tender of the same amount. This, they never did.
It must be remembered that the period of redemption is not a prescriptive
period but a condition precedent provided by law to restrict the right of the
person exercising redemption. Correspondingly, if a person exercising the right
of redemption has offered to redeem the property within the period fixed, he
is considered to have complied with the condition precedent prescribed by law
and may thereafter bring an action to enforce redemption. If, on the other
hand, the period is allowed to lapse before the right of redemption is
exercised, then the action to enforce redemption will not prosper, even if the
action is brought within the ordinary prescriptive period. Moreover, the period
within which to redeem the property sold at a sheriffs sale is not suspended by
the institution of an action to annul the foreclosure sale.[9] It is clear, then,
that petitioners have lost any right or interest over the subject property
primarily because of their failure to redeem the same in the manner and
within the period prescribed by law. Their belated attempts to question the
legality and validity of the foreclosure proceedings and public auction must
accordingly fail.
WHEREFORE, the instant petition is DENIED and the challenged decision and
resolution of the Court of Appeals AFFIRMED.
No pronouncement as to costs. SO ORDERED.
87
FIRST DIVISION
G.R. No. 195540 March 13, 2013
GOLDENWAY MERCHANDISING CORPORATION, Petitioner,
vs.
EQUITABLE PCI BANK, Respondent.
DECISION
On November 29, 1985, Goldenway Merchandising Corporation (petitioner)
executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent)
over its real properties situated in Valenzuela, Bulacan (now Valenzuela City)
and covered by Transfer Certificate of Title (TCT) Nos. T-152630, T-151655 and
T-214528 of the Registry of Deeds for the Province of Bulacan. The mortgage
secured the Two Million Pesos (₱2,000,000.00) loan granted by respondent to
petitioner and was duly registered.4
As petitioner failed to settle its loan obligation, respondent extrajudicially
foreclosed the mortgage on December 13, 2000. During the public auction, the
mortgaged properties were sold for ₱3,500,000.00 to respondent. Accordingly,
a Certificate of Sale was issued to respondent on January 26, 2001. On
February 16, 2001, the Certificate of Sale was registered and inscribed on TCT
Nos. T-152630, T-151655 and T-214528.5
In a letter dated March 8, 2001, petitioner’s counsel offered to redeem the
foreclosed properties by tendering a check in the amount of ₱3,500,000.00.
On March 12, 2001, petitioner’s counsel met with respondent’s counsel
reiterating petitioner’s intention to exercise the right of
redemption.6 However, petitioner was told that such redemption is no longer
possible because the certificate of sale had already been registered. Petitioner
also verified with the Registry of Deeds that title to the foreclosed properties
had already been consolidated in favor of respondent and that new certificates
of title were issued in the name of respondent on March 9, 2001.
On December 7, 2001, petitioner filed a complaint7 for specific performance
and damages against the respondent, asserting that it is the one-year period of
redemption under Act No. 3135 which should apply and not the shorter
redemption period provided in Republic Act (R.A.) No. 8791. Petitioner argued
that applying Section 47 of R.A. 8791 to the real estate mortgage executed in
1985 would result in the impairment of obligation of contracts and violation of
the equal protection clause under the Constitution. Additionally, petitioner
faulted the respondent for allegedly failing to furnish it and the Office of the
Clerk of Court, RTC of Valenzuela City with a Statement of Account as directed
in the Certificate of Sale, due to which petitioner was not apprised of the
assessment and fees incurred by respondent, thus depriving petitioner of the
opportunity to exercise its right of redemption prior to the registration of the
certificate of sale.
In its Answer with Counterclaim,8 respondent pointed out that petitioner
cannot claim that it was unaware of the redemption price which is clearly
provided in Section 47 of R.A. No. 8791, and that petitioner had all the
opportune time to redeem the foreclosed properties from the time it received
the letter of demand and the notice of sale before the registration of the
certificate of sale. As to the check payment tendered by petitioner, respondent
said that even assuming arguendo such redemption was timely made, it was
not for the amount as required by law.
On January 8, 2007, the trial court rendered its decision dismissing the
complaint as well as the counterclaim. It noted that the issue of
constitutionality of Sec. 47 of R.A. No. 8791 was never raised by the petitioner
during the pre-trial and the trial. Aside from the fact that petitioner’s attempt
to redeem was already late, there was no valid redemption made because
Atty. Judy Ann Abat-Vera who talked to Atty. Joseph E. Mabilog of the Legal
Division of respondent bank, was not properly authorized by petitioner’s
Board of Directors to transact for and in its behalf; it was only a certain Chan
Guan Pue, the alleged President of petitioner corporation, who gave
instruction to Atty. Abat-Vera to redeem the foreclosed properties.9
Aggrieved, petitioner appealed to the CA which affirmed the trial court’s
decision. According to the CA, petitioner failed to justify why Section 47 of R.A.
No. 8791 should be declared unconstitutional. Furthermore, the appellate
court concluded that a reading of Section 47 plainly reveals the intention to
shorten the period of redemption for juridical persons and that the foreclosure
of the mortgaged properties in this case when R.A. No. 8791 was already in
effect clearly falls within the purview of the said provision.10
Petitioner’s motion for reconsideration was likewise denied by the CA.
In the present petition, it is contended that Section 47 of R.A. No. 8791 is
inapplicable considering that the contracting parties expressly and
categorically agreed that the foreclosure of the real estate mortgage shall be
in accordance with Act No. 3135. Citing Co v. Philippine National
Bank11 petitioner contended that the right of redemption is part and parcel of
the Deed of Real Estate Mortgage itself and attaches thereto upon its
execution, a vested right flowing out of and made dependent upon the law
governing the contract of mortgage and not on the mortgagee’s act of
extrajudicially foreclosing the mortgaged properties. This Court thus held in
said case that "Under the terms of the mortgage contract, the terms and
conditions under which redemption may be exercised are deemed part and
parcel thereof whether the same be merely conventional or imposed by law."
Petitioner then argues that applying Section 47 of R.A. No. 8791 to the present
case would be a substantial impairment of its vested right of redemption
under the real estate mortgage contract. Such impairment would be violative
of the constitutional proscription against impairment of obligations of
contract, a patent derogation of petitioner’s vested right and clearly changes
the intention of the contracting parties. Moreover, citing this Court’s ruling in
Rural Bank of Davao City, Inc. v. Court of Appeals12 where it was held that
"Section 119 prevails over statutes which provide for a shorter period of
redemption in extrajudicial foreclosure sales", and in Sulit
v. Court of Appeals,13 petitioner stresses that it has always been the policy of
this Court to aid rather than defeat the mortgagor’s right to redeem his
property.
Petitioner further argues that since R.A. No. 8791 does not provide for its
retroactive application, courts therefore cannot retroactively apply its
provisions to contracts executed and consummated before its effectivity. Also,
since R.A. 8791 is a general law pertaining to the banking industry while Act
No. 3135 is a special law specifically governing real estate mortgage and
foreclosure, under the rules of statutory construction that in case of conflict a
special law prevails over a general law regardless of the dates of enactment of
both laws, Act No. 3135 clearly should prevail on the redemption period to be
applied in this case.
The constitutional issue having been squarely raised in the pleadings filed in
the trial and appellate courts, we shall proceed to resolve the same.
The law governing cases of extrajudicial foreclosure of mortgage is Act No.
3135,14 as amended by Act No. 4118. Section 6 thereof provides:
SEC. 6. 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, inclusive, of the Code of
Civil Procedure,15 in so far as these are not inconsistent with the provisions of
this Act.
The one-year period of redemption is counted from the date of the
registration of the certificate of sale. In this case, the parties provided in their
real estate mortgage contract that upon petitioner’s default and the latter’s
entire loan obligation becoming due, respondent may immediately foreclose
the mortgage judicially in accordance with the Rules of Court, or extrajudicially
in accordance with Act No. 3135, as amended.
However, Section 47 of R.A. No. 8791 otherwise known as "The General
Banking Law of 2000" which took effect on June 13, 2000, amended Act No.
3135. Said provision reads:
88
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of
foreclosure, whether judicially or extrajudicially, of any mortgage on real
estate which is security for any loan or other credit accommodation granted,
the mortgagor or debtor whose real property has been sold for the full or
partial payment of his obligation shall have the right within one year after the
sale of the real estate, to redeem the property by paying the amount due
under the mortgage deed, with interest thereon at the rate specified in the
mortgage, and all the costs and expenses incurred by the bank or institution
from the sale and custody of said property less the income derived therefrom.
However, the purchaser at the auction sale concerned whether in a judicial or
extrajudicial foreclosure shall have the right to enter upon and take possession
of such property immediately after the date of the confirmation of the auction
sale and administer the same in accordance with law. Any petition in court to
enjoin or restrain the conduct of foreclosure proceedings instituted pursuant
to this provision shall be given due course only upon the filing by the
petitioner of a bond in an amount fixed by the court conditioned that he will
pay all the damages which the bank may suffer by the enjoining or the
restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration
of the certificate of foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a foreclosure
sale prior to the effectivity of this Act shall retain their redemption rights until
their expiration. (Emphasis supplied.)
Under the new law, an exception is thus made in the case of juridical persons
which are allowed to exercise the right of redemption only "until, but not
after, the registration of the certificate of foreclosure sale" and in no case
more than three (3) months after foreclosure, whichever comes first.16
May the foregoing amendment be validly applied in this case when the real
estate mortgage contract was executed in 1985 and the mortgage foreclosed
when R.A. No. 8791 was already in effect?
We answer in the affirmative.
When confronted with a constitutional question, it is elementary that every
court must approach it with grave care and considerable caution bearing in
mind that every statute is presumed valid and every reasonable doubt should
be resolved in favor of its constitutionality.17 For a law to be nullified, it must
be shown that there is a clear and unequivocal breach of the Constitution. The
ground for nullity must be clear and beyond reasonable doubt.18Indeed, those
who petition this Court to declare a law, or parts thereof, unconstitutional
must clearly establish the basis therefor. Otherwise, the petition must fail.19
Petitioner’s contention that Section 47 of R.A. 8791 violates the constitutional
proscription against impairment of the obligation of contract has no basis.
The purpose of the non-impairment clause of the Constitution20 is to
safeguard the integrity of contracts against unwarranted interference by the
State. As a rule, contracts should not be tampered with by subsequent laws
that would change or modify the rights and obligations of the
parties.21 Impairment is anything that diminishes the efficacy of the contract.
There is an impairment if a subsequent law changes the terms of a contract
between the parties, imposes new conditions, dispenses with those agreed
upon or withdraws remedies for the enforcement of the rights of the
parties.22
Section 47 did not divest juridical persons of the right to redeem their
foreclosed properties but only modified the time for the exercise of such right
by reducing the one-year period originally provided in Act No. 3135. The new
redemption period commences from the date of foreclosure sale, and expires
upon registration of the certificate of sale or three months after foreclosure,
whichever is earlier. There is likewise no retroactive application of the new
redemption period because Section 47 exempts from its operation those
properties foreclosed prior to its effectivity and whose owners shall retain
their redemption rights under Act No. 3135.
Petitioner’s claim that Section 47 infringes the equal protection clause as it
discriminates mortgagors/property owners who are juridical persons is equally
bereft of merit.
The equal protection clause is directed principally against undue favor and
individual or class privilege.1âwphi1 It is not intended to prohibit legislation
which is limited to the object to which it is directed or by the territory in which
it is to operate. It does not require absolute equality, but merely that all
persons be treated alike under like conditions both as to privileges conferred
and liabilities imposed.23 Equal protection permits of reasonable
classification.24 We have ruled that one class may be treated differently from
another where the groupings are based on reasonable and real
distinctions.25 If classification is germane to the purpose of the law, concerns
all members of the class, and applies equally to present and future conditions,
the classification does not violate the equal protection guarantee.26
We agree with the CA that the legislature clearly intended to shorten the
period of redemption for juridical persons whose properties were foreclosed
and sold in accordance with the provisions of Act No. 3135.27
The difference in the treatment of juridical persons and natural persons was
based on the nature of the properties foreclosed – whether these are used as
residence, for which the more liberal one-year redemption period is retained,
or used for industrial or commercial purposes, in which case a shorter term is
deemed necessary to reduce the period of uncertainty in the ownership of
property and enable mortgagee-banks to dispose sooner of these acquired
assets. It must be underscored that the General Banking Law of 2000, crafted
in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform
the General Banking Act of 1949 by fashioning a legal framework for
maintaining a safe and sound banking system.28 In this context, the
amendment introduced by Section 47 embodied one of such safe and sound
practices aimed at ensuring the solvency and liquidity of our banks.1âwphi1 It
cannot therefore be disputed that the said provision amending the
redemption period in Act 3135 was based on a reasonable classification and
germane to the purpose of the law.
This legitimate public interest pursued by the legislature further enfeebles
petitioner’s impairment of contract theory.
The right of redemption being statutory, it must be exercised in the manner
prescribed by the statute,29 and within the prescribed time limit, to make it
effective. Furthermore, as with other individual rights to contract and to
property, it has to give way to police power exercised for public welfare.30 The
concept of police power is well-established in this jurisdiction. It has been
defined as the "state authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare." Its
scope, ever-expanding to meet the exigencies of the times, even to anticipate
the future where it could be done, provides enough room for an efficient and
flexible response to conditions and circumstances thus assuming the greatest
benefits.31
The freedom to contract is not absolute; all contracts and all rights are subject
to the police power of the State and not only may regulations which affect
them be established by the State, but all such regulations must be subject to
change from time to time, as the general well-being of the community may
require, or as the circumstances may change, or as experience may
demonstrate the necessity.32 Settled is the rule that the non-impairment
clause of the Constitution must yield to the loftier purposes targeted by the
Government. The right granted by this provision must submit to the demands
and necessities of the State’s power of regulation.33 Such authority to
regulate businesses extends to the banking industry which, as this Court has
time and again emphasized, is undeniably imbued with public interest.34
Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we
find no reversible error committed by the CA in holding that petitioner can no
longer exercise the right of redemption over its foreclosed properties after the
certificate of sale in favor of respondent had been registered.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit.
The Decision dated November 19, 2010 and Resolution dated January 31, 2011
of the Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.
With costs against the petitioner. SO ORDERED.
89
FIRST DIVISION
G.R. No. 204672, February 18, 2015
SPOUSES RODOLFO AND MARCELINA GUEVARRA, Petitioners, v. THE
COMMONER LENDING CORPORATION, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1are the Decision2 dated
October 3, 2011 and the Resolution3 dated October 17, 2012 of the Court of
Appeals (CA) in CA-G.R. CV No. 02895,which affirmed with modification the
Order4 dated October 20, 2008 of the Regional Trial Court of Guimbal, Iloilo,
Branch 67 (RTC) in Cadastral Case Nos. 118 and 122, allowing petitioners-
spouses Rodolfo and Marcelina Guevarra (Sps. Guevarra) to exercise their right
to repurchase the mortgaged property subject of this case, conditioned upon
the payment of the purchase price fixed by respondent The Commoner
Lending Corporation, Inc. (TCLC).
The Facts
On December 16, 1996,5Sps. Guevarra obtained a P320,000.00 loan from
TCLC, which was secured by a real estate mortgage6 over a 5,532- square
meter parcel of land situated in Guimbal, Iloilo, covered by Original Certificate
of Title (OCT) No. F-319007 (subject property), emanating from a free patent
granted to Sps. Guevarraon February 25, 1986.8
Sps. Guevarra, however, defaulted in the payment of their loan,
promptingTCLC to extra-judicially foreclose the mortgage on the subject
property9 in accordance with Act No. 3135,10 as amended.In the process,
TCLCemerged as the highest bidder at the public auction sale held on June 15,
2000 for the bid amount of P150,000.00,11and on August 25, 2000, the
certificate of sale was registered with the Registry of Deeds of Iloilo.12
Eventually, Sps. Guevarrafailed to redeem the subject property within the one-
year reglementary period, which led to the cancellation of OCT No. F-31900
and the issuance of Transfer Certificate of Title No.T-1618713 in the name of
TCLC. Thereafter, TCLCdemanded that Sps. Guevarra vacate the property, but
to no avail.14
The RTC Proceedings
On June 10, 2005, TCLC applied for a writ of possession15 before the RTC,
docketed as Cadastral Case No. 118.Sps. Guevarraopposed16 the
samebychallenging the validity of the foreclosure proceedingsdue tothe
purported failure of TCLC to comply with the notice, posting and publication
requirements, and lack of authority, as a corporation,to acquire the subject
property. Sps. Guevarra also assailed the issuance by the Sheriff of Iloilo of a
Final Deed of Sale17 to be premature, as they were still entitled to redeem the
subject property within five (5) yearsfrom the expiration of the one-year
period to repurchase.18
Subsequently, or on September 8, 2005, Sps. Guevarra filed before the RTC a
petition for redemption,19docketed as Cadastral Case No. 122, maintaining
that the redemption period did not expire on August 25, 2001, or one (1) year
from the registration of the certificate of sale, but will still expire five (5) years
therefrom, or on August 25, 2006.20 They further averred that they pleaded to
be allowed to redeem the subject property but TCLC unjustifiably refused the
same, constraining them to file said petition, offering to redeem the subject
property at P150,000.00, plus one percent (1%) interest per month for five (5)
years from August 25, 2000, or in the amount of P240,000.00,21 which they
consigned22 to the RTC.
Cadastral Case Nos. 118 and 122 werelater consolidated.23
Inan Order24 dated July 12, 2006, the RTC granted TCLC’s petition in Cadastral
Case No. 118, resulting in the issuance of the corresponding Writ of
Possession25 andNotice to Vacate26which were duly served uponSps.
Guevarra.27Accordingly, the latterfiled a motion for
reconsideration28 andMotion to Hold in Abeyance the Implementation of the
Writ of Possession.29
In an Order30 dated October 20, 2008, the RTC denied the motion for
reconsideration in Cadastral Case No. 118, but granted Sps. Guevarra’spetition
in Cadastral Case No. 122. In so doing, the RTC recognizedSps. Guevarra’s right
to repurchase the subject property, pointing out that they were able to file
their petition within the five-yearperiod provided under Section 119 of
Commonwealth Act No. 141,31otherwise known as the Public Land Act (Public
Land Act).32As a consequence, the RTC directed TCLC to reconvey the subject
propertyto Sps. Guevarraand execute the corresponding deed of reconveyance
upon payment of the purchase price of ?150,000.00, plus one percent(1%)
interest per month from the date of the auction sale on June 15, 2000upto
August 8, 2006,as well as the corresponding tax assessments and foreclosure
expenses.33
Dissatisfied, TCLC filed a motion for reconsideration34 which was, however,
denied in an Order35 dated January 6, 2009; thus, itfiled an appeal36 before
the CA.
The CA Proceedings
In a Decision37 dated October 3, 2011, the CA affirmed the RTC’s October 20,
2008 Order, upholding Sps. Guevarra’s right to repurchase the subject
property pursuant to Section 119 of the Public Land Act, with modification that
the same be conditioned upon the payment of the purchase price fixed by
TCLC. It ruled that after the expiration of the redemption period, the present
owner, i.e., TCLC,has the discretion to set a higher price.38
Aggrieved, Sps. Guevarra filed a motion for reconsideration39 which was,
however, denied in a Resolution40 dated October 17, 2012, hence, this
petition.
The Issue Before the Court
The essential issue in this case is whether or not the CA committed a reversible
error in ruling that the repurchase price for the subject property should be
fixed by TCLC.
The Court’s Ruling
In an extra-judicial foreclosure of registered land acquired under a free patent,
the mortgagor may redeem the property within two (2) years from the date of
foreclosure if the land is mortgaged to a rural bank under Republic Act No.
(RA) 720,41 as amended, otherwise known as the Rural Banks Act, or within
one (1) year from the registration of the certificate of sale if the land is
mortgaged to parties other thanrural banks pursuant to Act No. 3135.42 If the
mortgagor fails to exercise such right, he or his heirs may still repurchase the
property within five (5) years from the expiration of the aforementioned
redemption period43 pursuant to Section 119 of the Public Land Act, which
states:
SEC. 119. Every conveyance of land acquired under the free patent or
homestead provisions, when proper, shall be subject to repurchase by the
applicant, his widow, or legal heirs, within a period of five years from the date
of the conveyance.
In this case, the subject property was mortgaged to and foreclosed by TCLC,
which is a lending or credit institution, and not a rural bank; hence, the
redemption period is one (1) year from the registration of the certificate of
sale on August 25, 2000, or until August 25, 2001. Given that Sps. Guevarra
failed to redeem the subject property within the aforestated redemption
period, TCLC was entitled, as a matter of right, to consolidate its ownership
and to possess the same.44 Nonetheless, such right should not negate Sps.
Guevarra’s right to repurchase said property within five (5) years from the
expiration of the redemption period on August 25, 2001, or until August 25,
2006, in view of Section 119 of the Public Land Act as above-cited.
In this relation, it is apt to clarify that contrary to TCLC’s claim,45the tender of
the repurchase price is not necessary for the preservation of the right of
90
repurchase, because the filing of a judicial action for such purpose within the
five-year period under Section 119 of the Public Land Actis already equivalent
to a formal offer to redeem. On this premise, consignation of the redemption
price is equally unnecessary.46
Thus, the RTC and CAboth correctly ruled that Sps. Guevarra’s right to
repurchase the subject property had not yet expiredwhen Cadastral Case No.
122 was filed on September 8, 2005. That being said, the Court now proceeds
to determine the proper amount of the repurchase price.
Sps. Guevarrainsist that the repurchase price should be the purchase price at
the auction sale plus interest of one percent (1%) per month and other
assessment fees,47citing the rulings in the cases of Belisario v. Intermediate
Appellate Court48 (Belisario) and Salenillas v. CA49 (Salenillas). On the other
hand, TCLC maintains that it is entitled to its total claims under the promissory
note and the mortgage contract50in accordance with Section 4751 of the
General Banking Law of 2000.52
TCLC’s argument is partly correct.
To resolve the matter, it must first be pointed out that case law has equated a
right of repurchase of foreclosed properties under Section 119 of the Public
Land Act as a “right of redemption”53 and the repurchase price as a
“redemption price.”54 Thus, in Salenillas, the Court applied then Section 30,
now Section 28, Rule 39 of the Rules of Court (Rules) in the redemption of the
foreclosed property covered by a free patent:
As such, the stipulated three percent (3%) monthly interest should be
equitably reduced to one percent (1%) per month or twelve percent (12%) per
annum reckoned from the execution of the real estate mortgage on December
12, 1996,68 until the filing of the petition in Cadastral Case No. 122 on
September 8, 2005.
In addition to the principal and interest, the repurchase price should also
include all the expenses of foreclosure, i.e., Judicial Commission, Publication
Fee, and Sheriff’s Fee, in accordance with Section 4769of the General Banking
Law of 2000. Considering further that Sps. Guevarra failed to redeem the
subject property within the one-year reglementary period, they are liable to
reimburse TCLC for the corresponding Documentary Stamp Tax (DST) and
Capital Gains Tax (CGT) it paid pursuant to Bureau of Internal Revenue (BIR)
Revenue Regulations No. 4-99,70which requires the payment of DST on extra-
judicial foreclosure sales of capital assets initiated by banks, finance and
insurance companies, as well as CGT in cases of non-redemption. CGT and DST
are expenses incident to TCLC’s custody of the subject property, hence,
likewise due, under the above provision of law.
Accordingly, the repurchase price is hereby computed as follows:
Principal P320,000.00
Add: Interest from 12/12/1996 to 09/05/2005

Now, as regards the redemption price, applying Sec. 30 of Rule 39 of the from 12/12/1996 to 12/12/2004: (P320,000.00 xP307,200.00
[Rules], the petitioners should reimburse the private respondent the amount 12% x 8 years)
of the purchase price at the public auction plus interest at the rate of one per
centum per month up to November 17, 1983, together with the amounts from 12/13/2004 to 09/08/2005: (P320,000.00 x28,405.48 335,605.48
of assessments and taxes on the property that the private respondent might 12% x 270/365)
have paid after purchase and interest on the last named amount at the same
rate as that on the purchase price. (Emphases supplied)55 Total Amount due under the mortgage P655,605.48

Add: Capital Gains Tax 18,203.17

The Court has,however, ruled56 that redemptions from lending or credit Documentary Stamp Tax 4,501.46
institutions, like TCLC, are governed by Section 7857 of the General Banking
Act (now Section 47 of the General Banking Law of 2000), which amended Judicial Commission 4,150.00
Section 6 of Act No. 3135 in relation to the proper redemption price when the
mortgagee is a bank, or a banking or credit institution.58 Publication Fee 4,000.00

Nonetheless, the Court cannot subscribe to TCLC’s contention that it is entitled Sheriff’s Fee 3,000.00
to its total claims under the promissory note and the mortgage contract59in
view of the settled rule that an action to foreclose must be limited to the Repurchase Price P689,460.11
amount mentioned in the mortgage.60Hence, amounts not stated therein
must be excluded, like the penalty charges of three percent (3%) per ==============
month included in TCLC’s claim.61A penalty charge is likened to a
compensation for damages in case of breach of the obligation. Being penal in
nature,it must be specific and fixed by the contracting parties.62
From this repurchase priceshall be deducted the amount consigned to the RTC,
Moreover, the Court notes that the stipulated three percent (3%) monthly or P240,000.00. Sps. Guevarramay repurchase the subject property within
interest is excessive and unconscionable.In a plethora of cases, the Court has thirty (30) days from finality of this Decision upon payment of the net amount
affirmed that stipulated interest rates of three percent (3%) per month and of P449,460.11.
higher are excessive, iniquitous, unconscionable, and exorbitant,63hence,
illegal64and void for being contrary to morals.65 In Agner v. BPI Family Savings WHEREFORE, the petition is DENIED. The Decision dated October 3, 2011 and
Bank, Inc.,66 the Court had the occasion to rule: the Resolution dated October 17, 2012 of the Court of Appeals in CA-G.R. CV
No. 02895 are hereby AFFIRMED with MODIFICATION allowing petitioners-
Settled is the principle which this Court has affirmed in a number of cases that spouses Rodolfo and MarcelinaGuevarra to repurchase the subject property
stipulated interest rates of three percent (3%) per month and higher are from respondent The Commoner Lending Corporation, Inc. (TCLC) within thirty
excessive, iniquitous, unconscionable, and exorbitant. While Central Bank (30) days from the finality of this Decision for the price of P689,460.11, less the
Circular No. 905-82, which took effect on January 1, 1983, effectively removed amount of P240,000.00 previously consigned to the court a quo, or the net
the ceiling on interest rates for both secured and unsecured loans, regardless amount of P449,460.11, for which the corresponding deed of absolute
of maturity, nothing in the said circular could possibly be read as granting carte conveyance shall be executed by TCLC.
blanche authority to lenders to raise interest rates to levels which would either
enslave their borrowers or lead to a hemorrhaging of their assets. Since the SO ORDERED.
stipulation on the interest rate is void for being contrary to morals, if not
against the law, it is as if there was no express contract on said interest rate; EN BANC
thus, the interest rate may be reduced as reason and equity demand.
(Emphases supplied)67 G.R. No. 196040 August 26, 2014

91
FE H. OKABE, Petitioner,
vs.
ERNESTO A. SATURNINO, Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking the reversal of the Decision1 dated September 24, 2010 and
Resolution2 dated March 9, 2011 of the Court of Appeals (CA) in CA-G.R. SP
No. 110029.
The facts, as culled from the records, are as follows:
The subject of the controversy is an eighty-one (81)square meter property
located in Barangay San Antonio, Makati City, which was initially covered by
Transfer Certificate of Title (TCT) No. 175741under the name of the wife of
respondent Ernesto A. Saturnino. Sometime in 1994, the couple obtained a
loan with the Philippine National Bank (PNB), which was secured by the
subject property. Because of the couple’s failure to settle their loan obligation
with the bank, PNB extrajudicially foreclosed the mortgage.
On August 24, 1999, the Certificate ofSale was inscribed on TCT No. 175741.
Considering that the property was not redeemedby respondent during the
redemption period, consolidation of ownership was inscribed on October 13,
2006 and a new TCT was issued in favor of PNB. Without taking possession of
the subject property, PNB sold the land to petitioner Fe H. Okabe on June 17,
2008. TCT No. 225265 was later issued in petitioner’s name on August 13,
2008.
On November 27, 2008, petitioner filed with the Regional Trial Court (RTC) of
Makati City an Ex-Parte Petition for Issuance of Writ of Possession3 over the
subject property, to which respondent submitted an Opposition with Motion
to Dismiss.4 Petitioner filed her Reply to/ Comment on the Opposition with
Motion to Dismiss,5 while respondent submitted his Oppositor-
Movant’sRejoinder with Motion for Postponement.6
On April 30 2009, the RTC issued an Order7 denying respondent’s Opposition
with Motion to Dismiss for lack of merit. The RTC, citing the case of Ramos v.
Mañalac and Lopez8 opined that the issuance of a writ of possession in favor
of the petitioner was merely a ministerial and complementary duty of the
court.
Respondent then filed an Urgent Motion for Clarification (of the Order dated
30 April 2009),9 then a Motion for Reconsideration,10 which was followed by
a Supplement to the Motion for Reconsideration11 which petitioner likewise
opposed.12
On July 29, 2009, the RTC issued an Order13 denying respondent’s Motion for
Reconsideration and the Supplement to the Motion for Reconsideration. The
RTC ruled, among other things, that the right of the petitioner to be placed in
absolute possession of the subject property was a consequence of her right of
ownership and that petitioner cannot be deprived of said possession being
now the registered owner of the property.
Dismayed, respondent filed on August 17, 2009 a Petition for Certiorari14 with
the CA questioning the Orders of the RTC based on the following grounds:
I
HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER THE FACT THAT
PRIVATE RESPONDENT WAS ALREADY ESTOPPED FROM ASKING FOR THE
ISSUANCE OF A WRIT OF POSSESSION CONSIDERING THAT THE VERY DEED OF
ABSOLUTE SALE FROM WHICH HER ALLEGED RIGHT EMANATES EXPLCITLY (sic)
GAVE HER THE ONLY OPTION OF FILING AN EJECTMENT SUIT.
II
HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER THAT SECTION 7 OF
ACT NO. 3135, AS AMENDED BY ACT 4118 SHOULD BE CONSTRUED
STRICTLY.15
Respondent prayed, among other things, that the CA reverse and set aside the
assailed Orders and thata Temporary Restraining Order (TRO) be issued
enjoining the RTC from hearing the petition for the issuance of a writ of
possession.
Meanwhile, on November 23, 2009, the RTC rendered a Decision16 in favor of
petitioner, which granted her ex-parte petition and ordered that the
corresponding writ of possession over the subject property be issued in her
favor. The decretal portion of which reads:
WHEREFORE, premises considered, and in accordance with Section 7 of Act
No. 3135, as amended, the instant petition [is] hereby GRANTED.
Let the corresponding Writ be issued in favor of the herein petitioner Fe H.
Okabe to place her inpossession of the subject property. No bond is required
to be posted by petitioner Fe H. Okabe, she, being the successor-in-interest of
Philippine National Bank, the purchaser in the foreclosure sale, which had
consolidated that title on the subject property in its name prior to the herein
petitioner.
Furnish copies of this Decision to the parties and their respective counsels.
SO ORDERED.17
Respondent filed a motion to set aside the said Decision, but the same was
denied by the RTC in its Order18 dated April 27, 2010.
On May 13, 2010, petitioner filed a Motion for Execution of Judgment.
On July 8, 2010, the RTC issued an Order19 granting the motion. On even date,
the branch clerk of court issued a Writ of Possession20 addressed to the
Sheriff ordering the latter toplace petitioner in possession of the subject
property.
On July 14, 2010, the Sheriff, together with petitioner, tried to cause the
service of the notice to vacate upon the respondent, but the property was
already abandoned by its occupants. The Sheriff, with the assistance of
barangay officials, thus, posted the notice to vacate together with the writ of
possession in front of the gate of the subject property.21
On July 20, 2010, the Sheriff,the petitioner, and the barangay officials returned
to the property to cause the implementation of the writ of possession. After
finding that no onewas occupying the property, the Sheriff turned over
possession of the subject property to the petitioner free and clear of
occupants and personal property.22
In the proceedings before the CA, respondent filed a Motion to Admit Herein
Memorandum of Authorities in Amplification/Support of the Position of
Petitioner in this Case and Reiterating Prayer for Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injuction.23 In the said motion,
respondent alleged that the RTC was about to issue the writ of possession
prayed for by the petitioner and that a TRO was necessary to prevent great
and irreparable injury which respondent may suffer if removed from
possession of the property in question.
On July 19, 2010, the CA issued a Resolution24 granting the issuance of a TRO
in favor of the respondentand commanding petitioner and the RTC to refrain
from committing any acts relative to the proceedings before it upon the
posting of a bond.
In a Manifestation25 dated July 21, 2010 the RTC Presiding Judge informed the
CA that as much as the court would like to comply with its directive, it can no
longer do so because the writ of possession had already been implemented by
the Branch Sheriff on July 20, 2010.
On September 24, 2010, the CA rendered the assailed Decision which granted
respondent’s petition and vacatedthe challenged orders of the RTC. The
falloreads:
WHEREFORE,we resolve to GRANTthe instant petition. The challenged orders
below are consequently vacated. The respondents are permanently enjoined
from proceeding against the petitioner via an expartemotion for a writ of
possession.
92
IT IS SO ORDERED.26
The CA opined, among other things, that although it may be true that by virtue
of the contract of sale, petitioner obtained the same rights of a purchaser-
owner and which rights she derived from erstwhile mortgagee turned owner
PNB, this does not mean that the right to file an ex-parte motion for a writ of
possession under Act 3135 had also been transferred to the petitioner. Such a
special right isgranted only to purchasers in a sale made under the provisions
of Act 3135. The CA ruled that to allow a second, third, or even tenth
subsequent buyer of the foreclosed property to evict the mortgagor-debtor or
his successor-in-interest from the said property or wrench away possession
from them via a mere ex-partemotion is to trample upon due process because
whatever defenses that the owner mortgagor/actual possessor may have
would have been drowned and muted by the ex-partewrit of possession.
Considering that the transaction between PNB and the petitioner was by an
ordinary contract of sale, an ex-partewrit of possession may not therefore be
issued in favor of the latter.
Unfazed, petitioner filed a Motion for Reconsideration on the ground that
respondent’s possession of the property had become illegal and that the
procedure affecting his possession was moot and academic for he was no
longer in possession of the subject property.
In a Resolution dated March 9, 2011, the CA denied petitioner’s
Motion for Reconsideration.
Hence, the present petition wherein petitioner raises the following arguments
to support its petition:
I of ownership in his name and the issuance to him of a new transfer certificate
RESPONDENT IS WELL AWARE OF THE FACT THAT OWNERSHIP HAD
TRANSFERRED TO PETITIONER AND THAT HIS POSSESSION OF THE PROPERTY
HAD BECOME ILLEGAL.
II
PETITIONER, AS THE REGISTERED OWNER OF THE PROPERTY, IS ENJOYING
POSSESSION OF THE PROPERTY IN THE CONCEPT OF AN OWNER AND A
RULING OFTHIS HONORABLE COURT REGARDING THE PROCEDURE
PERTAINING TO PETITIONER’S POSSESSION OF THE PROPERTY IS MOOT AND
ACADEMIC.27
Petitioner argues that her possession of the subject property as its registered
owner should not be disturbed. Petitioner posits that considering that
respondent failed to redeem the subject property within the redemption
period, respondent should not be granted a favor nor rewarded for his failure
to redeem and for his illegal occupation of the property. Petitioner contends
that the issue regarding possession ofthe property has become moot and
academic since she, being the registered owner of the property, has been in
possession thereof since July 20, 2010. Petitioner stresses that the ruling of the
CA, that she is "permanently enjoined from proceeding against the
[respondent] via an ex-partemotion for a writ of possession," would result in
an absurdity since she is already in possession of the land.
Petitioner now prays that the Court rectify the situation and for it to reverse
the ruling of the CA based on the fact that the proceedings for the
expartemotion for a writ of possession has already been terminated and
possession of the subject property was awarded by the lower court in her
favor, thus rendering the arguments raised by respondent in his petition for
certiorari before the CA moot and academic.
In essence, the issue is whether or not, in the case at bar, an ex-parte petition
for the issuance of a writ of possession was the proper remedy of the
petitioner in obtaining possession of the subject property.
Section 7 of Act No. 3135,28 as amended by Act No. 4118,29 states:
Section 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property
or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the
property for a period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made
under oath and filed in the form of an ex partemotion x x x and the court shall,
upon approval of the bond, order that a writ of possession issue, addressed to
the sheriff of the province in which the property is situated, who shall execute
said order immediately.
Under the provision cited above, the purchaser or the mortgagee who is also
the purchaser in the foreclosure sale may apply for a writ of possession during
the redemption period,30 upon an ex-partemotion and after furnishing a
bond.
In GC Dalton Industries, Inc. v. Equitable PCI Bank,31 the Court held that the
issuance of a writ of possession to a purchaser in an extrajudicial foreclosureis
summary and ministerial in nature as such proceeding is merely an incident in
the transfer of title. Also, in China Banking Corporation v. Ordinario,32 we held
that under Section 7 of Act No. 3135, the purchaser in a foreclosure saleis
entitled to possession of the property.
In the recent case of Spouses Nicasio Marquez and Anita Marquez v. Spouses
Carlito Alindog and Carmen Alindog,33 although the Court allowed the
purchaser in a foreclosure sale to demand possession of the land during the
redemption period, it still required the posting ofa bond under Section 7 of Act
No. 3135. Thus:
It is thus settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of one
year after the registration of the sale. As such, he is entitled to the possession
of the said property and can demand it at any time following the consolidation
oftitle. The buyer can in fact demand possession of the land even during the
redemption period except that he has to post a bond in accordance with
Section 7 of Act No. 3135, as amended. No such bond is required after the
redemption period if the property is not redeemed. Possession of the land
then becomes an absolute right of the purchaser as confirmed owner. Upon
proper application and proof of title, the issuance of the writ of possession
becomes a ministerial duty of the court.34
Here, petitioner does not fall under the circumstances of the aforequoted case
and the provisions of Section 7 of Act No. 3135, as amended, since she bought
the property long after the expiration of the redemption period. Thus, it is
PNB, if it was the purchaser in the foreclosure sale, or the purchaser during the
foreclosure sale, who can file the ex-parte petition for the issuance of writ of
possession during the redemption period, but it will only issue upon
compliance with the provisions of Section 7 of Act No. 3135.
In fact, the Real Estate Mortgage35 contains a waiver executed by the
mortgagor in favor of the mortgagee, wherein the mortgagor even waives the
issuance of the writ of possession in favor of the mortgagee. The contract
provides that "effective upon the breach of any condition ofthe mortgage and
in addition to the remedies hereinstipulated, the mortgagee is hereby likewise
appointed Attorney-in-Fact of the Mortgagor/s with full power and authority
with the use of force, if necessary, to take actual possession of the mortgaged
property/ies without the necessity of any judicial order or permission, or
power, to collect rents, to eject tenants, to lease or sell the mortgaged
property/ies or any part thereof at a private sale without previous notice or
advertisement of any kind and execute the corresponding bills of sale, lease or
other agreement that may be deemed convenient to make repairs or
improvements on the mortgaged property/ies and pay for the same and
perform any other act which the Mortgagee may deem convenient for the
proper administration of the mortgaged property/ies."36
Moreover, even without the waiver, the issuance of the writ of possession is
ministerial and non-adversarial for the only issue involved is the purchaser’s
right to possession; thus, an ex-parteproceeding is allowed.1âwphi1
Nevertheless, the purchaser is not left without any remedy. Section 6 of Act
No. 3135, as amended by Act No. 4118, provides:
SEC. 6. In all cases in which anextrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successor-ininterest or any
judicial creditor or judgment creditor of said debtor, or any person having a
93
lien on the property subsequent to the mortgage or deed of trust under which SO ORDERED.
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-six, inclusive, of
the Code ofCivil Procedure, in so far as these are not inconsistent with the
provisions of this Act.

Consequently, the provision of Section 33, Rule 39 of the Rules of Court

relative to an execution sale ismade applicable to extrajudicial foreclosure of
real estate mortgages by virtue of Section 6 of Act No. 3135, as amended.37

Section 33, Rule 39 of the Rules of Court provides: SEC. 33. Deed and
possession to be given at expiration of redemption period; by whom executed
or given. – If no redemption be made within one (1) year from the dateof
registration of the certificate of sale, the purchaser is entitled toa conveyance
and possession of the property; or, if so redeemed whenever sixty (60) days
have elapsed and no other redemption has been made, and notice thereof
given, and the time for redemption has expired, the lastredemptioner is
entitled to the conveyance and possession; but in all cases the judgment
obligor shall have the entire period of one (1) year from the date of
registration of the sale to redeem the property. The deed shall be executed by
the officer making the sale or his successor in office,and in the latter case shall
have the same validity as though the officermaking the sale had continued in
office and executed it.

Upon the expiration of the right of redemption, the purchaser or

redemptioner shall be substituted to and acquire all the rights, title, interest
and claim of the judgment obligor to the property as of the time of the levy.
The possession of the property shall be given to the purchaser or last
redemptioner by the same officer unless a third party is actually holding the
property adversely to the judgment obligor.38

From the foregoing, upon the expiration of the right of redemption, the
purchaser or redemptioner shall besubstituted to and acquire all the rights,
title, interest and claim of the judgment debtor to the property, and its
possession shall be given to the purchaser or last redemptioner unless a third
party is actually holding the property adversely to the judgment debtor. In
which case, the issuance of the writ of possession ceases to be ex-parte and
non-adversarial. Thus, where the property levied upon on execution is
occupied by a party other than a judgment debtor, the procedure is for the
court to conduct a hearing to determine the nature of said possession, i.e.,
whether or not he is in possession of the subject property under a claim
adverse to that of the judgment debtor.

It is but logical that Section 33, Rule 39 of the Rules of Court be applied to
cases involving extrajudicially foreclosed properties that were bought by a
purchaser and later sold to third-party-purchasers after the lapse of the
redemption period. The remedy of a writ of possession, a remedy that is
available to the mortgagee-purchaser to acquire possession of the foreclosed
property from the mortgagor, is made available to a subsequent purchaser,
butonly after hearing and after determining that the subject property is still in
the possession of the mortgagor. Unlike if the purchaser is the mortgagee or a
third party during the redemption period, a writ of possession may issue ex-
parte or without hearing. In other words, if the purchaser is a third party who
acquired the property after the redemption period, a hearing must be
conducted to determine whether possession over the subject property is still
with the mortgagor or is already in the possession of a third party holding the
same adversely to the defaulting debtor or mortgagor. If the property is in the
possession of the mortgagor, a writ of possession could thus be issued.
Otherwise, the remedy of a writ of possession is no longer available to such
purchaser, but he can wrest possession over the property through an ordinary
action of ejectment.

To be sure, immediately requiring the subsequent purchaser to file a separate

case of ejectment instead of a petition for the issuance of a writ of possession,
albeit not ex-parte, will only prolong the proceedings and unduly deny the
subsequent purchaser of possession of the property which he already bought.

WHEREFORE, premises considered, the instant petition is GRANTED. The

Decision dated September 24, 2010 and Resolution dated March 9, 2011 of the
Court of Appeals in CA-G.R. SP No. 110029 are hereby REVERSED AND SET
ASIDE.

94
FIRST DIVISION
[G.R. No. 199747, April 03, 2013]
TEODORO DARCEN, MAMERTO DARCEN, JR., NESTOR DARCEN, BENILDA
DARCEN-SANTOS, AND ELENITA DARCEN-VERGEL, Petitioners, v. V. R.
GONZALES CREDIT ENTERPRISES, INC., REPRESENTED BY ITS PRESIDENT,
VERONICA L. GONZALES, Respondent.
The spouses Mamerto Darcen (Mamerto) and Flora De Guzman (Flora) were
married on February 2, 1947, and they begot seven (7) children, namely:
Teodoro, Mamerto, Jr., Nestor, Benilda, and Elenita (the petitioners), and their
brothers Arturo and Manuel. Mamerto died on September 18, 1986, leaving
behind an estate consisting of three titled parcels of land located in Baliuag,
Bulacan and covered by Transfer Certificate of Title (TCT) No. RT-19565 (T-
41394), TCT No. RT-19566 (T-11678), and TCT No. RT-19564 (T-193099), all
under the name “Mamerto Darcen married to Flora de Guzman.”
According to the petitioners, sometime in 1990 their late brother Manuel
borrowed money from Veronica Gonzales (Gonzales), president of V.R.
Gonzales Credit Enterprises, Inc. (respondent company). Manuel sought their
consent in constituting a mortgage over the above properties of their father,
but the petitioners refused. Manuel then caused the execution of an Extra-
Judicial Settlement of Estate with Waiver by forging the signatures of the
petitioners and their mother Flora. In the said instrument, the petitioners and
their siblings were said to have waived their shares in their father’s estate in
favor of their mother, thus making Flora the sole owner of the three
lots.5 Meanwhile, fire had razed part of the Office of the Register of Deeds of
Bulacan and destroyed the titles to the said parcels. After the reconstitution of
the titles on April 7, 1992,6 new titles were issued in the name of “Flora de
Guzman, Filipino, of legal age, widow,” to wit:
(1) TCT No. T-19267, which is a transfer from TCT No. RT-19565 (T-41394),
containing an area of 512 square meters, located in Barangay Sabang, Baliuag,
Bulacan;
(2) TCT No. T-19268, which is a transfer from TCT No. RT-19566 (T-116789),
covering an area of 478.4 sq m, located at P. Angeles St., Baliuag, Bulacan; and
(3) TCT No. T-19269, which is a transfer from TCT No. RT-19564 (T-193099),
covering an area of 580 sq m, located in Baliuag, Bulacan.7
Petitioners further claim that on the day that the above new titles were issued,
they caused the annotation thereon of their hereditary claim in their father’s
estate.8 On December 4, 2000, Flora died.
Sometime in January 2007, Gonzales appeared and, claiming that the
petitioners’ late mother Flora had mortgaged the above properties to
respondent company in 1995, demanded payment from the petitioners of
several loans allegedly taken out by Flora, as follows:9cralawvllred
(i) P3,000,000.00, borrowed by Flora on January 30, 1995 secured by a
mortgage contract over TCT No. T-19269;
(ii) P3,500,000.00, taken out on July 12, 1995 by Flora upon a mortgage over
TCT No. T-19267;
(iii)P500,000.00, also borrowed on July 12, 1995 by Flora secured by a
mortgage over TCT No. T-19268;
On Februry 16, 2007, the petitioners were able to verify from the Register of
Deeds of Bulacan that the above properties had indeed been mortgaged to
respondent company in 1995, but they now say that they “immediately noted
that the purported signatures of their mother on the three (3) mortgage
contracts were actually forgeries, and that the mortgage contracts did not
state when the supposed loan obligations would become due and
demandable.”10 They maintain that their mother did not contract the loans,
and they point to their brothers Manuel and Arturo, whose signatures appear
as witnesses on the mortgage documents, as guilty of forging her signatures
and of receiving the proceeds of the loans. The petitioners also disclaim any
knowledge of the loans, or of their consent thereto, either before or after.
The respondent company extrajudicially foreclosed on the mortgage over the
aforesaid lots sometime in 2007, but meanwhile, on June 8, 2007, the
petitioners filed Civil Case No. 333-M-200711 with the RTC-Branch 78, for
“Annulment of Mortgage, Extra-Judicial Foreclosure, Auction Sale, Certificate
of Sale, and Damages,” seeking to void the real estate mortgages, the
extrajudicial foreclosure and the auction sale of the lots. Named defendants
were respondent company and their brothers Manuel and Arturo.
After posting and publication of the notice of sheriff’s sale dated October 20,
2008, the three properties were sold at auction held on November 18, 2008
for a total price of P8,000,000, with the respondent company as the highest
bidder. A certificate of sale was issued by Ex-Officio Sheriff Emmanuel Ortega
on November 20, 2008, duly annotated on the titles on November 28,
2008.12cralawvllred
The one-year period to redeem lapsed. Respondent company executed an
affidavit of consolidation of ownership. On December 8, 2009, it filed an ex
parte petition for issuance of a writ of possession in the RTC-Branch 81
docketed as P-826-2009.13 In its Order14 dated December 17, 2009, the court
set the petition for hearing on February 26, 2010. Meanwhile, on February 25,
2010, the petitioners were able to file an Opposition15 to the petition, praying
for the outright denial thereof on the ground of forum shopping because the
respondent company did not disclose the pendency of Civil Case No. 333-M-
2007 in its certification against forum-shopping. On March 10, 2010, V.R.
Gonzales filed a Comment to the Opposition,16 to which the petitioners filed a
Reply17 on March 23, 2010.
In its Order18 dated March 16, 2010, the RTC-Branch 81 denied the
petitioners’ opposition and ruled that the respondent company was not guilty
of forum shopping. Citing Sps. Ong v. CA,19 it held that the issuance of the writ
of possession was a mere ministerial function of the court, and was summary
in nature.20 Not being a judgment on the merits, litis pendentia or res
judicata would not set in to bar the filing of Civil Case No. 333-M-2007.
Petitioners’ motion for reconsideration was denied in the court’s
Order21 dated May 4, 2010.
On June 2, 2010, the petitioners filed a petition for certiorari22 in the CA
docketed as CA-G.R. SP No. 114265, whose decision therein, dated July 20,
2011, is now the subject of this Petition.
Meanwhile, on February 28, 2011, the RTC-Branch 81 granted the writ of
possession sought by the respondent company in P-826-2009. The notice to
vacate was issued on April 26, 2011 against the petitioners.
In a related development, on August 10, 2010, the RTC-Branch 78 dismissed
the complaint in Civil Case No. 333-M-2007, holding that the mortgage
contracts executed by Flora in favor of the respondent company over TCT Nos.
T-19267, T-19268, and T-19269 are valid, and declaring valid the extrajudicial
foreclosure and auction sale of the said properties. The decision is now
pending appeal in the CA, docketed as CA-G.R. CV No. 96251.
Petition for Certiorari in the CA
In CA-G.R. SP No. 114265,23 the petitioners reiterated their arguments: (1)
that due to identity of parties and cause of action, the respondent company
committed forum shopping for failing to disclose the pendency of Civil Case
No. 333-M-2007; (2) that due to the pendency of Civil Case No. 333-M-2007,
the RTC-Branch 81 has no jurisdiction over the ex parte petition for writ of
possession, since the question of possession was already laid before the RTC-
Branch 78; and (3) that the issue of validity of the mortgage contracts
executed by Flora and the foreclosure of the mortgages are material to the
issue of possession.
On April 25, 2011, the CA denied petitioners’ urgent motion for writ of
preliminary injunction and/or Temporary Restraining Order.
On July 20, 2011, the CA rendered its now assailed decision denying the
petition in CA-G.R. SP No. 114265, ruling that respondent company was not
guilty of forum shopping since the ex parte petition for writ of possession it
95
filed in P-826-2009 is not an initiatory pleading as to require that a certification
of non-forum shopping be attached thereto; that the issuance of the writ of
possession is merely a ministerial function of the court a quo, the possession
being incidental to the transfer of title to the new owner; that the issuance of
the writ is summary in nature and is not a judgment on the merits.
The CA further explained that the ex parte writ of possession is for the sole
benefit of the new owner, without need of notice to or consent by any party
who might be adversely affected. Thus, notwithstanding the pendency of a suit
to annul the real estate mortgage and the extrajudicial foreclosure and auction
sale, the purchaser is entitled to a writ of possession, without prejudice to the
outcome in the annulment case, which can proceed without encroaching on
the jurisdiction of the court resolving the ex parte petition for writ of
possession.
Petition for Review in the Supreme Court
On December 12, 2011, the CA denied the petitioners’ Motion for
Reconsideration from its above decision.24 Hence, this petition for review.
The petitioners now contend that the CA erred in failing to take into account
the fact that they, against whom the writ of possession issued by the RTC in P-
826-2009 was directed, are adverse claimants who are third parties and
strangers to the real estate mortgages executed by their mother. They
cite Villanueva v. Cherdan Lending Investors Corporation,25 where it was
reiterated that the issuance of a writ of possession in favor of the purchaser in
an extrajudicial foreclosure sale ceases to be ministerial where the property is
in the possession of a third party who holds the property under a claim
adverse to that of the debtor/mortgagor.26cralawvllred
The petitioners maintain that they knew nothing about the mortgage
contracts, whose validity is now the subject of their appeal in CA-G.R. CV No.
96251. They further claim that their signatures in the Extrajudicial Settlement
of Estate with Waiver, which they supposedly executed in favor of their
mother Flora, were forged. As co-heirs and co-owners with their mother of the
subject lots, they have a claim directly adverse to hers, and therefore, also
directly adverse to her successor-in-interest, the respondent company.
Consequently, the duty of the RTC to issue the writ of possession to
respondent company ceases to be ministerial.
Our Ruling
We dismiss the petition.
The long-settled rule in
extrajudicial foreclosure of real
estate mortgage is that after
consolidation of ownership of
the foreclosed property, it is
the ministerial duty of the
court to issue, as a matter of
right, an ex parte writ of
possession to the buyer.
The established rule is that the purchaser in an extrajudicial foreclosure sale
becomes the absoluteowner of the property if no redemption is made within
one (1) year from the registration of the certificate of sale by those who are
entitled to redeem.27 Possession being a recognized essential attribute of
ownership,28 after consolidation of title the purchaser may demand
possession as a matter of right.29Under Section 7 of Act No. 3135, as amended
by Act No. 4118, the issuance of the writ is merely a ministerial function of the
RTC, which the new owner may obtain through an ex parte motion.30 Section
7 of Act No. 3135 provides:
Sec. 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property
or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the
property for a period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion in the registration or
cadastral proceedings if the property is registered, or in special proceedings in
the case of property registered under the Mortgage Law or under section one
hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any
register of deeds in accordance with any existing law, and in each case the
clerk of the court shall, upon the filing of such petition, collect the fees
specified in paragraph eleven of section one hundred and fourteen of Act
numbered Four hundred and ninety-six, as amended by Act numbered
Twenty-eight hundred and sixty-six, and the court shall, upon approval of the
bond, order that a writ of possession issue, addressed to the sheriff of the
province in which the property is situated, who shall execute said order
immediately.
The possession may be granted to the buyer either (a) within the one-year
redemption period, upon the filing by the purchaser of a bond, or (b) after the
lapse of the redemption period, without need of a bond.31 As explained
in Spouses Arquiza v. CA:32cralawvllred
Indeed, it is well-settled that an ordinary action to acquire possession in favor
of the purchaser at an extrajudicial foreclosure of real property is not
necessary. There is no law in this jurisdiction whereby the purchaser at a
sheriff’s sale of real property is obliged to bring a separate and independent
suit for possession after the one-year period for redemption has expired and
after he has obtained the sheriff’s final certificate of sale. The basis of this right
to possession is the purchaser’s ownership of the property. The mere filing of
an ex parte motion for the issuance of the writ of possession would suffice,
and no bond is required.33 (Citations omitted and underscoring ours)
We repeated the above rule in Asia United Bank v. Goodland Company,
Inc.,34 in this wise:
It is a time-honored legal precept that after the consolidation of titles in the
buyer’s name, for failure of the mortgagor to redeem, entitlement to a writ of
possession becomes a matter of right. As the confirmed owner, the
purchaser’s right to possession becomes absolute. There is even no need for
him to post a bond, and it is the ministerial duty of the courts to issue the
same upon proper application and proof of title. To accentuate the writ’s
ministerial character, the Court has consistently disallowed injunction to
prohibit its issuance despite a pending action for annulment of mortgage or
the foreclosure itself.
The nature of an ex parte petition for issuance of the possessory writ under
Act No. 3135 has been described as a non-litigious proceeding and summary in
nature. As an ex parte proceeding, it is brought for the benefit of one party
only, and without notice to or consent by any person adversely
interested.35 (Citations omitted)
Moreover, we made it clear in the recent case of BPI Family Savings Bank, Inc.
v. Golden Power Diesel Sales Center, Inc.,36 that not even a pending action for
annulment of mortgage or foreclosure sale will stay the issuance of the writ of
possession:
Furthermore, it is settled that a pending action for annulment of mortgage or
foreclosure sale does not stay the issuance of the writ of possession. The trial
court, where the application for a writ of possession is filed, does not need to
look into the validity of the mortgage or the manner of its foreclosure. The
purchaser is entitled to a writ of possession without prejudice to the outcome
of the pending annulment case.37 (Citations omitted)
Nonetheless, the ministerial
duty of the court to issue an ex
parte writ of possession ceases
once it appears that there is a
third party in possession of the
property, who is a stranger to
the mortgage and who claims a
right adverse to that of the
96
debtor/ mortgagor.
Section 33, Rule 39 of the Rules of Court provides that in an execution sale, the
possession of the property shall be given to the purchaser or last
redemptioner, unless a third party is actually holding the property adversely to
the judgment obligor:
Sec. 33. Deed and possession to be given at expiration of redemption period;
by whom executed or given.—If no redemption be made within one (1) year
from the date of the registration of the certificate of sale, the purchaser is
entitled to a conveyance and possession of the property; or, if so redeemed
whenever sixty (60) days have elapsed and no other redemption has been
made, and notice thereof given, and the time for redemption has expired, the
last redemptioner is entitled to the conveyance and possession; but in all cases
the judgment obligor shall have the entire period of one (1) year from the date
of the registration of the sale to redeem the property. The deed shall be
executed by the officer making the sale or by his successor in office, and in the
latter case shall have the same validity as though the officer making the sale
had continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or
redemptioner shall be substituted to and acquire all the rights, title, interest
and claim of the judgment obligor to the property as of the time of the levy.
The possession of the property shall be given to the purchaser or last
redemptioner by the same officer unless a third party is actually holding the
property adversely to the judgment obligor.
The application of the above Section has been extended to extrajudicial
foreclosure sales pursuant to Section 6 of Act No. 3135, to wit:
Sec. 6. 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 sale; and such redemption shall be governed
by the provisions of section four hundred and sixty-four to four hundred and
sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not
inconsistent with the provisions of this Act.
Thus emboldened by Section 33 of Rule 39, the petitioners have persisted in
making the point that they are strangers to the mortgage contracts executed
by their mother over their father’s lots, which they claim to co-own with her,
an interest adverse to that of the respondent company. In Villanueva,38 they
found support for their contention:
It is settled that the buyer in a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed within one year after the
registration of the sale. As such, he is entitled to the possession of the
property and can demand that he be placed in possession at any time
following the consolidation of ownership in his name and the issuance to him
of a new TCT. Time and again, we have held that it is ministerial upon the court
to issue a writ of possession after the foreclosure sale and during the period of
redemption. Upon the filing of an ex parte motion and the approval of the
corresponding bond, the court issues the order for a writ of possession. The
writ of possession issues as a matter of course even without the filing and
approval of a bond after consolidation of ownership and the issuance of a new
TCT in the name of the purchaser.
This rule, however, is not without exception. Under Section 33, Rule 39 of the
Rules of Court, which is made to apply suppletorily to the extrajudicial
foreclosure of real estate mortgages by Section 6, Act 3135, as amended, the
possession of the mortgaged property may be awarded to a purchaser in the
extrajudicial foreclosure unless a third party is actually holding the property
adversely to the judgment debtor. Section 33 provides:cralaw
x x x x
The same issue had been raised in Bank of the Philippine Islands v. Icot,
Development Bank of the Philippines v. Prime Neighborhood Association,
Dayot v. Shell Chemical Company (Phils.), Inc., and Philippine National Bank v.
Court of Appeals, and we uniformly held that the obligation of the court to
issue an ex parte writ of possession in favor of the purchaser in an extrajudicial
foreclosure sale ceases to be ministerial once it appears that there is a third
party in possession of the property who is claiming a right adverse to that of
the debtor/mortgagor.
The purchaser’s right of possession is recognized only as against the judgment
debtor and his successor-in-interest but not against persons whose right of
possession is adverse to the latter. In this case, petitioner opposed the
issuance of the writ of possession on the ground that he is in actual possession
of the mortgaged property under a claim of ownership. He explained that his
title to the property was cancelled by virtue of a falsified deed of donation
executed in favor of spouses Peñaredondo. Because of this falsification, he
filed civil and criminal cases against spouses Peñaredondo to nullify the deed
of donation and to punish the party responsible for the falsified document.
Petitioner’s claim that he is in actual possession of the property is not
challenged, and he has come to court asserting an ownership right adverse to
that of the mortgagors, the spouses Peñaredondo.39 (Citations omitted)
But in China Banking Corporation v. Lozada,40 the Supreme Court clarified that
it is not enough that the property be possessed by a third party, but the same
must also held by the third party adversely to the debtor/mortgagor:
Where a parcel levied upon on execution is occupied by a party other than a
judgment debtor, the procedure is for the court to order a hearing to
determine the nature of said adverse possession. Similarly, in an extrajudicial
foreclosure of real property, when the foreclosed property is in the possession
of a third party holding the same adversely to the defaulting
debtor/mortgagor, the issuance by the RTC of a writ of possession in favor of
the purchaser of the said real property ceases to be ministerial and may no
longer be done ex parte. For the exception to apply, however, the property
need not only be possessed by a third party, but also held by the third party
adversely to the debtor/mortgagor.41 (Citation omitted and emphasis ours)
The Court then discussed the meaning of “third party who is actually holding
the property adversely to the judgment obligor,”42 thus:
The exception provided under Section 33 of Rule 39 of the Revised Rules of
Court contemplates a situation in which a third party holds the property by
adverse title or right, such as that of a co-owner, tenant or usufructuary. The
co-owner, agricultural tenant, and usufructuary possess the property in their
own right, and they are not merely the successor or transferee of the right of
possession of another co-owner or the owner of the property. x x
x.43 (Citations omitted)
Thus, it was held in BPI Family Savings Bank, Inc. that to be error for the court
to issue an ex parte writ of possession to the purchaser in an extrajudicial
foreclosure, or to refuse to abate one already granted, where a third party
claimant in actual possession has raised, in an opposition to the writ or in a
motion to quash the same, the matter of his actual possession upon a claim of
ownership or a right adverse to that of the debtor or mortgagor. The
procedure, accordingly to Unchuan v. CA,44 is for the trial court to order a
hearing to determine the nature of the adverse possession:45cralawvllred
Note, however, that a third party not privy to the debtor is protected by the
law. He may be ejected from the premises only after he has been given an
opportunity to be heard, conformably with the time-honored principle of due
process. “Where a parcel of land levied on execution is occupied by a party
other than the judgment debtor, the proper procedure is for the court to order
a hearing to determine the nature of said adverse possession.”46(Citations
omitted)
We find no proof that the
petitioners are adverse third-
party claimants entitled to be
97
retained in possession.
The RTC’s chief consideration for granting to the respondent company a writ of
possession was that the assailed mortgages purportedly executed by Flora in
1995 were constituted on properties covered by certificates of title issued
solely in her name.
It will be noted that it was only in June 2007, after respondent company had
threatened them with extrajudicial foreclosure and eviction, or after 12 years
had passed, that the petitioners brought an action to annul the real estate
mortgages, and meanwhile, Flora had obtained several loans totaling P7.5
million from the respondent company in 1995. It took petitioners even longer,
15 years, to assail the validity of the alleged Extrajudicial Settlement of Estate
with Waiver, which gave Flora sole title to the subject lots under the new titles
issued to her in April 1992.
Realizing that their claim of forgery of their mother’s signature in the
mortgage contracts was tenuous after the RTC-Branch 78 dismissed Civil Case
No. 333-M-2007, the petitioners now claim that an earlier instrument,
an Extrajudicial Settlement of Estate with Waiver, was falsified by their
brothers Manuel and Arturo who forged their signatures. Yet, why the said
instrument named neither Manuel nor Arturo but their mother Flora as the
sole beneficiary of the heirs’ waiver, the petitioners did not explain. Thus,
through the said instrument, on April 7, 1992, TCT No. RT-19565 (T-41394),
TCT No. RT-19566 (T-11678), and TCT No. RT-19564 (T-193099), all under the
name of “Mamerto Darcen married to Flora de Guzman,” were cancelled and
replaced with TCT Nos. T-19267, T-19268, and T-19269, respectively, now in
the name solely of “Flora de Guzman, Filipino, of legal age, widow.”
Considering that the petitioners are now stridently asserting that their
signatures in the aforesaid Extrajudicial Settlement of Estate with Waiver had
been forged, it is inexplicable why they failed to attach a copy thereof either to
their Opposition to the ex parte petition for writ of possession, or to this
petition. All that they could say about this “oversight” is that they “were never
able to insist on the presentation of the said document because they were
never parties in the case for writ of possession. Besides, the case for writ of
possession is summary and non-adversarial.”47cralawvllred
But this is a lie and an obvious subterfuge, for the fact is that the RTC set a
hearing on February 26, 2010 to hear out the petitioners on the nature of their
claimed adverse possession. They appeared with their lawyer, and had an
opportunity to lay out the complete facts and present whatever pertinent
documents were in their possession. They did no such thing, and only affirmed
the contents of their Opposition, wherein they chiefly asserted their defense
of lack of jurisdiction of the RTC-Branch 81 and forum shopping.
Not only did petitioners not sue to annul the extrajudicial settlement, but on
the very day, April 7, 1992, that the new titles were issued to Flora, an
inscription appears in the said titles announcing that one-half (½) of the lots
would be bound for the next two years to possible claims by other heirs or
unknown creditors against the estate of Mamerto, pursuant to Section 4 of
Rule 74 of the Rules of Court. All three titles bear this same
inscription,48 which the petitioners admit that they themselves had caused to
be annotated on their mother’s titles,49 in the following words:
Entry No. 7550 – The ½ portion of the land described herein is subject to the
provision of Sec. 4, Rule 74 of the Rules with respect to the inheritance left by
the deceased Mamerto Darcen.
Date of instrument – March 7, 1992
Date of inscription – April 7, 1992 at 9:35 a.m.50
All the above leave little doubt that the petitioners had always known about,
and had consented to, the extrajudicial settlement of the estate of their father
Mamerto, as well as waiver by them of their shares therein in favor of their
mother Flora. For this very reason, they cannot now be permitted to interpose
an adverse claim in the subject mortgaged lots and defeat the writ of
possession issued to the respondent company.
The petitioners were accorded
an opportunity to be heard on
the nature of their claimed
adverse possession,
conformably with the time-
honored principle of due
process.
On December 17, 2009, the RTC-Branch 81 set for hearing on February 26,
2010 the petition for writ of possession in P-826-2009.51 On February 25,
2010, the petitioners were able to file their Opposition52 to the said petition,
wherein they asserted that they are co-owners of the properties, being heirs
of the deceased Mamerto; that they filed a case, Civil Case No. 333-M-2007, to
annul the mortgages over the three lots on account of forgery; and that the
extrajudicial foreclosure sale of the lots was invalid. They, thus, prayed for
outright denial of the writ on the ground of forum shopping, because
respondent company did not disclose the pendency of Civil Case No. 333-M-
2007 in its certification against forum shopping.
At the hearing on February 26, 2010, the petitioners appeared with their
counsel, Atty. Enrique dela Cruz, Jr. They did not however present any
documents, and only affirmed their Opposition already in the records.53 On
March 11, 2010, respondent company filed its comment to petitioners’
Opposition.54 On March 23, 2010, the petitioners filed their
reply.55cralawvllred
In its Order dated March 16, 2010, the RTC-Branch 81 held that respondent
company was not guilty of forum shopping, citing Sagarbarria v. Philippine
Business Bank,56 as follows:
[A]ct No. 3135, as amended by Act No. 4118, is categorical in stating that the
purchaser must first be placed in possession of the mortgaged property
pending proceedings assailing the issuance of the writ of possession.
Consequently, the RTC under which the application for the issuance of a writ
of possession over the subject property is pending cannot defer the issuance
of the said writ in view of the pendency of an action for annulment of
mortgage and foreclosure sale. The judge with whom an application for a writ
of possession is filed need not look into the validity of the mortgage or the
manner of its foreclosure.
Any question regarding the validity of the mortgage or its foreclosure cannot
be a legal ground for the refusal to issue a writ of possession. Regardless of
whether or not there is a pending suit for the annulment of the mortgage or
the foreclosure itself, the purchaser is entitled to a writ of possession without
prejudice, of course, to the eventual outcome of the pending annulment
case.57 (Underscoring ours)
On April 8, 2010, petitioners filed their Motion for Reconsideration58 from the
denial of their opposition, but it was denied on May 4, 2010.
Even granting that the
petitioners should be allowed
to retain possession, the
petition has been rendered
moot and academic by the
issuance and satisfaction of the
writ of possession issued in P-
826-2009.
As the petitioners have themselves admitted in their Petition,59 the RTC-
Branch 81, issued a Writ of Possession60 dated April 18, 2011, and on October
4, 2011 they were physically evicted from the disputed lots by the Sheriff, and
the respondent company was placed in possession thereof, per the Sheriff’s
report dated October 4, 2011.61 With the writ of possession having been
served and fully satisfied, the instant petition has ceased to present a
justiciable controversy for this Court to resolve, and a declaration thereon
would be of no practical use or value,62 in view of the pendency in the CA of
the petitioners’ appeal from the decision in Civil Case No. 333-M-2007 on the
question of the ownership of the subject mortgaged lots, and thus of the
98
rightful possession thereover. As we have reiterated in Madriaga, Jr. v. China
Banking Corporation:63cralawvllred

Judicial power presupposes actual controversies, the very antithesis of

mootness. Where there is no more live subject of controversy, the Court
ceases to have a reason to render any ruling or make any pronouncement.
Courts generally decline jurisdiction on the ground of mootness – save when,
among others, a compelling constitutional issue raised requires the
formulation of controlling principles to guide the bench, the bar and the
public; or when the case is capable of repetition yet evading judicial review,
which are not extant in this case.64 (Citations omitted)

What is now left for the petitioners to do is to await the resolution of their
appeal in Civil Case No. 333-M-2007. Their restoration to possession may then
be sought therein as an incident or relief, if justified.

WHEREFORE, premises considered, the Petition for Review

on Certiorari is DENIED

SO ORDERED.

99
SECOND DIVISION
G.R. No. 191540 January 21, 2015
SPOUSES JOSE O. GATUSLAO and ERMILA LEONILA LIMSIACO-
GATUSLAO, Petitioners,
vs.
LEO RAY V. YANSON, Respondent.
DECISION
DEL CASTILLO, J.:
Petitioners spouses Jose O. Gatuslao and Ermila Leonila Limsiaco Gatuslao
(petitioners) are assailing the December 8, 20091 Order of the Regional Trial
Court (RTC) of Bacolod City, Branch 49 in Cad. Case No. 09-2802 which granted
respondent Leo Ray2 Yanson's (respondent) Ex Parte Motion for the Issuance
of Writ of Possession over the properties being occupied by petitioners, as well
as the February 26, 2010 RTC Order3 denying petitioners' motion for
reconsideration thereto.
Factual Antecedents
Petitioner Ermila Leonila Limsiaco-Gatuslao is the daughter of the late
Felicisimo Limsiaco (Limsiaco) who died intestate on February 7, 1989.
Limsiaco was the registered owner of two parcels of land with improvements
in the City of Bacolod described as Lots 10 and 11, Block. 8 of the subdivision
plan Psd-38577 and covered by Transfer Certificates of Title (TCT) Nos. T-
334294 and T-24331.5
Limsiaco mortgaged the said lots along with the house standing thereon to
Philippine National Bank (PNB). Upon Limsiaco’s failure to pay, PNB
extrajudicially foreclosed on the mortgageand caused the properties’ sale at a
public auction on June 24, 1991 where it emerged as the highest bidder. When
the one-year redemption period expired without Limsiaco’s estate redeeming
the properties, PNB caused the consolidation of titles in its name. Ultimately,
the Registry of Deeds of Bacolod City cancelled TCT Nos. T-33429 and T-24331
and in lieu thereof issued TCT Nos. T-3088186 and T-3088197 in PNB’s name
on October 25, 2006.
On November 10, 2006, a Deed of Absolute Sale8 was executed by PNB
conveying the subject properties in favor of respondent. As a consequence
thereof, the Registry of Deeds of Bacolod City issued TCT Nos. T-3111259 and
T-31112610 in respondent’s name inlieu of PNB’s titles.
Then, as a registered owner in fee simple of the contested properties,
respondent filed with the RTC an Ex-Parte Motion for Writ of
Possession11 pursuant to Section 7 of Act No. 3135,12 as amended by Act No.
4118 (Act No. 3135, as amended),13 docketed as Cad. Case No. 09-2802.
In their Opposition,14 petitioners argued that the respondent is not entitled to
the issuance of an ex-partewrit of possession under Section 7 of Act No. 3135
since he was not the buyer of the subject properties at the public auction sale
and only purchased the same through a subsequent sale made by PNB. Not
being the purchaser at the public auction sale, respondent cannot file and be
granted an ex parte motion for a writ of possession. Petitioners also asserted
that the intestate estate of Limsiaco has already instituted an action for
annulment of foreclosure of mortgage and auction sale affecting the contested
properties.15 They argued that the existence of the said civil suit bars the
issuance of the writ of possession and that whatever rights and interests
respondent may have acquired from PNB by virtue of the sale are still subject
to the outcome of the said case.
Ruling of the Regional Trial Court
The RTC granted the issuance of the writ of possession in an Order16 dated
December 8, 2009. It cited the Court’s pronouncement in China Banking
Corporation v. Lozada,17 viz:
The Court recognizes the rights acquired by the purchaser of the foreclosed
property at the public auction sale upon the consolidation of his title when no
timely redemption of the property was made, x x x.
It is thus settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of one
year after the registration of the sale. Assuch, he is entitled to the possession
of the said property and can demand it at any time following the consolidation
of ownership in his name and the issuance to him of a new transfer certificate
of title. x x x Possession of the land then becomes an absolute right of the
purchaser as confirmed owner. Upon proper application and proof of title, the
issuance of the writ of possession becomes a ministerial duty of the court.
The purchaser, therefore, in the public auction sale of a foreclosed property is
entitled to a writ of possession x x x.18
PNB, therefore, as the absolute owner of the properties is entitled to a writ of
possession. And since respondent purchased the properties from PNB, the
former has necessarily stepped into the shoes of the latter. Otherwise stated,
respondent, by subrogation, has the right to pursue PNB’s claims against
petitioners as though they were his own.
The dispositive portion of the above Order reads:
WHEREFORE, premises considered, the Court hereby issues a writ of
possession in favor of movant Leo Ray V. Yanson ordering Spouses Jose and
Mila Gatuslao, their heirs, assigns, successors-in-interest, agents,
representatives and/or any and all other occupants or persons claiming any
interest or title of the subject property to deliver the possession of said
property to the herein movant/ petitioner.
SO ORDERED.19
Petitioners moved for reconsideration20 which was denied in an
Order21 dated February 26, 2010, thus:
WHEREFORE, the Motion for Reconsideration filed by Oppositors is hereby
DENIED. Thus, the Order dated December 8, 2009 stands.
SO ORDERED.22
Respondent on March 19, 2010 moved to execute the possessory writ23 while
petitioners on April 15, 2010 filed with this Court the present Petition for
Review on Certiorari.
On September 30, 2010, the RTC issued an Order24 directing the
implementation of the writ. And per Sheriff’s Return of Service,25 the same
was fully implemented on March 14, 2011. Issues
1. According to petitioners, the pending action for annulment of foreclosure of
mortgage and the corresponding sale at public auction of the subject
properties operates as a bar to the issuance of a writ of possession;
2. Claiming violation of their right to due process, petitioners likewise assert
that as they were not parties to the foreclosure and are, thus, strangers or
third parties thereto, they may not be evicted by a mere ex partewrit of
possession; and
3. Lastly, petitioners argue that respondent, a mere purchaser of the contested
properties by way of a negotiated sale between him and PNB, may not avail of
a writ of possession pursuant to Section 7 of Act No. 3135, as amended, as he
is not the purchaser at the public auction sale. Petitioners further contend that
respondent has no right to avail of the writ even by way of subrogation.
Our Ruling
Preliminarily, we note that petitioners’ direct resort to this Court from the
assailed Orders of the RTC violates the rule on hierarchy of courts. Their
remedy lies with the Court of Appeals. Considering however the length of time
this case has been pending and in view ofour January 26, 2011
Resolution26 giving due course to the Petition, we deem it proper to
adjudicatethe case on its merits.
The Petition is denied.
It is settled that the issuance of a Writ of
Possession may not be stayed by a
100
pending action for annulment of
mortgage or the foreclosure itself.
It is petitioners’ stand that the pending action for annulment of foreclosure of
mortgage and of the corresponding sale at public auction of the subject
properties operates asa bar to the issuance of a writ of possession.
The Court rules in the negative. BPI Family Savings Bank, Inc. v. Golden Power
Diesel Sales Center, Inc.27reiterates the long-standing rule that:
[I]t is settled that a pending action for annulment of mortgage or foreclosure
sale does not stay the issuance of the writ of possession. The trial court, where
the application for a writ of possession is filed, does not need to look into the
validity of the mortgage or the manner of its foreclosure. The purchaser is
entitled to a writ of possession without prejudice to the outcome of the
pending annulment case.
This is in line with the ministerial character of the possessory writ. Thus, in
Bank of the Philippine Islands v. Tarampi,28 it was held:
To stress the ministerial character of the writ of possession, the Court has
disallowed injunction to prohibit its issuance, just as it has held that its
issuance may not be stayed by a pending action for annulment of mortgage or
the foreclosure itself.
Clearly then, until the foreclosure sale of the property in question is annulled
by a court of competent jurisdiction, the issuance of a writ of possession
remains the ministerial duty of the trial court. The same is true with its
implementation; otherwise, the writ will be a useless paper judgment – a
result inimical to the mandate of Act No. 3135 to vest possession in the
purchaser immediately.29 (Emphases supplied)
Clearly, petitioners’ argument is devoid of merit.
Petitioners are not strangers or third
parties to the foreclosure sale; they were
not deprived of due process.
Section 7 of Act No. 3135, as amended, sets forth the following procedure in
the availment of and issuance of a writ of possession in cases of extrajudicial
foreclosures, viz:
SECTION 7. In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance (Regional Trial Court) of the province
or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve months, to
indemnify the debtor in case it be shown that the sale was made without
violating the mortgage or without complying with the requirements ofthis Act.
Such petition shall be made under oath and filed in form of an ex parte motion
in the registration or cadastral proceedings if the property is registered, or in
special proceedings in the case of property registered under the Mortgage Law
or under section one hundred and ninety-four of the Administrative Code, or
of any other real property encumbered with a mortgage duly registered in the
office of any register of deeds in accordance with any existing law, and in each
case the clerk of the court shall, upon the filing of such petition, collect the
fees specified in paragraph eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act Numbered
Twenty-eight hundred and sixty-six, and the court shall, upon approval of the
bond, order that a writ of possession issue, addressed to the sheriff of the
province in which the property is situated, who shall execute said order
immediately.
Although the above provision clearly pertains to a writ of possession availed of
and issued within the redemption period of the foreclosure sale, the same
procedure also applies to a situation where a purchaser is seeking possession
of the foreclosed property bought at the public auction sale afterthe
redemption period has expired without redemption having been made.30 The
only difference is that in the latter case, no bond is required therefor, as held
in China Banking Corporation v. Lozada,31 thus:
It is thus settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of one
year after the registration of the sale. Assuch, he is entitled to the possession
of the said property and can demand it at any time following the consolidation
of ownership in his name and the issuance to him of a new transfer certificate
of title. The buyer can in fact demand possession of the land even during the
redemption period except that he has to post a bond inaccordance with
Section 7 of Act No. 3135, as amended. No such bond is required after the
redemption period if the property is not redeemed. x x x32 (Emphasis
supplied)
Upon the expiration of the period to redeem and no redemption was made,
the purchaser, as confirmed owner, has the absolute right to possess the land
and the issuance of the writ of possession becomes a ministerial duty of the
court upon proper application and proof of title.33
Nevertheless, where the extrajudicially foreclosed real property is in the
possession of a third party who is holding the same adversely to the judgment
debtor or mortgagor, the RTC’s duty to issue a writ of possession in favor of
the purchaser of said real property ceases to be ministerial and, as such, may
no longer proceed ex parte.34 In such a case, the trial court must order a
hearing to determine the nature of the adverse possession.35 For this
exception to apply, however, it is not enough that the property is in the
possession of a third party, the property must also be held by the third party
adversely to the judgment debtor or mortgagor,36 such as a co-owner,
agricultural tenant or usufructuary.37
In this case, petitioners do not fall under any of the above examples of such a
third party holding the subject properties adversely to the mortgagor; nor is
their claim to their right of possession analogous to the foregoing situations.
Admittedly, they are the mortgagor Limsiaco’s heirs. It was precisely because
of Limsiaco’s death that petitioners obtained the right to possess the subject
properties and, as such, are considered transferees or successors-in-interest of
the right of possession of the latter. As Limsiaco’s successors-in-interest,
petitioners merely stepped into his shoes and are, thus, compelled not only to
acknowledge but, more importantly, to respect the mortgage he had earlier
executed in favor of respondent.38 They cannot effectively assert that their
right of possession is adverse to that of Limsiaco as they do not have an
independent right of possession other than what they acquired from
him.39 Not being third parties who have a right contrary to that of the
mortgagor, the trial court was thus justified in issuing the writ and in ordering
its implementation.
Petitioners’ claim that their right to due process was violated by the mere ex-
parte issuance of the writ of possession must likewise fail. As explained,
petitioners were not occupying the properties adversely to the mortgagor,
hence, a writ of possession may be issued ex parte.And precisely because of
this ex parte nature of the proceedings no notice is needed to be
served40 upon them. It has been stressed time and again that "the ex parte
nature of the proceeding does not deny due process to the petitioners
because the issuance of the writ of possession does not prevent a separate
case for annulment of mortgage and foreclosure sale."41 Consequently, the
RTC may grant the petition even without petitioners’ participation.
Nevertheless, even if the proceedings in this case was supposed to be ex parte,
the records of the casewould show that petitioners’ side on this controversy
was actuallyheard as evidenced by the numerous pleadings42 filed by them in
the lower court. In fact, in its July 27, 2009 Order,43 the RTC expressly directed
respondent, "in observance of equity and fair play x x x to furnish [petitioners]
with a copy of his motion/petition and toshow x x x proof of compliance
thereof x x x."44 Then and now, the Court holds that a party cannot invoke
denial of due process when he was given an opportunity to present his side.45
Respondent is entitled to the issuance of
writ of possession.
Petitioners insist that respondent is not entitled to the issuance of the writ of
possession under Section 7 of Act No. 3135 as he is only a buyer of the subject
properties in a contract of sale subsequently executed in his favor by the
actual purchaser, PNB. To them, it is only the actual purchaser of a property at
the public auction sale who can ask the court and be granted a writ of
possession.
This argument is not tenable. Respondent, as a transferee or successor-
ininterest of PNB by virtue of the contract of sale between them, is considered
to have stepped into the shoes of PNB. As such, he is necessarily entitled to
101
avail of the provisions of Section 7 of Act No. 3135, as amended, as if he isPNB. SO ORDERED.
This is apparent in the Deed of Absolute Sale46 between the two, viz:

1. The Vendor hereby sells, transfer[s] and convey[s] unto[, and] in favor of the
Vendee, and the latter’s assigns and successors-in-interest, all of the former’s
rights and title to, interests and participation in the Propertyon an "AS IS,
WHERE IS" basis.It is thus understood that the Vendee has inspected the
Property and has ascertained its condition.

xxxx

3. The Vendor is selling only whatever rights and title to, interests and
participation it has acquired over the Property, and the Vendee hereby
acknowledges full knowledge of the natureand extent of the Vendor’s rights
and title to, [and] interests and participation in the Property.

4. x x x The Vendee further agrees to undertake, at its/his/her expense, the

ejectment of any occupant of the Property.47 (Emphases in the original)

Verily, one of the rights that PNB acquired as purchaser of the subject
properties at the public auction sale, which it could validly convey by way of its
subsequent sale of the same to respondent, is the availment of a writ of
possession. This can be deduced from the above-quoted stipulation that "[t]he
[v]endee further agrees to undertake, at xxx his expense, the ejectment of any
occupant of the [p]roperty." Accordingly, respondent filed the contentious ex
partemotion for a writ of possession to eject petitioners therefrom and take
possession of the subject properties. Further, respondent may rightfully take
possession of the subject properties through a writ of possession, even if he
was not the actual buyer thereof at the public auction sale, in consonance with
our ruling in Ermitaño v. Paglas.48 In the said case, therein respondent was
petitioner’s lessee ina residential property owned by the latter. During the
lifetime of the lease, respondent learned that petitioner mortgaged the
subject property in favor of Charlie Yap (Yap) who eventually foreclosed the
same. Yap was the purchaser thereof in an extrajudicial foreclosure sale.
Respondent ultimately bought the property from Yap. However, it was
stipulated in the deedof sale that the property was still subject to petitioner’s
right of redemption. Subsequently and despite written demands to pay the
amounts corresponding to her monthly rental of the subject property,
respondent did not anymore pay rents. Meanwhile, petitioner’s period to
redeem the foreclosed property expired on February 23, 2001. Several months
after, petitioner filed a case for unlawful detainer against respondent. When
the case reached this Court, it ruled that therein respondent’s basis for
denying petitioner’s claim for rent was insufficient as the latter, during the
period for which payment of rent was being demanded, was still the owner of
the foreclosed property. This is because at that time, the period of redemption
has not yet expired. Thus, petitioner was still entitled to the physical
possession thereof subject, however, to the purchaser’s right to petition the
court to give him possession and to file a bond pursuant to the provisions of
Section 7 ofAct No. 3135, as amended. However, after the expiration of the
redemption period without redemption having been made by petitioner,
respondent became the owner thereof and consolidation of title becomes a
right. Being already then the owner, respondent became entitled to
possession. Consequently, petitioner's ejectment suit was held to have been
rendered moot by the expiration of the period of redemption without
petitioner redeeming the properties. This is considering that petitioner already
lost his possessory right over the property after the expiration of the said
period.

Although the main issue in Ermitano was whether respondent was correct in
refusing to pay rent to petitioner on the basis of her having bought the latter's
foreclosed property from whom it was mortgaged, the case is enlightening as
it acknowledged respondent's right, as a subsequent buyer of the properties
from the actual purchaser of the same in the public auction sale, to possess
the property after the expiration of the period to redeem sans any
redemption. Verily, Ermitano demonstrates the applicability of the provisions
of Section 7 of Act No. 313 5 to such a subsequent purchaser like respondent
in the present case.

All told, the Court affirms the RTC's issuance of the Writ of Possession in favor
of respondent.1âwphi1 WHEREFORE, the Petition is hereby DENIED. The
December 8, 2009 and February 26, 2010 Orders of the Regional Trial Court of
Bacolod City, Branch 49 in Cad. Case No. 09-2802 are AFFIRMED.

102
FIRST DIVISION
G.R. No. 129572 June 26, 2000
PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR., petitioners,
vs.
COURT OF APPEALS, THE HONORABLE DEPARTMENT OF AGRARIAN REFORM
ADJUDICATION BOARD (DARAB), ALFREDO PARE, PABLO GALANG and
AMADO VIE, respondents,
PARDO, J.:
The case before the Court is an appeal via certiorari from the decision1 of the
Court of Appeals dismissing the petition for review of the decision of the
Department of Agrarian Reform Adjudication Board sustaining the ruling of the
Provincial Agrarian Reform Adjudication Board of San Fernando, Pampanga
allowing the legal redemption by private respondents of two parcels of land
mortgaged to and acquired by petitioner Philbancor at public
auction.1âwphi1.nêt
The facts, as found by the Court of Appeals, are as follows:
Private respondents Alfredo Pare, Pablo Galang and Amado Vie, as plaintiffs,
filed with the Provincial Agrarian Reform Adjudication Board (PARAB) a
complaint for maintenance of possession with redemption and tenancy right
of pre-emption against petitioners Philbancor Finance, Inc. and Vicente Hizon,
Jr. Private respondents alleged, inter alia, that petitioner Vicente Hizon, Jr. is
the owner of the disputed agricultural lands covered by TCT Nos. 48320 and
48323 located in Balite, San Fernando, Pampanga and that they (private
respondents) are the legitimate and bonfide tenants thereof; that on October
13, 1983, petitioner Hizon, without their knowledge, mortgaged the disputed
lots to petitioner Philbancor Finance, Inc.; that petitioner Hizon failed to pay
his obligations to petitioner Philbancor, which eventually led to the sale of the
mortgaged lots to the latter; that they came to know of the transaction only
when they were notified by petitioner Philbancor to vacate the lots; that they
have been tenants on the lots for more than fifty (50) years; that petitioner
Philbancor threatened to take from them the actual or physical possession of
the agricultural lots; that unless the threatened acts of petitioner are
restrained, they will suffer substantial and irreparable injury (Complaint, Rollo,
pp. 51-55).
In his answer, petitioner Hizon admitted that private respondents are
his bonafide and legitimate tenants but he averred, by way of affirmative
defenses, that he is not threatening to take possession of the disputed lots as
he is no longer the owner thereof after said lots were foreclosed by petitioner
Philbancor; that private respondents were aware when he mortgaged the lots
as they were with him when he tried to negotiate for payment of his loan to
petitioner Philbancor (CA Rollo, p. 29).
In its answer, petitioner Philbancor alleged, among others, that it has no
tenancy or agricultural relationship with private respondents considering that
it acquired ownership over the disputed lots by virtue of an extra-judicial
foreclosure sale pursuant to Act 3135, as amended; that it is not an
agricultural lessor as contemplated in Section 10 of Republic Act (RA) No.
3844, as amended; that assuming private respondents have the right to
redeem the lots in question, such right has already expired in accordance with
Section 12 of R.A. 3844, which states that the right of redemption may be
exercised within two (2) years from the registration of the sale (CA Rollo, pp.
30-31).
In a Decision dated September 17, 1993, Provincial Adjudicator Toribio E. Ilao,
Jr. rendered a decision in favor of private respondents, the dispositive portion
of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the redemption by the plaintiffs of the land in question at the price
of P201,182.92;
2. Ordering the defendant, Philbamcor Finance, Inc., to execute the necessary
Deed of Redemption in favor of the plaintiffs; and
3. Ordering the Register of Deeds of the Province of Pampanga to cause the
registration of the land in question to be conveyed to and redeemed by the
plaintiffs;
The counterclaim of the defendant Philbancor Finance, Inc. is hereby
dismissed. (Ibid., pp. 81-90)
Petitioners filed a motion for reconsideration but the same was denied by the
Provincial Adjudicator (CA Rollo, pp. 108-109). On appeal, public respondent
Department of Agrarian Reform Adjudication Board (DARAB) affirmed in
toto the findings of the Provincial Adjudicator in a Decision dated March 8,
1996 (Ibid., pp. 26-35).
Petitioners' motion for reconsideration was denied by respondent DARAB in a
Resolution (Ibid., pp. 36-38) dated July 22, 1996, . . . . 2
On August 14, 1996, petitioners filed with the Court of Appeals a petition for
review of the decision of the DARAB.3
After due proceedings, on March 17, 1997, the Court of Appeals rendered a
decision dismissing the petition.4
On April 18, 1997, petitioners filed with the Court of Appeals a motion for
reconsideration of the decision; however, on May 19, 1997, the Court of
Appeals denied the motion.5
Hence, this appeal.6
The petition raises three issues; however, the last issue raised is decisive,
hence, only this issue is herein resolved, that is, whether or not the private
respondents could still exercise their right of redemption of the parcels of land
sold at public auction due to foreclosure of the mortgages thereon considering
that they invoked their right to redeem only on July 14, 1992, seven years after
the date of registration of the certificate of sale with the Register of Deeds.
We grant the petition.
Republic Act No. 3844, Section 12, provides as follows:
In case the landholding is sold to a third person without the knowledge of the
agricultural lessee, the latter shall have the right to redeem the same at a
reasonable price and consideration. Provided, that the entire landholding sold
must be redeemed. Provided further, that where there are two or more
agricultural lessees, each shall be entitled to said right of redemption only to
the extent of the area actually cultivated by him. The right of redemption
under this section may be exercised within two (2) years from the registration
of the sale and shall have priority over any other right of legal redemption.7
In this case, the certificate of sale of the subject property, which was sold at
public auction, was registered with the Register of Deeds of Pampanga on July
31, 1985.8 The two-year redemption period thus expired on July 31, 1987. The
complaint for redemption was filed by respondents only on July 14, 1992,9 five
(5) years after expiration of the redemption period prescribed by law.
Nonetheless, private respondents may continue in possession and enjoyment
of the land in question as legitimate tenants 10 because the right of tenancy
attaches to the landholding by operation of law. 11 The leasehold relation is
not extinguished by the alienation or transfer of the legal possession of the
landholding. 12
WHEREFORE, the Court hereby GRANTS the petition for review
on certiorari and REVERSES the decision of the Court of Appeals. The Court
orders the dismissal of the complaint for redemption filed with the
Department of Agrarian Reform Adjudication Board, Region III, San Fernando,
Pampanga. This is without prejudice to the right of the private respondents to
continue as agricultural tenants in peaceful possession and enjoyment of the
land tenanted by them. No costs.1âwphi1.nêt
SO ORDERED.
103
SECOND DIVISION On February 10, 2004, the Certificate of Sale of Delinquent Property was
registered with the Office of the Register of Deeds of Quezon City.

CITY MAYOR, CITY TREASURER, CITY G.R. No. 171033

ASSESSOR, ALL OF QUEZON CITY, and On June 10, 2004, respondent tendered payment for all of the assessed tax
ALVIN EMERSON S. YU, delinquencies, interest, and other costs of the subject properties with the
Office of the City Treasurer, Quezon City. However, the Office of the City
Petitioners, Present: Treasurer refused to accept said tender of payment.

Undeterred, on June 15, 2004, respondent filed before the Office of the City
Treasurer a Petition[2] for the acceptance of its tender of payment and for the
CARPIO, J., Chairperson, subsequent issuance of the certificate of redemption in its favor. Nevertheless,
respondents subsequent tender of payment was also denied.
NACHURA,
Consequently, respondent filed a Petition for Mandamus with Prayer for
-versus- PERALTA, Issuance of a Temporary Restraining Order and a Writ of Preliminary
Injunction[3] before the RTC. Petitioners contended, among other things, that
ABAD, and it had until February 10, 2005, or one (1) year from the date of registration of
the certificate of sale on February 10, 2004, within which to redeem the
MENDOZA, JJ. subject properties, pursuant to Section 78 of Presidential Decree (P.D.) No.
464 or the Real Property Tax Code.

RIZAL COMMERCIAL BANKING

CORPORATION, After the parties filed their respective pleadings, the RTC initially denied the
petition in the Order[4] dated December 6, 2004. In denying the petition, the
Respondent. RTC opined that respondents reliance on Section 78 of P.D. No. 464 as basis of
Promulgated: the reckoning period in counting the one (1) year period within which to
redeem the subject properties was misplaced, since P.D. No. 464 has been
August 3, 2010 expressly repealed by Republic Act (R.A.) No. 7160, or the Local Government
Code.
x-----------------------------------------------------------------------------------------x

Aggrieved, respondent filed a Motion for Reconsideration[5] questioning the

Order, arguing that:

DECISION

PERALTA, J.:
This is a petition for review on certiorari assailing the Decision[1] dated
December 6, 2005, of the Regional Trial Court (RTC), National Capital Judicial
Region, Branch 101, Quezon City, in SP. Civil Action Q-04-53522 for Mandamus
with Prayer for Issuance of a Temporary Restraining Order and a Writ of
Preliminary Injunction.
The procedural and factual antecedents are as follows:
The facts are undisputed. The spouses Roberto and Monette Naval obtained a
loan from respondent Rizal Commercial Banking Corporation, secured by a real
estate mortgage of properties covered by Transfer Certificate of Title (TCT)
Nos. N-167986, N-167987, and N-167988. In 1998, the real estate mortgage
was later foreclosed and the properties were sold at public auction with
respondent as the highest bidder. The corresponding Certificates of Sale were
issued in favor of respondent on August 4, 1998.However, the certificates of
sale were allegedly registered only on February 10, 2004.
Meanwhile, on May 30, 2003, an auction sale of tax delinquent properties was
conducted by the City Treasurer of Quezon City. Included in the properties that
were auctioned were two (2) townhouse units covered by TCT Nos. N-167986
and N-167987 and the parcel of land covered by TCT No. N-167988. For these
delinquent properties, Alvin Emerson S. Yu was adjudged as the highest
bidder. Upon payment of the tax delinquencies, he was issued the
corresponding Certificate of Sale of Delinquent Property.
A. The Honorable Court committed grave error when it summarily denied the
petition for Mandamus filed by herein petitioner during the hearing on the
Motion for Issuance of Temporary Restraining Order and/or Issuance of a Writ
of Preliminary Injunction without conducting a hearing or trial on petition for
mandamus. The order of the court effectively denied petitioner its right to due
process.
B. The principal action subject of the petition for mandamus is the annulment
of the auction sale. Alternatively, petitioner sought the right to consign the
redemption price, inclusive of interests on the basis that it was exercising the
right of redemption within the period provided by law. The Honorable Court
ruled only on the repeal of Presidential Decree No. 464 and not the
issues/grounds raised in the temporary restraining order/writ of preliminary
injunction nor on the issues raised in the petition for mandamus, contrary to
law.
C. The Honorable Court committed grave error when it sustained the validity
of the actions of the City Treasurer with respect to the auction sale of the
properties subject of the petition and its unlawful refusal to accept the
redemption price of the properties subject of the auction sale contrary to the
provisions of Quezon City Ordinance No. 91-93, in relation to Presidential
Decree No. 464 and the Local Government Code and DOF Assessment
Regulations No. 7-85.
D. The Honorable Court committed grave error when it denied petitioner its
right to consign the payment of the redemption price of the properties sold in
auction sale without a determination of the factual issues of the case, contrary
to due process.

104

E. The legal and factual question of the validity of the notice of the auction sale
cannot be summarily dismissed without hearing and ruling on the allegation of
lack of notice and fraud raised by petitioner in its petition for mandamus.[6]
On December 6, 2005, the RTC rendered a Decision[7] granting the petition,
the decretal portion of which reads:
WHEREFORE, premises considered, the above-captioned petition for
mandamus is hereby granted.
Accordingly, the public respondents are ordered to accept the petitioners
tender of redemption payment, to issue the corresponding certificate of
redemption in the name of the petitioner and to cancel the certificate of tax
sale issued to the private respondent.
SO ORDERED.[8]
In granting the petition, the RTC ratiocinated that the counting of the one (1)
year redemption period of tax delinquent properties sold at public auction
should start from the date of registration of the certificate of sale or the final
deed of sale in favor of the purchaser, so that the delinquent registered owner
or third parties interested in the redemption may be notified that the
delinquent property had been sold, and that they have one (1) year from said
constructive notice of the sale within which to redeem the property. The RTC
was also of the opinion that Section 261, R.A. No. 7160 did not amend Section
78 of P.D. No. 464.
Hence, the petition raising the following arguments:
I at the rate of twenty per centum on the purchase price, and such payment
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON CITY, DECIDED A
QUESTION [OF] LAW CONTRARY TO LAW AND JURISPRUDENCE WHEN IT
DECIDED THAT SECTION 78 OF P.D. 464 WAS NOT REPEALED BY REPUBLIC ACT
NO. 7160 KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991.
II
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON CITY, DECIDED A
QUESTION [OF] LAW CONTRARY TO LAW AND JURISPRUDENCE WHEN IT
RAISED THE FOLLOWING ISSUES WHICH DO NOT CONFORM TO THE PETITION
AND ANSWER FILED BY THE PARTIES:
A. WHETHER OR NOT THE RESPONDENT IS ENTITLED TO THE PROTECTION OF
ALL THE PROVISIONS OF QUEZON CITY TAX ORDINANCE NUMBER SP-91-93,
OTHERWISE KNOWN AS QUEZON CITY REVENUE CODE OF 1993, INCLUDING
SECTION 14 THEREOF, PROMULGATED PURSUANT TO R.A. 7160;
B. WHETHER THE PERIOD OF REDEMPTION IN A REALTY TAX SALE IN QUEZON
CITY [H]AS TO BE RECKONED FROM THE DATE OF ANNOTATION OF THE
CERTIFICATE OF SALE PURSUANT TO PARAGRAPH 7, SECTION 14 OF QUEZON
CITY TAX ORDINANCE NO. SP-91-93 OR FROM THE DATE OF SALEPURSUANT
TO SECTION 261 OF R.A. 7160.[9]
Petitioners argue that the RTC erred when it ruled that P.D. No. 464 was not
repealed by R.A. No. 7160 and when it concluded that the phrase from the
date of sale as appearing in Section 261 of R.A. No. 7160 means that the
counting of the one (1) year redemption period of tax delinquent properties
sold at public action shall commence from the date of registration of the
certificate of sale.
Petitioners insist that, since Section 14 (a), Paragraph 7 of the Quezon City
Revenue Code of 1993 was not initially alleged in respondents petition and
was not used as basis for its filing, the RTC erred when it took cognizance of it
when it rendered the assailed decision.
Conversely, respondent argues, among other things, that the RTC did not rule
that P.D. No. 464 was not repealed by R.A. No. 7160, it merely made reference
to Section 78 of P.D. No. 464. Respondent maintains that it has not altered its
cause of action when it cited Section 14 (a), paragraph 7 of the Quezon City
Revenue Code of 1993 for the first time in its memorandum and that its failure
to invoke the said provision in the petition for mandamus does not preclude
respondent from invoking it in the later part of the proceedings. Ultimately,
respondent contends that the RTC correctly ruled that it had timely exercised
its right to redeem the subject properties.
Section 78 of P.D. No. 464 provides for a one-year redemption period for
properties foreclosed due to tax delinquency, thus:
Sec. 78. Redemption of real property after sale. Within the term of one year
from the date of the registration of the sale of the property, the delinquent
taxpayer or his representative, or in his absence, any person holding a lien or
claim over the property, shall have the right to redeem the same by paying the
provincial or city treasurer or his deputy the total amount of taxes and
penalties due up to the date of redemption, the costs of sale and the interest
shall invalidate the sale certificate issued to the purchaser and shall entitle the
person making the same to a certificate from the provincial or city treasurer or
his deputy, stating that he had redeemed the property.[10]
From the foregoing, the owner or any person holding a lien or claim over a tax
delinquent property sold at public auction has one (1) year from the date of
registration of sale to redeem the property. However, since the passing of R.A.
No. 7160, such is no longer controlling. The issue of whether or not R.A No.
7160 or the Local Government Code, repealed P.D. No. 464 or the Real
Property Tax Code has long been laid to rest by this Court. Jurisdiction thrives
to the effect that R.A. No. 7160 repealed P.D. No. 464.[11]From January 1,
1992 onwards, the proper basis for the computation of the real property tax
payable, including penalties or interests, if applicable, must be R. A. No.
7160. Its repealing clause, Section 534, reads:
SECTION 534. Repealing Clause.
xxxx
105
(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding
hospital fund; Section 3, a (3) and b (2) of Republic Act No. 5447 regarding the
Special Education Fund; Presidential Decree No. 144 as amended by
Presidential Decree Nos. 559 and 1741; Presidential Decree No. 231 as
amended; Presidential Decree No. 436 as amended by Presidential Decree No.
558; and Presidential Decrees Nos. 381, 436, 464, 477, 526, 632, 752, and 1136
are hereby repealed and rendered of no force and effect.
Inasmuch as the crafter of the Local Government Code clearly worded the
above-cited Section to repeal P.D. No. 464, it is a clear showing of their
legislative intent that R.A. No. 7160 was to supersede P.D. No. 464. As such, it
is apparent that in case of sale of tax delinquent properties, R.A. No. 7160 is
the general law applicable. Consequently, as regards redemption of tax
delinquent properties sold at public auction, the pertinent provision is Section
261 of R.A. No. 7160, which provides:
Section 261. Redemption of Property Sold. Within one (1) year from the date
of sale, the owner of the delinquent real property or person having legal
interest therein, or his representative, shall have the right to redeem the
property upon payment to the local treasurer of the amount of delinquent tax,
including the interest due thereon, and the expenses of sale from the date of
delinquency to the date of sale, plus interest of not more than two percent
(2%) per month on the purchase price from the date of sale to the date of
redemption. Such payment shall invalidate the certificate of sale issued to the
purchaser and the owner of the delinquent real property or person having
legal interest therein shall be entitled to a certificate of redemption which
shall be issued by the local treasurer or his deputy.
From the date of sale until the expiration of the period of redemption, the
delinquent real property shall remain in the possession of the owner or person
having legal interest therein who shall remain in the possession of the owner
or person having legal interest therein who shall be entitled to the income and
other fruits thereof.
The local treasurer or his deputy, upon receipt from the purchaser of the
certificate of sale, shall forthwith return to the latter the entire amount paid
by him plus interest of not more than two percent (2%) per month. Thereafter,
the property shall be free from all lien of such delinquent tax, interest due
thereon and expenses of sale.[12]
From the foregoing, the owner of the delinquent real property or person
having legal interest therein, or his representative, has the right to redeem the
property within one (1) year from the date of sale upon payment of the
delinquent tax and other fees. Verily, the period of redemption of tax
delinquent properties should be counted not from the date of registration of
the certificate of sale, as previously provided by Section 78 of P.D. No. 464, but
rather on the date of sale of the tax delinquent property, as explicitly provided
by Section 261 of R.A. No. 7160.
Nonetheless, the government of Quezon City, pursuant to the taxing
power vested on local government units by Section 5, Article X of the 1987
Constitution[13] and R.A. No. 7160, enacted City Ordinance No. SP-91, S-93,
otherwise known as the Quezon City Revenue Code of 1993, providing, among
other things, the procedure in the collection of delinquent taxes on real
properties within the territorial jurisdiction of Quezon City. Section 14 (a),
Paragraph 7, the Code provides:
7) Within one (1) year from the date of the annotation of the sale of the
property at the proper registry, the owner of the delinquent real property or
person having legal interest therein, or his representative, shall have the right
to redeem the property by paying to the City Treasurer the amount of the
delinquent tax, including interest due thereon, and the expenses of sale plus
interest of two percent (2) per month on the purchase price from the date of
sale to the date of redemption. Such payment shall invalidate the certificate of
sale issued to the purchaser and the owner of the delinquent real property or
person having legal interest therein shall be entitled to a certificate of
redemption which shall be issued by the City Treasurer.
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Verily, the ordinance is explicit that the one-year redemption period should be
counted from the date of the annotation of the sale of the property at the
proper registry. At first glance, this provision runs counter to that of Section
261 of R.A. No. 7160 which provides that the one year redemption period shall
be counted from the date of sale of the tax delinquent property. There is,
therefore, a need to reconcile these seemingly conflicting provisions of a
general law and a special law.
A general statute is one which embraces a class of subjects or places and does
not omit any subject or place naturally belonging to such class. A special
statute, as the term is generally understood, is one which relates to particular
persons or things of a class or to a particular portion or section of the state
only.[14] In the present case, R.A. No. 7160 is to be construed as a general law,
while City Ordinance No. SP-91, S-93 is a special law, having emanated only
from R.A. No. 7160 and with limited territorial application in Quezon City only.
A general law and a special law on the same subject should be accordingly
read together and harmonized, if possible, with a view to giving effect to
both. Where there are two acts, one of which is special and particular and the
other general which, if standing alone, would include the same matter and
thus conflict with the special act, the special must prevail, since it evinces the
legislative intent more clearly than that of the general statute and must be
taken as intended to constitute an exception to the rule.[15] More so, when
the validity of the law is not in question.
In giving effect to these laws, it is also worthy to note that in cases involving
redemption, the law protects the original owner. It is the policy of the law to
aid rather than to defeat the owners right. Therefore, redemption should be
looked upon with favor and where no injury will follow, a liberal construction
will be given to our redemption laws, specifically on the exercise of the right to
redeem.[16]
To harmonize the provisions of the two laws and to maintain the policy of the
law to aid rather than to defeat the owners right to redeem his property,
Section 14 (a), Paragraph 7 of City Ordinance No. SP-91, S-93 should be
construed as to define the phrase one (1) year from the date of sale as
appearing in Section 261 of R.A. No. 7160, to mean one (1) year from the date
of the annotation of the sale of the property at the proper registry.
Consequently, the counting of the one (1) year redemption period of property
sold at public auction for its tax delinquency should be counted from the date
of annotation of the certificate of sale in the proper Register of
Deeds. Applying the foregoing to the case at bar, from the date of registration
of the Certificate of Sale of Delinquent Property on February 10, 2004,
respondent had until February 10, 2005 to redeem the subject
properties. Hence, its tender of payment of the subject properties tax
delinquencies and other fees on June 10, 2004, was well within the
redemption period, and it was manifest error on the part of petitioners to
have refused such tender of payment.
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Finally, respondents failure to cite Section 14 (a), Paragraph 7, City
Ordinance No. SP-91, S-93 in its petition for mandamus does not preclude it
from invoking the said provision in the later part of the judicial proceeding.

The issues in every case are limited to those presented in the pleadings. The
object of the pleadings is to draw the lines of battle between the litigants and
to indicate fairly the nature of the claims or defenses of both
parties.[17] Points of law, theories, issues and arguments should be brought to
the attention of the trial court to give the opposing party an opportunity to
present further evidence material to these matters during judicial proceedings
before the lower court. Otherwise, it would be too late to raise these issues
during appeal. A party cannot, on appeal, change fundamentally the nature of
the issue in the case. When a party deliberately adopts a certain theory and
the case is decided upon that theory in the court below, he will not be
permitted to change the same on appeal, because to permit him to do so
would be unfair to the adverse party.[18]

As early as in its Memorandum to Serve as Draft Resolution,[19] respondent

had brought Section 14 (a), Paragraph 7 of City Ordinance No. SP-91, S-93, or
the Quezon City Revenue Code of 1993, to the attention of
petitioners. Respondent also reiterated the applicability of the provision to his
claim of redemption in its motion for reconsideration of the Order initially
denying the petition for mandamus. Petitioners were given every opportunity
to counter respondents allegations, which it in fact did by filing an
Opposition[20] to the motion for reconsideration. Since the inception of the
petition in the lower court, respondent has not changed its preposition that
the one (1) year redemption period shall be counted from the date of
registration of the certificate of sale and not from the date of sale of the
subject properties. Citing the appropriate provision of the Quezon City
Revenue Code of 1993 did not alter this, but on the contrary, even buttressed
its claim.

Furthermore, petitioners cannot feign ignorance of a law that it has

promulgated in the exercise of its local autonomy. Nor can it be allowed to
deny the applicability of Section 14 (a), Paragraph 7 of the Quezon City
Revenue Code of 1993, while at the same time invoking that it has strictly
adhered to the Quezon City Revenue Code when it conducted the public
auction of the tax delinquent properties.

WHEREFORE, premises considered, the petition is DENIED. Subject to the

above disquisitions, the Decision of the RTC in SP. Civil Action Q-04-53522,
dated December 6, 2005, is AFFIRMED.

SO ORDERED.

107