Notice of Lis Pendens

G.R. No. 115402 July 15, 1998

LEONCIO LEE TEK SHENG, petitioner,
vs.
COURT OF APPEALS, HON. ANTONIO J. FINEZA, and LEE TEKSHENG, respondents.

MARTINEZ, J.:
After his mother's death, petitioner 1 filed a complaint against his father, herein private respondent, to
partition the conjugal properties of his parents. 2 In his answer with counterclaim, private respondent alleged
that four (4) parcels of land registered solely in petitioner's name under Transfer Certificate of Title (TCT)
8278 are conjugal properties. Private respondent contends that the lots are owned by the conjugal regime but was
registered in petitioner's name only as a trustee considering that at that time, the latter was then the only Filipino
citizen in the family. Accordingly, private respondent prayed for the dismissal of the partition case and for the
reconveyance of the lots to its rightful owner — the conjugal regime.
Meantime, to protect the interest of the conjugal regime during the pendency of the case, private respondent
caused the annotation of a notice of lis pendens on TCT 8278. Petitioner moved for the cancellation of said
annotation which was denied by the trial court ruling that (a) the notice was not for the purpose of molesting
or harassing petitioner and (b) also to keep the property within the power of the court pending
litigation. 3 Petitioner assailed the denial of his motion to cancel the notice of lis pendens via petition
for certiorari and prohibition to the Court of Appeals (CA), but to no avail. 4
Resorting to this Court, petitioner primarily contends that in the resolution of an incidental motion for cancellation of
the notice of lis pendens (a) it was improper to thresh out the issue of ownership of the disputed lots since
ownership cannot be passed upon in a partition case, otherwise, (b) it would amount to a collateral attack of
his title obtained more than 28 years ago. He argues that his sole ownership as shown in the TCT would be
improperly assailed in a partition case and should be done through a separate suit. On the contrary, private
respondent posits that evidence of ownership is admissible in a partition case as this is not a probate or land
registration proceedings where the court's jurisdiction is limited.
Though the postulates respectively proffered by both parties are not at point, luckily for private respondent,
petitioner's claim is not legally tenable. There is no dispute that a Torrens certificate of title cannot be
collaterally attacked 5 but that rule is not material to this case. The annotation of a notice of lis pendens does
not in any case amount nor can it be considered as equivalent to a collateral attack of the certificate of title
for a parcel of land. The concept of no collateral attack of title is based on Section 48 of P.D. 1529 which states that:
Certificate not Subject to Collateral attack. — A certificate of title shall not be subject to
collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding
in accordance with law. 6 (Emphasis Supplied).
What cannot be collaterally attacked is the certificate of title and not the title. 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. 7 Besides, the certificate cannot always be
considered as conclusive evidence of ownership. 8 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 interchangeably used.
In this case, contrary to petitioner's fears, his certificate of title is not being assailed by private
respondent. 9 What the latter disputes is the former's claim of sole ownership. Thus, although petitioner's
certificate of title may have become incontrovertible one year after issuance, 10 yet contrary to his argument,
it does not bar private respondent from questioning his ownership. 11
It should be noted that what is being challenged in this case is the denial of the motion to cancel the notice of lis
pendens. But whether as a matter of procedure 12 or substance, 13 a notice of lis pendens may be cancelled only
on two grounds, which are: (1) if the annotation was for the purpose of molesting the title of the adverse
party, or, (2) when the annotation is not necessary to protect the title of the party who caused it to be
recorded. Neither ground for cancellation of the notice was convincingly shown to concur in this case. It
would not even be fair to justify the cancellation of the notice on the legally untenable grounds that such annotation
amounts to a collateral attack of petitioner's certificate of title or that ownership cannot be adjudicated in a partition
case. It must be emphasized that the annotation of a notice of lis pendens is only for the purpose of announcing
"to the whole world that a particular real property is in litigation, serving as a warning that one who acquires
an interest over said property does so at his own risk, or that he gambles on the result of the litigation over
said property." 14 Here, the parties are still locked in a legal battle to settle their respective claims of ownership. The
lower court allowed the annotation pending litigation only for the purpose of giving information to the public that parcel
of land is involved in a suit and that those who deal with the property is forewarned of such fact.
On the contention that ownership cannot be passed upon in a partition case, suffice it to say that until and unless
ownership is definitely resolved, it would be premature to effect partition of the property. 15 For purposes of annotating
a notice of lis pendens, there is nothing in the rules which requires the party seeking annotation to prove that the land
belongs to him. 16 Besides, an action for partition is one case where the annotation of a notice of lis pendens is
proper. 17
Further, contrary to petitioner's argument, one of the issues agreed upon by the parties at pre-trial is to determine
what are the properties acquired by the spouses during their marriage. 18 In addition, private respondent in his answer
with counterclaim prayed for the reconveyance of the disputed lots. Accordingly, the issue of ownership has been put
in issue and each claimant must present their respective evidence to substantiate their respective
allegations. 19 Considering that this is a partition case, the court is required to inquire into the "nature and extent of
title" of the supposed claimant. 20 The title referred to by the rule is the purported ownership of the claimants and not
the certificate of title mentioned in Section 48 of P.D. 1529, although the latter may be considered in the
determination of the former.
WHEREFORE, by virtue of the foregoing, the petition is DENIED and the assailed decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
Regalado, Melo, Puno and Mendoza, JJ., concur.
# Footnotes
1 Petitioner is one of the legitimate children of private respondent. The latter has illegitimate
children with another woman.
2 The listed properties are lumber business, rents, four buildings and a warehouse. (Complaint,
ANNEX "D" of Petition, pp. 2-3; Rollo, p. 47-48).
3 Order of RTC dated November 24, 1992; Rollo, p. 72.
4 Court of Appeals Decision promulgated February 8, 1994; Rollo, pp. 35-41.
5 Halili v. NLRC, 257 SCRA 174.
6 Property Registration Decree.
7 Halili v. NLRC, 257 SCRA 174 (1996).
8 Heirs of Gonzaga v. CA, 261 SCRA 327; Republic v. CA, 258 SCRA 712; In ejectment cases, a
certificate of title is conclusive evidence of ownership and it does not matter if the title is
questionable (Dizon v. CA, 264 SCRA 391).
9 Private Respondent's Memorandum, p. 6; Rollo, p. 196.
10 Sec. 32, P.D. 1529.
11 Petition, p. 10; Rollo, p. 16.
12 1997 Rules of Civil Procedure, Rule 13, Section 14 (formerly Section 24).
Notice of lis pendens. — xxx xxx xxx
The notice of lis pendens hereinabove mentioned may be cancelled only upon order or the court,
after proper showing that the notice is for the purpose of molesting the adverse party, or that it is
not necessary to protect the rights of the party who caused it to be recorded. (Emphasis supplied).
13 Sec. 77 of P.D. 1529 provides. "Cancellation of lis pendens. — Before final judgment, a notice
oflis pendens may be cancelled, upon order of the court, after proper showing that the notice is for
the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the
party who caused it to be registered. It may also be cancelled by the Register of Deeds upon the
verified petition of the party who caused the registration thereof. (Emphasis supplied).
14 Sajonas v. CA, 258 SCRA 79; Garbin v. CA, 253 SCRA 187; Tanchoco v. Aquino, 154 SCRA 1;
J.P. Pellicer & Co., Inc. v. Philippine Realty Corp., 87 Phil. 302.
 15 Catapusan v. CA, 264 SCRA 534.
16 Villanueva v. CA, G.R. No. 117108, November 5, 1997.
17 The other instances where the notice of lis pendens is proper are: a) an action to recover
possession of real estate, b) an action to quiet title thereto, c) an action remove clouds thereon, d)
any other proceedings of any kind in Court directly affecting the title to the land or the use or
occupation thereof or the buildings thereon. See Magdalena Homeowners Association, Inc. v. CA,
184 SCRA 325 (1990) cited in Villanueva v. CA, G.R. No. 117108, November 5, 1997; See
also Section 14, Rule 13 (formerly Section 24, Rule 14), 1997 Rules or Civil Procedure and Section
76 of P. D. 1529.
18 Annex "H" of the Petition; Rollo, p. 61.
19 Sec. 1, Rule 131.
20 1997 Rules of Civil Procedure, Section 1, Rule 69. "Complaint in action for partition of real
estate. — A person having the right to compel the partition of real estate may do so as provided in
this Rule, setting forth in his complaint the nature and extent of his title and an adequate description
of the real estate of which partition is demanded and joining as defendants all other persons
interested in the property. (Emphasis supplied).

Notice of Lis Pendens

G.R. No. 153263 August 28, 2008

EMMA VER-REYES, petitioner,
vs.
HONORABLE COURT OF APPEALS, THE LAND REGISTRATION
AUTHORITY, THE REGISTER OF DEEDS OF CAVITE, and IRENE
MONTEMAYOR, respondents.
DECISION
NACHURA, J.:
For resolution is a petition for review on certiorari under Rule 45 of the Rules
of Court of the Decision1dated January 18, 2002 and the Resolution2 dated
April 25, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 63820.
Petitioner Emma Ver-Reyes claims to have acquired a 41,837-square-
meter lot (Lot No. 6961 Psd-20246, Imus Estate, G.L.S.O. Record No. 8843)
located in Dasmariñas, Cavite and covered by Transfer Certificate of Title
(TCT) No. 58459 in the name of the spouses Marciano and Virginia Cuevas
by virtue of a Deed of Absolute Sale3 dated October 8, 1976 executed by
the latter in her favor. While she religiously paid the real estate taxes on
the property, petitioner failed to register her title over the same.
Later, it appeared that the Cuevas spouses executed another Deed of
Absolute Sale4 on November 10, 1992 over the same property in favor of
respondent Irene Montemayor. This time, the sale was registered,
eventually leading to the cancellation of TCT No. 58459 and the issuance
of TCT No. 369793 in the name of respondent.
When this came to her knowledge, petitioner filed on February 18, 1994 a
petition for reconveyance, docketed as Civil Case No. 878-94, with the
Regional Trial Court (RTC), Branch 21 of the Province of Cavite against
respondent, accusing her of forgery and fraudulently causing the
issuance of a new certificate of title in her name.
After trial, the RTC, Branch 21, Cavite, rendered its Decision5 dated October
7, 1996 dismissing the complaint for reconveyance and finding
respondent as the true and lawful owner of the property described in TCT
369793.
Petitioner appealed the RTC Decision to the CA on July 11, 1997. Pending
appeal, or in August 1998, petitioner learned of the cancellation of
respondent’s TCT over the property in favor of a certain Engracia Isip
(Engracia), after which a mortgage was constituted thereon by
Engracia’s heirs.
Acting on this information, petitioner conducted an investigation, and her
inquiry revealed the following:
1. Respondent Irene Montemayor executed on January 15, 1998 a
Waiver and Quitclaim,6recognizing the genuineness of TCT No. 769357
in the name of Engracia Isip which had been transferred to her heirs
(Apolonia I. R. Alcaraz, Eliza I. Reyes-Gloria, Victor Isip Reyes and
Epitacio Isip Reyes) covered by TCT No. T-784707, declaring that all
documents relative to the issuance of subsequent TCTs, including TCT
No. 369793 in her name were simulated and fictitious, and renouncing
all her claims to the property in favor of Engracia and her heirs,
executors, administrators, and assigns.
2. The Register of Deeds of Cavite, notwithstanding being impleaded as
a party to the pending appeal before the CA, cancelled TCT No. T-
3697937 in the name of respondent by virtue of the Waiver and
Quitclaim. It also caused the annotation of the Waiver and Quitclaim on
both TCT Nos. T-369793 and T-7847078 in the name of Engracia’s
heirs.
3. The technical descriptions under TCT Nos. T-7693579 and T-784707
showed that the property described therein is the same property subject
of the pending appeal before the CA.
4. The basis of Engracia’s title under TCT No. 769357 is Bureau of
Lands Sales Contract/Certificate No. V-13910 dated January 9, 1954
and Department of Agriculture and Natural Resources/Bureau of Lands
 Deed of Conveyance No. V-903911 dated March 30, 1965. It appeared
that TCT No. 769357 was issued or entered only on October 24, 1997.
5. The subject parcel of land was originally part of Original Certificate of
Title No. 1002 (RT-17577)12 under the name of the Republic of the
Philippines.
6. By virtue of the above Certificate No. V-139 and Deed of Conveyance
No. V-9039, both in favor of Engracia, TCT No. 1310513 dated April 23,
1965 was issued in her name.
7. There were a series of conveyances made and several titles were
issued thereon – TCT No. 13105 was cancelled and TCT No.
1311314 dated April 26, 1965 was issued to Rosalinda Puspos; TCT
No. 13113 was cancelled and TCT No. T-4557415 dated July 20, 1970
was issued in favor of Belen R. Carungcong (pursuant to a Deed of
Absolute Sale dated July 21, 1970 executed by Rosalinda Puspos);
TCT No. T-45574 was cancelled and TCT No. T-5784516 dated
February 28, 1972 was issued in the name of Aurelia de la Cruz; and
TCT No. T-57845 was cancelled and TCT No. T-5845917 dated April 3,
1972 was issued in the name of the spouses Marciano and Virginia M.
Cuevas by virtue of a Deed of Absolute Sale dated March 27, 1972
executed by Aurelia de la Cruz.
8. Notwithstanding the foregoing transfers of title, TCT No. T-769357
dated October 24, 1997 was issued in the name of Engracia Isip based
on the same Certificate No. V-139 and Conveyance No. V-9039.
9. TCT No. T-784707 in the name of Engracia’s heirs was issued by
virtue of a Deed of Extra-Judicial Settlement of the Estate of Deceased
Engracia Isip18 dated September 24, 1997. Engracia Isip died way back
on January 12, 1981.
10. TCT No. T-784707 dated December 15, 1997 in the name of
Engracia’s heirs had been mortgaged to a certain Potentiano Ponce
for P6,500,000.00 on January 13, 1998. The mortgage was annotated
on the TCT on January 14, 1998.
On October 20, 1998, petitioner filed an Urgent Manifestation19 before
the CA to advise it of the above information she had discovered. On
November 6, 1998, she served a Notice of Lis Pendens20 affecting the
property under TCT No. T-784707 in the name of Engracia’s heirs upon
the Register of Deeds of Cavite.
In a letter dated November 17, 1998, the Register of Deeds of Cavite
through Deputy Registrar of Deeds Perfecto G. Dumay-as denied the
annotation of petitioner’s Notice of Lis Pendens on the following
grounds –
 1. The cancelled title of IRENE VILLAMAYOR [sic] (TCT No. T-369993)
does not bear an inscription as to the pendency of Civil Case No. 878-
94 involving the said property;
2. Further, the title of the Heirs of Engracia Isip (TCT No. T-784707) did
not originate from the cancelled title of Irene Montemayor (TCT No. T-
369793);
3. That the Waiver/Quitclaim was done in recognition of a better and
stronger title and to avoid unnecessary, time consuming [sic] and costly
legal confrontation [sic] between the parties;
4. That the title of the Isips (TCT No. T-784707) is a derivative title from
TCT No. T-769357 (Engracia Isip) which originated from a Deed of
Conveyance duly issued by the Land Management Bureau, an
immediate transfer from OCT No. 1002 (Republic of the Philippines);
5. That the late Engracia Isip nor her heirs were not a party to the
ongoing court litigation between Emma Ver Reyes, et al. vs. Irene
Montemayor, et al., hence, the said notice of Lis Pendens does not
meet the necessary requirement of its registrability.21
Petitioner elevated the matter to the Land Registration Authority (LRA) via
Consulta No. 3039 dated December 7, 1998.22 In its Resolution dated August
21, 2000, the LRA denied the registration of the Notice of Lis Pendens,
sustaining the ground that "the late ENGRACIA ISIP nor her heirs were
not impleaded as parties to the pending suit or proceedings."
Petitioner moved to reconsider the Resolution dated August 21, 2000. In an
Order23 dated January 8, 2001, the LRA denied the motion for lack of merit.
In a petition for review under Rule 43 of the Rules of Court, petitioner
questioned before the CA the Resolution dated August 21, 2000 and the
Order dated January 8, 2001 of the LRA.
In the Decision24 promulgated on January 18, 2002, the CA denied the
petition on the ground that the stance taken by the LRA was the most
logical under the circumstances; and while the remedy of a notice of lis
pendens is for the protection of third parties, it should not prejudice the
right of the party in whose favor the property is titled without him being
impleaded in the pending case.
Petitioner filed her motion for reconsideration of the CA Decision but said
motion was denied, for lack of merit, in the Resolution25 dated April 25, 2002.
The CA held –
This Court is of the opinion and so holds that if it is desired to have a
Notice of Lis Pendens anotated, it must appear that the present
registered owners are impleaded in the pending case. We do not argue
 with the petitioner’s contention that "it is not necessary for the
applicant to prove his ownership or interest over the property
sought to be effected by lis pendens" (citing Villanueva vs. Court of
Appeals, 281 SCRA 298). But what We are saying is that the notice
of Lis Pendens should not prejudice the right of the party in whose favor
the property is duly titled without giving them their day in court.
Thus, this petition, raising the sole issue of whether the Register of Deeds
was justified, under the attendant circumstances, in denying the annotation of
the Notice of Lis Pendens on TCT No. T-784707.
Petitioner maintains that it is required neither under Section 1426 of Rule 13
of the Rules of Court nor under Section 7627 of Presidential Decree No. 1529
(Property Registration Decree) that a registered owner of real property should
first be impleaded in the pending case for a notice of lis pendens to be
annotated in a TCT. She posits that these provisions do not state the grounds
to justify the refusal by the Register of Deeds and/or the LRA to effect the said
annotation. Petitioner also cites Voluntad v. Spouses Dizon28 wherein the
annotation of a notice of lis pendens was allowed on the TCT of Carmen and
Maria Voluntad despite the registered owners not being parties to the pending
case.
Petitioner further claims that the duty to record the notice of lis pendens filed
by a party to a pending case is ministerial on the part of the Register of Deeds
of the province where the property is located as long as the requisites for the
recording thereof – the names of the parties, the object of the action or
defense, and a description of the property in that province affected thereby –
are indicated in the notice.
Citing our rulings that a notation of lis pendens does not create a right or a lien
upon the subject property,29 and that the applying party is not required to
prove his right or interest over the property on which the notice is sought to be
annotated,30 petitioner argues that the annotation of the notice of lis pendens
under the circumstances would only serve as a warning to third parties that
the real property is subject to a pending litigation such that persons dealing
with it would do so at their own risk, and it would not, in any way, prejudice the
rights of Engracia’s heirs who are named as owners of the subject real estate.
While we do not contradict petitioner as to the nature, purpose, and effects of
a notice of lis pendens as held in the jurisprudence cited in her petition and
memorandum, we do not agree that these cases are squarely applicable in
this case to favor her cause.
It should be remembered that the Office of the Register of Deeds of Cavite, as
affirmed by both the LRA and the CA, denied the annotation of the notice of lis
pendens not only on the ground that Engracia’s heirs, the persons named in
TCT No. T-784707, were not impleaded in the case between petitioner and
respondent pending appeal before the CA. It also relied on other attendant
circumstances, namely: (1) the cancelled title of respondent did not bear
an inscription on the pendency of Civil Case No. 878-94 then before the
RTC, Branch 21, Cavite involving the said property; (2) the title of
Engracia’s heirs over the property did not originate nor was it
transferred from the title of respondent; (3) respondent, by virtue of her
Waiver and Quitclaim, renounced all her claims over the property by
stating that her title, including those of her supposed predecessors-in-
interest, was fictitious and simulated; and (4) TCT No. T-784707 in the
name of Engracia’s heirs was derived by succession from TCT No. T-
769357 in the name of Engracia Isip, which, in turn, was derived from a
conveyance in her favor by the Republic of the Philippines under OCT
No. 1002.
It is for these other reasons that our ruling in Voluntad cannot apply to the
present controversy. InVoluntad, the annotation of the notice of lis pendens
was allowed on the TCT of Carmen and Maria Voluntad even if they were not
parties to the pending litigation because they were the predecessors-in-
interest of the Voluntads who applied for the annotation (applicant Voluntads)
and that the real property subject thereof was still in the names of Carmen
and Maria despite already having passed on to their heirs (applicant
Voluntads).
In contrast, herein petitioner’s claim to the property is not derived from the
titles of Engracia and her heirs. While the property described in TCT No. T-
784707 in the name of Engracia’s heirs refers to the same property described
in TCT No. 58459 in the name of Marciano and Virginia Cuevas from whom
petitioner claimed to have derived her title, it is apparent that the title of
Engracia’s heirs over the property is totally alien to the controversy
between petitioner and respondent. Had petitioner been truly prudent as
she now poses to be, she should have caused the annotation of the Notice of
Lis Pendens on TCT No. 58459 in the name of respondent way back when
she filed the petition for reconveyance (Civil Case No. 878-94), as this would
have resulted in the carrying over of the notice onto TCT Nos. T-769357
(Engracia Isip) and T-784707 (Engracia’s heirs) after respondent waived her
claim over the property in Isips’ favor.
Indeed, petitioner’s belated act of applying for a notice of lis pendens, if
allowed by the Office of the Register of Deeds of Cavite, would infringe on the
right to due process of Engracia’s heirs, who were never parties to the
reconveyance suit between petitioner and respondent now pending appeal
before the CA.31 While the notice of lis pendens would not create a right
or lien over the property, it will definitely be an inconvenience or a
burden, however slight, on the title of Engracia’s heirs, especially when
dealing with the same property in the concept of owners. Justice and
fair play require that Engracia’s heirs be rightfully informed of
petitioner’s claim over the same property by impleading them in the
pending suit before the application for annotation of lis pendens be
favorably acted upon.
WHEREFORE, the petition is DENIED for lack of merit. Costs against
petitioner.
SO ORDERED.
Ynares-Santiago, Chairperson, Austria-Martinez, Chico-Nazario, Reyes,
JJ., concur.

Footnotes
1 Penned by Associate Justice Eliezer R. De Los Santos, with
Associate Justices Buenaventura J. Guerrero and Rodrigo V. Cosico,
concurring; rollo, pp. 35-40.
2 Id. at 42.
3 Id. at 43-44.
4 Id. at 45.
5 Id. at 132-135.
6 Id. at 46.
7 Id. at 47-48.
8 Id. at 49-50.
9 Id. at 51-52.
10 Id. at 53-55.
11 Id. at 56.
12 Id. at 57.
13 Id. at 58-59.
14 Id. at 60-61.
15 Id. at 62-63.
16 Id. at 64-65.
17 Id. at 66-67.
18 Id. at 68-69.
19 Id. at 75-78.
20 Id. at 71-73.
21 Id. at 81.
22 Id. at 82-90.
23 Id. at 112.
24 Supra note 1.
25 Supra note 2.
26 Sec. 14. Notice of Lis Pendens. – In an action affecting the title or
the right of possession of real property, the plaintiff and the defendant,
when affirmative relief is claimed in his answer, may record in the office
of the registry of deeds of the province in which the property is situated
a notice of the pendency of the action. Said notice shall contain the
names of the parties and the object of the action or defense, and a
description of the property in that province affected thereby. Only from
the time of filing of such notice for record shall a purchaser, or
encumbrancer of the property affected thereby, be deemed to have
constructive notice of the pendency of the action, and only of its
pendency against the parties designated by their real names.
The notice of lis pendens hereinabove mentioned may be cancelled
only upon order of the court, after proper showing that the notice is for
the purpose of molesting the adverse party, or that it is not necessary to
protect the rights of the party who caused it to be recorded.
27 Sec. 76. Notice of lis pendens. – No action to recover possession of
real estate, or to quiet title thereto, or to remove clouds upon the title
thereof, or for partition, or other proceedings of any kind in court directly
affecting the title to land or the use or occupation thereof or the
buildings thereon, and no judgment, and no proceeding to vacate or
reverse any judgment, shall have any effect upon registered land as
against persons other than the parties thereto, unless a memorandum
or notice stating the institution of such action or proceeding and the
court wherein the same is pending, as well as the date of the institution
thereof, together with a reference to the number of the certificate of title,
and an adequate description of the land affected and the registered
owner thereof, shall have been filed and registered.
28 372 Phil. 82 (1999).
29 Viewmaster Construction Corporation v. Maulit, 383 Phil. 729, 742
(2000).
30 Villanueva v. Court of Appeals, 346 Phil. 289, 306 (1997).
 31 Felix Gochan & Sons Realty Corporation v. Cañada, G.R. No. L-
49686, August 31, 1988, 165 SCRA 207, 216.

Notice of adverse claim

FIRST DIVISION

SPS. JESUS CHING AND LEE POE G.R. No. 156076

TIN,
Petitioners,
Present:

PUNO, C.J., Chairperson,

- versus - CORONA,
CARPIO MORALES*,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.

SPS. ADOLFO & ARSENIA ENRILE,

Respondents. Promulgated:

September 17, 2008

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

DECISION

LEONARDO-DE CASTRO, J.:

cralaw

Assailed in the instant petition for review on certiorari are the Decision[1] of the
Court of Appeals (CA) dated August 29, 2002 in CA-G R. CV No. 42985 and the
Resolution[2] dated November 21, 2002 denying petitioners motion for
reconsideration.

The assailed CA decision reversed the decision of the Regional Trial Court
(RTC) of Makati City, Branch 135, in Civil Case No. 90-064, an action for
quieting of title thereat commenced by petitioner spouses Jesus Ching and
Lee Poe Tin against respondent spouses Adolfo and Arsenia Enrile.

The antecedent facts follow.

On September 5, 1985, petitioners purchased from a certain Raymunda La
Fuente a 370-square meter lot located at Barrio Tungtong, Las Pias and
covered by TCT No. 83618. La Fuente delivered to petitioners a duly
notarized Deed of Absolute Sale[3] with the Owners Duplicate Certificate
of Title and thereafter, petitioners took physical possession of the subject
property.

For reasons known only to petitioners, the conveyance was not registered in the
Register of Deeds as prescribed by Section 51 of PD 1529[4]. Instead,
on November 20, 1986, petitioners executed an Affidavit of Adverse Claim
which was recorded and annotated at the back of TCT No. 83618 reflected
in the Memorandum of Encumbrances under Entry No. 86-62262.[5]

In the meantime, petitioners peacefully and continuously possessed the subject

property.

On August 19, 1988 ─ three years after they purchased the disputed
property, petitioners received a Notice of Levy on Attachment and Writ of
Execution issued by the Regional Trial Court (RTC) of Pasig in favor of respondents,
in Civil Case No. 54617 entitled Sps. Adolfo Enrile and Arsenia Enrile v. Raymunda
La Fuente.

The Notice of Levy on Attachment was recorded at the dorsal portion of TCT No.
83618 under Entry No. 3433-2 while the Writ of Execution was inscribed under
Entry No. 3434-2. Also inscribed in the TCT is the Certificate of Sale dated January
26, 1989 covering the disputed property in favor of respondents.

On January 8, 1990, petitioners filed a Petition to Remove Cloud on or Quiet Title to

Real Property asserting ownership of the disputed property.

On May 11, 1993, the RTC rendered judgment in favor of petitioners upholding the
latter’s superior right over the disputed property in view of the registration of the
Affidavit of Adverse Claim prior to the Certificate of Sale annotated in favor of
respondents. Dispositively the decision reads:

WHEREFORE, premises, the above-entitled petition is granted for being

preponderantly meritorious. Judgment is hereby rendered ordering:

1) The Register of Deeds of Las Pias, Metro Manila to cancel all

the annotations of encumbrances in favor of defendants
[respondents] in Transfer Certificate of Title No. 83618
issued by the Register of Deeds of Pasay City, Metro Manila,
District IV;
2) Defendants [respondents] to pay plaintiffs [petitioners] in
the sum of P10,000.00 as compensatory damages by way of
litigation expenses;
 3) To pay to plaintiffs [petitioners] the sum of P 10,000.00 as
attorneys fees; and,
4) To pay the cost of the proceedings.

SO ORDERED.

In time, respondents appealed to the CA, principally arguing that

the RTC committed reversible error in ruling that petitioners had a better right over
the disputed property. Respondents theorized that the prior conveyance of the
disputed property made by La Fuente to petitioners being a voluntary dealing with a
registered land, mere registration of their adverse claim was insufficient. To
respondents, in order to have petitioners interest protected, they should have
registered the Deed of Absolute Sale with the Register of Deeds pursuant to Section
51 of PD 1529 and not merely register an adverse claim under Section 70 of the
same law. Citing the second paragraph of Section 70 which provides that an
adverse claim shall be effective for a period of thirty days from the date of
registration, respondents insisted that the annotated Adverse Claim of petitioners
had already expired, hence, it offered no protection when respondents acquired the
disputed property through execution sale.

On August 29, 2002, the CA rendered the herein challenged decision reversing that
of the RTC. Even as the CA viewed the prior sale of the disputed lot in favor of
petitioners as perfected and consummated, it nonetheless upheld respondents
preferential right over the disputed property. Finding merit in respondents
arguments, the CA ruled:

This Court, also believes that there is truth in defendants-appellants

assertion that while the sale is perfected and consummated, plaintiffs-
appellees failed to diligently protect their interests by failing to register
the conveyance or transaction in the office of Register of Deeds. An
owner of a registered land is vested by law with rights and obligations
and thus exercises all attributes of ownership. These attributes include
among others the right to dispose the real property itself. The owner
of the land may convey, mortgage, lease or otherwise deal with the
same in accordance with existing laws. He may use such forms of
deeds, mortgages, leases or other voluntary instrument as are
sufficient in law. However, as clearly provided by Section 51 of
Presidential Decree 1529, no deed, mortgage, lease or other voluntary
instrument, except a will purporting to convey or affect registered land
shall take effect as a conveyance or bind the land, until the same has
been registered in the office of the Register of Deeds. It shall operate
only as a contract between the parties and as evidence of authority to
the Register of Deeds to effect 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 of the
province or city where the land lies.Unless and until the subject
transaction has been filed or registered in the office of the Register of
Deeds, the transaction shall only be binding on the parties to the
contract but not on the third person. The instrument is not thereby
rendered void by failure to register. Section 51 of PD 1529 states:

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
instruments as are sufficient in law. But no deed,
mortgage, lease or other voluntary instrument, except a
will purporting to convey or affect registered land shall
take effect as a conveyance or bind the 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.

Laying the blame on petitioners, the CA added:

The law provides protection to third person, who believing in good

faith and relying on the sweet representations of some evil minded
persons, may be unjustifiably inveigled to enter into a contract or
transaction not knowing that the subject real property has been
encumbered or sold. It is the duty of the buyer or vendee to register
the transaction before the Register of Deeds of the province or city
where the property lies. The registration is intended to inform any
minded individual that the property has been subjected to a prior
transaction and that entering into any further contract involving the
same property shall be at his own risk. In the event that any third
person was bona fide tricked to enter into any transaction involving
the same property because the transferee or vendee failed to register
the same as required by law, the latters interests should be
subordinated to that of the third party. Axiomatic is the rule in this
jurisdiction that when loss or damage was caused to two individuals
who both acted in good faith but one is negligent, the loss or damage
shall fall upon the one who acted negligently.

Citing a myriad of jurisprudence[6], the CA declared that respondents, as attaching

creditors who registered the order of attachment and the sale of the property to
them as the highest bidders, acquired a valid title to the disputed property as
against petitioners who had previously bought the same property from the
registered owner but failed to register their deed of sale.

cralawThe CA further declared respondents as purchasers in good faith. On the

premise that petitioners filing of the Affidavit of Adverse Claim was procedurally
flawed and that the annotated adverse claim had already prescribed on December
20, 1986 after the lapse of 30 days from its registration which was November 20,
1986, the CA ruled that it cannot be considered sufficient notice to third person like
the respondents who were not aware of the sale of the disputed lot to petitioners
prior to the levy on attachment.

As stated at the threshold hereof, the CA, in its decision[7] of August 29, 2002,
reversed and set aside that of the RTC, thus:

WHEREFORE, in view of the foregoing, the Decision dated May 11,

1993 of the Regional Trial Court, National Capital Judicial Region,
Branch 135, Makati City in Civil Case No. 90-064 is hereby REVERSED.

The Register of Deeds of Las Pias, Metro Manila is hereby mandated

not to cancel any annotations of encumbrances in favor of defendants-
appellants in Transfer Certificate of Title No. 83618 issued by the
Register of Deeds of Pasay City, Metro Manila, Dist. IV.

Who among the parties has a preferential right over the disputed
property.

Cralawc SO ORDERED.

Their motion for reconsideration having been denied by the CA in its challenged
Resolution of November 21, 2002, petitioners are now before this Court, faulting
the CA as follows:

cralawWITH
DUE RESPECT, THE COURT A QUO GRAVELY ERRED AND
ABUSED ITS DISCRETION WHEN IT RENDERED SUBJECT DECISION
AND RESOLUTION IN A WAY PROBABLY NOT IN ACCORD WITH LAW
OR RULES WITH THE APPLICABLE DECISIONS OF THE SUPREME
COURT; Specifically, the Court a quo erred;

a. When it held that the levy on attachment LATER

annotated shall prevail over the Adverse Claim EARLIER
annotated at the back of the title by the mere lapse of 30
days and even without any petition in court for its
cancellation;
b. When it did not dismiss the appeal considering that the
question raised were questions of law and NO question of
fact.[8]
The petition is impressed with merit.

At the outset, the Court finds that the CA committed reversible error when it ruled
that the annotated adverse claim had already prescribed by the mere lapse of 30
days from its registration.The issue is no longer of first impression. In the 1996
case of Sajonas v. Court of Appeals,[9] we explained that a notice of adverse claim
remains valid even after the lapse of the 30-day period provided by Section 70 of
PD 1529. Section 70 provides:

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

registered owner, arising subsequent to the date of the original
registration, may, if no other provision is made in this Decree for
registering the same, make a statement in writing, setting forth fully
his alleged right or interest, and how or under whom acquired, a
reference to the number of the certificate of title of the registered
owner, and a description of the land in which the right or interest is
claimed.
The statement shall be signed and sworn to, and shall state the
adverse claimant's residence, and a place at which all notices may be
served upon him. This statement shall be entitled to registration as an
adverse claim on the certificate of title. The adverse claim shall be
effective for a period of thirty days from the date of
registration. After the lapse of said period, the annotation of
adverse claim may be cancelled upon filing of a verified petition
therefor by the party in interest. Provided, however that after
cancellation, no second adverse claim based on the same
ground shall be registered by the same claimant.

In the same case, we held that for as long as there is yet no petition for its
cancellation, the notice of adverse claim remains subsisting: Thus:

At first blush, the provision in question would seem to restrict the

effectivity of the adverse claim to thirty days. But the above provision
cannot and should not be treated separately, but should be read in
relation to the sentence following, which reads:

After the lapse of said period, the annotation of the

adverse claim may be cancelled upon filing of a verified
petition therefor by the party in interest.

If the rationale of the law was for the adverse claim to

ipso facto lose force and effect after the lapse of thirty
days, then it would not have been necessary to include
the foregoing caveat to clarify and complete the rule. For
then, no adverse claim need be cancelled. If it has been
 automatically terminated by mere lapse of time, the law
would not have required the party in interest to do a
useless act.[10]

In a petition for cancellation of adverse claim, a hearing must first be

conducted. The hearing will afford the parties an opportunity to prove the
propriety or impropriety of the adverse claim.[11]

Now, as we see it, the recourse will either rise or fall on the decisive question of
whether or not respondents were purchasers in good faith when they acquired the
disputed lot despite the annotated adverse claim on their title.

We rule and so hold that they were not.

The Court has invariably ruled that in case of conflict between a vendee and an
attaching creditor, an attaching creditor who registers the order of attachment and
the sale of the property to him as the highest bidder acquires a valid title to the
property as against a vendee who had previously bought the same property from
the same owner but who failed to register his deed of sale. This is because
registration is the operative act that binds or affects the land insofar as third
persons are concerned. It is upon registration that there is notice to the whole
world. But where a party has knowledge of a prior existing interest, as here, which
is unregistered at the time he acquired a right to the same land, his knowledge of
that prior unregistered interest has the effect of registration as to him.
[12] Knowledge of an unregistered sale is equivalent to registration.[13]

The general rule is that a person dealing with registered land is not required to go
behind the register to determine the condition of the property. In that case, such
person is charged with notice of the burden on the property which is noted on the
face of the register or certificate of title.[14]

Article 1544 of the Civil Code governs in cases of double sale. It provides:

Should it be immovable property, the ownership shall belong to the

person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title, provided
there is good faith.

An innocent purchaser for value or any equivalent phrase shall be deemed to

include, under the Torrens System, the innocent lessee, mortgagee, and other
encumbrancer for value.[15]

In Bautista v. Court of Appeals,[16] we held that where the thing sold twice is an
immovable, the one who acquires it and first registers it in the Registry of Property,
in good faith, shall be the owner.
Who then can be considered a purchaser in good faith?

In the early case of Leung Yee v. F.L. Strong Machinery Co. and Williamson,
[17] the Court explained good faith in this wise:

One who purchases real estate with knowledge of a defect or lack of

title in his vendor cannot claim that he has acquired title thereto in
good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge
of facts which should have put him upon such inquiry and investigation
as might be necessary to acquaint him with the defects in the title of
his vendor.[18]
Good faith, or the want of it, is capable of being ascertained only from the acts of
one claiming its presence, for it is a condition of the mind which can only be judged
by actual or fancied token or signs.[19]
It is beyond dispute that the property in question had already been sold by
La Fuente to petitioners on September 5, 1985. Petitioners immediately
took possession thereof. When the Notice of Levy on Attachment was
recorded at the dorsal portion of TCT No. 83618 and when the Writ of
Execution and Certificate of Sale were inscribed under Entry No. 3434-2 in
favor of respondents, on January 26, 1989, petitioners have been,
since September 5, 1985, in actual, physical, continuous and uninterrupted
possession.
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.
Here, petitioners adverse claim is annotated at the back of the title coupled with the
fact that they are in possession of the disputed property. To us, these
circumstances should have put respondents on guard and required them to
ascertain the property being offered to them has already been sold to another to
prevent injury to prior innocent buyers. A person who deliberately ignores a
significant fact which would create suspicion in an otherwise reasonable
man is not an innocent purchaser for value. It is a well-settled rule that a
purchaser cannot close his 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.[20]

As aptly observed by the RTC, regardless of the non-registration of the Deed of

Absolute Sale to petitioners, nor the 30-day effectivity of the adverse claim under
Section 70 of PD 1529, respondents were constructively notified of petitioners prior
purchase of the disputed property. We quote with approval the RTCs observation on
this matter, thus:

cralawxxxIn derogation to defendants claim that they have a better

right over the questioned property superior over that of the plaintiffs,
the Court has only to carefully examine the face of TCT No. 83618 and
 its dorsal part on Memorandum of Encumbrances for entries and
inscriptions in their chronological order of dates of annotation of
documents in the Office of the Register of Deeds. On the title itself it is
readily perceived and palpable that Entry No. 86-62262/T-83618
in reference to the Adverse Claim executed by plaintiff Jesus Ching
was registered way ahead on November 20, 1986 compared to Entries
Nos. 3433-2, 3434-2 and 736-3, respectively the Notice of Levy, Writ
of Execution and Certificate of Sale in favor of spouses defendants
Enrile which were duly registered on August 19, 1988 (for the first two
documents) and on March 21, 1989 (for the last document). Perforce,
before the registrations of the three documents purporting to be the
rights and interests of defendants in the property in question, the
defendants more particularly and the whole world in general were
given constructive notice that Raymunda La Fuente, the judgment
debtor in Civil Case No. 54617 of the Regional Trial Court of Pasig, has
no more interest and rights to the property subject of
litigation. Defendants should have at the first instance been duly
warned and notified that the property involved in litigation subject to
attachment and levy, execution and sale from actual registration of the
defendants documents referred herein. The annotation of inscription to
Entry No. 86-622/T-83618 is obviously and indeed very clear
indicating that the plaintiffs registered adverse claim in reference to
the sale of the same property sought by defendants to be levied on
attachment, final execution and sale came ahead.[21]

Hence, the particular circumstances of this case constrain us to rule that

respondents were not purchasers in good faith and, as such, could not acquire good
title to the property as against the former transferee.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals

promulgated on August 29, 2002, in CA-G R. CV No. 42985, and the Resolution
dated November 21, 2002 arehereby REVERSED and SET ASIDE. In lieu thereof,
the decision of the Regional Trial Court, of Makati City Branch 135, dated May 11,
1993, in Civil Case No. 90-064 is REVIVED and AFFIRMED in toto.

No costs.

Blanket clause Rem

G.R. No. 171201 June 18, 2010

SPOUSES BENEDICT and MARICEL DY TECKLO, Petitioners,
vs.
RURAL BANK OF PAMPLONA, INC. represented by its President/Manager, JUAN LAS, Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the 17 May 2005 Decision2 and the 14 December 2005 Resolution3 of the Court of
Appeals in CA-G.R. CV No. 59769. In its 17 May 2005 Decision, the Court of Appeals affirmed with modification the
22 May 1998 Decision4 of the Regional Trial Court (Branch 61) of Naga City in Civil Case No. RTC 96-3521. In its 14
December 2005 Resolution, the Court of Appeals denied petitioners’ motion for reconsideration.
The Antecedent Facts
On 20 January 1994, spouses Roberto and Maria Antonette Co obtained from respondent Rural Bank of Pamplona,
Inc. a P100,000.00 loan5 due in three months or on 20 April 1994. The loan was secured by a real estate
mortgage6 on a 262-square meter residential lot owned by spouses Co located in San Felipe, Naga City and covered
by Transfer Certificate of Title (TCT) No. 24196.
The mortgage was registered in the Register of Deeds of Naga City on 21 January 1994 and duly annotated on the
TCT of the mortgaged property as Entry No. 58182.7
One of the stipulations in the mortgage contract was that the mortgaged property would also answer for the future
loans of the mortgagor. Pursuant to this provision, spouses Co obtained on 4 March 1994 a second loan8 from
respondent bank in the amount of P150,000.00 due in three months or on 2 June 1994. 1avvphi1

Petitioners, spouses Benedict and Maricel Dy Tecklo, meanwhile instituted an action for collection of sum of money
against spouses Co. The case, docketed as Civil Case No. 94-3161, was assigned to the Regional Trial Court
(Branch 25) of Naga City. In the said case, petitioners obtained a writ of attachment on the mortgaged property of
spouses Co. The notice of attachment was annotated on the TCT of the mortgaged property as Entry No. 58941.9
When the two loans remained unpaid after becoming due and demandable, respondent bank instituted extrajudicial
foreclosure proceedings. In its 5 September 1994 petition for extrajudicial foreclosure, respondent bank sought the
satisfaction solely of the first loan although the second loan had also become due.10 At the public auction scheduled
on 19 December 1994, respondent bank offered the winning bid of P142,000.00, which did not include the second
loan.11 The provisional certificate of sale to respondent bank was annotated on the TCT of the mortgaged property as
Entry No. 60794.12
Petitioners then exercised the right of redemption as successors-in-interest of the judgment debtor. Stepping into the
shoes of spouses Co, petitioners tendered on 9 August 1995 the amount of P155,769.50, based on the computation
made by the Office of the Provincial Sheriff, as follows:

Bid price …..................................................... P142,000.00

Interest on the bid price from
December 19, 1994 to August 9, 1995
at 1% per month …........................................ 10,934.00
Expenses incurred in connection with
the registration of the Provisional
Certificate of Sale ….................................... 2,647.00
Interest on the expenses …........................... 188.50

P155,769.50

Respondent bank objected to the non-inclusion of the second loan. It also claimed that the applicable interest rate
should be the rate fixed in the mortgage, which was 24% per annum plus 3% service charge per annum and 18%
penalty per annum. However, the Provincial Sheriff insisted that the interest rate should only be 12% per annum.
Respondent bank then sought annulment of the redemption, injunction, and damages in the Regional Trial Court
(Branch 61) of Naga City docketed as Civil Case No. RTC 96-3521.
The Ruling of the Trial Court
The trial court ruled, among others, that the second loan, not having been annotated on the TCT of the mortgaged
property, could not bind third persons such as petitioners. Applying the 24% per annum interest rate fixed in the
mortgage, the trial court computed the redemption price as follows:

Bid price …............................................................... P142,000.00

Interest rate on the bid price for 233 days ….......... 22,057.33
Expenses of registration of the Prov. Sale…........... 2,647.00
Interest on the expenses for 211 days..................... 372.24
 P 167,076.5713

In its 22 May 1998 Decision, the trial court dismissed respondent bank’s complaint for annulment of redemption and
ordered petitioners to pay respondent bank the deficiency of P11,307.07 on the redemption amount, to wit:
WHEREFORE, premises considered, this Civil Case No. RTC-96-3521 is hereby dismissed and defendants Dy
Tecklos are hereby ordered to pay herein plaintiff the insufficiency of the redemption price in the amount
ofP11,307.07, and thereafter, upon receipt of said amount, the Rural Bank of Pamplona is also ordered to surrender
to said defendants Dy Tecklos TCT No. 24196. No pronouncement as to costs.14
Respondent bank elevated the case to the Court of Appeals insisting that the foreclosed mortgage also secured the
second loan of P150,000.00.
The Ruling of the Court of Appeals
The appellate court ruled that the redemption amount should have included the second loan even though it was not
annotated on the TCT of the mortgaged property. In its 17 May 2005 Decision, the Court of Appeals affirmed the trial
court’s decision with the modification that petitioners pay respondent bank the deficiency amountingP204,407.18,
with interest at the rate of 24% per annum from 22 May 1998 until fully paid, thus:
WHEREFORE, premises considered, in continued exercise of liberality in redemption, the dismissal of Civil Case No.
RTC-96-3521 is AFFIRMED and defendants Dy Tecklo are hereby ordered to pay plaintiff the deficiency of the
redemption price in the amount of P204,407.18 with interest at the rate of 24% per annum from May 22, 1998 until
fully paid. Upon receipt of the full amount inclusive of interest the Rural Bank of Pamplona, Inc. is ordered to
surrender to defendants-spouses Dy Tecklo the owner’s duplicate of TCT No. 24196.15
Aggrieved, petitioners filed a motion for reconsideration, which the Court of Appeals denied. Hence, the present
petition for review.
The Issue
The sole issue is whether the redemption amount includes the second loan in the amount of P150,000.00 even if it
was not included in respondent bank’s application for extrajudicial foreclosure.
The Court’s Ruling
The Court finds the petition meritorious.
Petitioners pointed out that the second loan was not annotated as an additional loan on the TCT of the mortgaged
property. Petitioners argued that the second loan was just a private contract between respondent bank and spouses
Co, which could not bind third parties unless duly registered. Petitioners stressed that respondent bank’s application
for extrajudicial foreclosure referred solely to the first loan.
Respondent bank insisted that the mortgage secured not only the first loan but also future loans spouses Co might
obtain from respondent bank. According to respondent bank, this was specifically provided in the mortgage contract.
Respondent bank contended that petitioners, as redemptioner by virtue of the preliminary attachment they obtained
against spouses Co, should assume all the debts secured by the mortgaged property.
The mortgage contract in this case contains the following blanket mortgage clause:
1. That as security for the payment of the loan or advance in the principal sum of ONE HUNDRED THOUSAND
PESOS ONLY (P100,000.00) PESOS, Philippine Currency, and such other loans or advances already obtained
and/or still to be obtained by the MORTGAGOR/S, either as MAKER/S, CO-MAKER/S, SURETY/IES OR
GUARANTOR/S from the MORTGAGEE payable on the date/s stated in the corresponding promissory note/s and
subject to the payment of interest, other bank charges, and to other conditions mentioned thereon, x x x.16(Emphasis
supplied)
A blanket mortgage clause, which makes available future loans without need of executing another set of
security documents, has long been recognized in our jurisprudence. It is meant to save time, loan closing
charges, additional legal services, recording fees, and other costs. A blanket mortgage clause is designed to
lower the cost of loans to borrowers, at the same time making the business of lending more profitable to
banks. Settled is the rule that mortgages securing future loans are valid and legal contracts.17
Presidential Decree No. 1529, otherwise known as the Property Registration Decree, mandates:
SEC. 51. Conveyance and other dealings by registered owner. – x x x x
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.
SEC. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument, or entry affecting registered land shall, if registered, filed, or entered in the office of the
Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons
from the time of such registering, filing, or entering.
It is the act of registration which creates a constructive notice to the whole world and binds third persons. By
definition, registration is the ministerial act by which a deed, contract, or instrument is inscribed in the records of the
office of the Register of Deeds and annotated on the back of the TCT covering the land subject of the deed, contract,
or instrument.18
A person dealing with registered land is not required to go beyond the TCT to determine the liabilities attaching to the
property. He is only charged with notice of such burdens on the property as are duly annotated on the TCT. To
require him to do more is to defeat one of the primary objects of the Torrens system.19
As to whether the second loan should have been annotated on the TCT of the mortgaged property in order to bind
third parties, the case of Tad-Y v. Philippine National Bank20 is in point. The case involved a mortgage contract
containing a provision that future loans would also be secured by the mortgage. This Court ruled that since the
mortgage contract containing the blanket mortgage clause was already annotated on the TCT of the mortgaged
property, subsequent loans need not be separately annotated on the said TCT in order to bind third parties. We quote
the pertinent portion of this Court’s discussion in Tad-Y v. Philippine National Bank:21
Petitioner-appellant advances the argument that the latter loans should have also been noted on TCT 2417. But We
believe there was no necessity for such a notation because it already appears in the said title that aside from the
amount of P840 first borrowed by the mortgagors, other obligations would also be secured by the mortgage. As
already stated, it was incumbent upon any subsequent mortgagee or encumbrancer of the property in question to
have examined the books or records of the PNB, as first mortgagee, the credit standing of the debtors.22
Records of the present case show that the mortgage contract, containing the provision that future loans would also be
secured by the mortgage, is duly annotated on the TCT of the mortgaged property. This constitutes sufficient notice
to the world that the mortgage secures not only the first loan but also future loans the mortgagor may obtain from
respondent bank. Applying the doctrine laid down in Tad-Y v. Philippine National Bank,23 the second loan need not be
separately annotated on the said TCT in order to bind third parties such as petitioners.
However, we note the curious fact that respondent bank’s petition for extrajudicial foreclosure was solely for the
satisfaction of the first loan although the second loan had also become due and demandable.24 In its Appellant’s Brief
filed in the Court of Appeals, respondent bank even admitted that the second loan was not included in its bid at the
public auction sale. To quote from page 5 of the Appellant’s Brief filed by respondent bank:
For failure to pay the first loan, the mortgage was foreclosed and the property covered by TCT No. 24196 was sold at
public auction on December 19, 1994, for P142,000, which was the bid of the mortgagee bank. The bank did not
include in its bid the second loan of P150,000.25 (Emphasis supplied)
For its failure to include the second loan in its application for extrajudicial foreclosure as well as in its bid at the public
auction sale, respondent bank is deemed to have waived its lien on the mortgaged property with respect to the
second loan. Of course, respondent bank may still collect the unpaid second loan, and the interest thereon, in an
ordinary collection suit before the right to collect prescribes.
After the foreclosure of the mortgaged property, the mortgage is extinguished and the purchaser at auction sale
acquires the property free from such mortgage.26 Any deficiency amount after foreclosure cannot constitute a
continuing lien on the foreclosed property, but must be collected by the mortgagee-creditor in an ordinary action for
collection. In this case, the second loan from the same mortgage deed is in the nature of a deficiency amount after
foreclosure.
In order to effect redemption, the judgment debtor or his successor -in-interest need only pay the purchaser at the
public auction sale the redemption amount composed of (1) the price which the purchaser at the public auction sale
paid for the property and (2) the amount of any assessment or taxes which the purchaser may have paid on the
property after the purchase, plus the applicable interest.27 Respondent bank’s demand that the second loan be
added to the actual amount paid for the property at the public auction sale finds no basis in law or
jurisprudence.
Coming now to the computation of the redemption amount, Section 78 of Republic Act No. 337, otherwise known as
the General Banking Act, governs in cases where the mortgagee is a bank.28 It provides:
Sec. 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or
debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment
of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one
year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property
by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the
case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other
expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the
custody of said property less the income received from the property. x x x x (Emphasis supplied)
Applying Section 78 of the General Banking Act, the 24% per annum interest rate specified in the mortgage should
apply. Thus, the redemption amount should be computed as follows:

P 142,000.00 = winning bid at auction sale

P 2,647.00
19 Dec. 1994 - 9 Aug. 1995
12 Jan. 1995 - 9 Aug. 1995
P142,000.00 x 24% x 233/360
2,647.00 x 24% x 211/360
= registration expenses for
provisional certificate of sale
= 233 days from date of auction to
date of tender
= 211 days from date of
registration of provisional
sale to date of tender
= P 22,057.33
= 372.35

P 22,429.68
Plus winning bid 142,000.00
Plus registration expenses 2,647.00

Total P 167,076.68

After deducting petitioners’ tender of P155,769.50, there is a deficiency of P11,307.18 on the redemption amount, as
computed above. Petitioners should thus pay respondent bank the deficiency amounting to P11,307.18, with interest
at the rate of 24% per annum from 22 May 1998 until fully paid.
WHEREFORE, we GRANT the petition. We SET ASIDE the 17 May 2005 Decision and the 14 December 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 59769. Petitioners Benedict and Maricel Dy Tecklo are ordered
to pay respondent Rural Bank of Pamplona, Inc. the deficiency of P11,307.18 on the redemption amount, with
interest at the rate of 24% per annum from 22 May 1998 until fully paid. Upon receipt of the full amount inclusive of
interest, respondent Rural Bank of Pamplona, Inc. is ordered to surrender to petitioners Benedict and Maricel Dy
Tecklo the owner’s duplicate of TCT No. 24196.
No pronouncement as to costs.

Nature of mortgage
G.R. No. 149569 May 28, 2004
PHILIPPINE NATIONAL BANK, petitioner,
vs.
RBL ENTERPRISES, INC.; RAMON B. LACSON SR.; and Spouses EDWARDO and HERMINIA
LEDESMA, respondents.
DECISION
PANGANIBAN, J.:
Having released fifty percent of the loan proceeds on the basis of the signed loan and mortgage contracts, petitioner
can no longer require the borrowers to secure the lessor’s conformity to the Mortgage Contract as a condition
precedent to the release of the loan balance. The conformity of the lessor was not necessary to protect the bank’s
interest, because respondents were unquestionably the absolute owners of the mortgaged property. Furthermore, the
registration of the mortgage created a real right to the properties which, in subsequent transfers by the mortgagor, the
transferees are legally bound to respect.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August 22, 2001
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 49749. The dispositive portion of the Decision reads as
follows:
 "WHEREFORE, premises considered[,] the judgment appealed from is hereby AFFIRMED, with x x
x MODIFICATION as follows:
"1. The amount of actual damages and losses is reduced from P985,722.15 to merely P380,713.55
with legal interest from the date of the filing of the complaint. The interest payable on the loan is
ordered reduced by using the agreed interest rate of 18% per annum in the computation[;]
"2. The amount of moral damages is reduced from P100,000.00 to P50,000.00;
"3. The amount of exemplary damages is reduced from P50,000.00 to P30,000.00; and
"4. The award of attorney’s fees is reduced from P200,000.00 to P50,000.00."3
The Facts
The facts of the case are narrated in the assailed Decision of the CA, as follows:
"
[respondents] failed to comply with the bank’s requirement that Nelly Bedrejo should execute an
undertaking or a ‘lessors’ conformity’ provided in Real Estate and Chattel Mortgage contract dated
August 3, 1989, which states, ‘par. 9.07. It is a condition of this mortgage that while the obligations
remained unpaid, the acquisition by the lessor of the permanent improvements covered by this
Real Estate Mortgage as provided for in the covering Lease Contract, shall be subject to this
mortgage. For this purpose, the mortgagor hereby undertakes to secure the lessor’s conformity
hereto’.
"(e) For said alleged failure of [respondents] to comply with the additional requirement and the demand of
PNB to pay the released amount of P1,0001. On April 28, 1993, [respondents] instituted an action
against [Petitioner] PNB and the Provincial Sheriff of Negros Occidental alleging among others, the
following:
"(a) Sometime in 1987, [respondents] opened a prawn hatchery in San Enrique, Negros
Occidental, and for this purpose, leased from Nelly Bedrejo a parcel of land where the
operations were conducted;
"(b) In order to increase productions and improve the hatchery facilities, [respondents]
applied for and was approved a loan ofP2,000,000.00, by [Petitioner] PNB. To secure its
payment, [respondents] executed in favor of PNB, a real estate mortgage over two (2)
parcels of land, located at Bago City, Negros Occidental, covered by Transfer Certificate of
Title Nos. T-13005 and T-12642 in the names of [respondents], and another real [estate] and
chattel mortgage over the buildings, culture tanks and other hatchery facilities located in
the leased property of Nelly Bedrejo;
"(c) PNB partially released to [respondents] on several dates, the total sum of P1,000,000.00
less the advance interests, which amount [respondents] used for introducing improvements
on the leased property where the hatchery business was located.
"(d) During the mid-part of the construction of the improvements, PNB refused to release
the balance of P1,000,000.00 allegedly because,000.00, PNB foreclosed the mortgaged
properties, to the detriment of [respondents].
"(f) Due to the non-release of the remaining balance of the loan applied for and approved, the
productions-operations of the business were disrupted causing losses to [respondents], and
thereafter, to the closure of the business.
"2. On June 29, 1990, [Petitioner] PNB filed its Answer with Counterclaim alleging that the lessors’
conformity was not an additional requirement but was already part of the terms and conditions contained in
the Real Estate and Chattel Mortgage dated August 3, 1989, executed between [respondents] and
[petitioner]; and that the release of the balance of the loan was conditioned on the compliance and
submission by the [respondents] of the required lessors’ conformity.
"3. On November 8, 1993, a writ of preliminary injunction was issued by the court a quo prohibiting PNB and
the Provincial Sheriff of Negros Occidental from implementing the foreclosure proceedings including the
auction sale of the properties of the [respondents] subject matter of the real [estate] and chattel mortgages."4
The Regional Trial Court (RTC) ruled that Philippine National Bank (PNB) had breached its obligation under the
Contract of Loan and should therefore be held liable for the consequential damages suffered by respondents. The
trial court held that PNB’s refusal to release the balance of the loan was unjustified for the following reasons: 1) the
bank’s partial release of the loan of respondents had estopped it from requiring them to secure the lessor’s signature
on the Real Estate and Chattel Mortgage Contract; 2) Nelly Bedrejo, the lessor, had no interest in the property and
was not in any manner connected with respondents’ business; thus, the fulfillment of the condition was legally
impossible; and 3) the interests of PNB were amply protected, as the loan had overly been secured by collaterals with
a total appraised value of P3,088,000.
The RTC further observed that while the loan would mature in three years, the lease contract between Bedrejo and
respondents would expire in ten years. According to a provision in the Contract, upon its expiration, all improvements
found on the leased premises would belong to the lessor. Thus, in the event of nonpayment of the loan at its maturity,
PNB could still foreclose on those improvements, the subject of the chattel mortgage.
Ruling of the Court of Appeals
Affirming the lower court, the CA held that Nelly Bedrejo, who was not a party to the Mortgage Contract, could not be
compelled to affix her signature thereto. The appellate court further ruled that the registration of the mortgage not only
revealed PNB’s intention to give full force and effect to the instrument but, more important, gave the mortgagee
ample security against subsequent owners of the chattels.
The CA, however, reduced the amount of actual damages for lack of competent proof of the lost income and the
unrealized profits of RBL, as well as for the additional expenses and liabilities incurred by respondents as a result of
petitioner’s refusal to release the balance of the loan. Moral and exemplary damages as well as attorney’s fees were
likewise lessened.
Hence, this Petition.5
Issues
Petitioner raises the following alleged errors for our consideration:
"A.
Whether or not the Court of Appeals committed serious error when it held that Petitioner PNB has no legal
basis to require respondents to secure the conformity of the lessor and owner of the property where their
hatchery business is being conducted notwithstanding that respondents obligated themselves in no
uncertain terms to secure such conformity pursuant to par. 9.07 of the Real Estate and Chattel Mortgage
and considering further that respondents’ authority to mortgage the lessor’s property and leasehold rights
are annotated [on] the titles of the mortgage[d] properties.
"B.
Whether or not the Court of Appeals erred in holding Petitioner PNB liable for actual, moral and exemplary
damages as well as attorney’s fees for the non-release of the balance of the loan applied by respondents
even though there is no evidence that such non-release was attended by malice or bad faith."6
Simply put, the issues are as follows: 1) whether the non-release of the balance of the loan by PNB is justified; and 2)
whether it is liable for actual, moral and exemplary damages as well as attorney’s fees.
The Court’s Ruling
The Petition is partly meritorious.
First Issue:
Was PNB’s Non-Release of the Loan Justified?
Petitioner maintains that the lessor’s signature in the conforme portion of the Real Estate and Chattel Mortgage
Contract was a condition precedent to the release of the balance of the loan to respondents. Petitioner invokes
paragraph 9.07 of the Contract as legal basis for insisting upon respondents’ fulfillment of the aforesaid clause.
We are not persuaded. If the parties truly intended to suspend the release of the P1,000,000 balance of the loan until
the lessor’s conformity to the Mortgage Contract would have been obtained, such condition should have been plainly
stipulated either in that Contract or in the Credit Agreement. The tenor of the language used in paragraph. 9.07, as
well as its position relative to the whole Contract, negated the supposed intention to make the release of the loan
subject to the fulfillment of the clause. From a mere reading thereof, respondents could not reasonably be expected
to know that it was petitioner’s unilateral intention to suspend the release of the P1,000,000 balance until the lessor’s
conformity to the Mortgage Contract would have been obtained.
Respondents had complied with all the requirements set forth in the recommendation and approval sheet forwarded
by petitioner’s main office to the Bacolod branch for implementation; and the Credit Agreement had been executed
thereafter. Naturally, respondents were led to believe and to expect the full release of their approved loan
accommodation. This belief was bolstered by the initial release of the firstP1,000,000 portion of the loan.
We agree with the RTC in its ruling on this point:
"x x x. In the instant case, there is a clear and categorical showing that when the parties have finally
executed the contract of loan and the Real Estate and Chattel Mortgage Contract, the applicant complied
with the terms and conditions imposed by defendant bank on the recommendation and approval sheet,
hence, defendant bank waived its right to further require the plaintiffs other conditions not specified in the
 previous agreement. Should there [appear] any obscurity after such execution, the same should not favor
the party who caused such obscurity. Therefore, such obscurity must be construed against the party who
drew up the contract. Art. 1377 of the Civil Code applies x x x [even] with greater force [to] this type of
contract where the contract is already prepared by a big concern and [the] other party merely adheres to
it."7 (Citations omitted)
Conditions Precedent
Conditions precedent are not favored. Unless impelled by plain and unambiguous language or by necessary
implication, courts will not construe a stipulation as laden with such burden, particularly when that stipulation would
result in a forfeiture or in inequitable consequences.8
Nowhere did PNB explicitly state that the release of the second half of the loan accommodation was subject to the
mortgagor’s procurement of the lessor’s conformity to the Mortgage Contract. Absent such a condition, the efficacy of
the Credit Agreement stood, and petitioner was obligated to release the balance of the loan. Its refusal to do so
constituted a breach of its reciprocal obligation under the Loan Agreement.
Flimsy was the insistence of petitioner that the lessor should be compelled to sign the Mortgage Contract, since she
was allegedly a beneficiary thereof. The chattel mortgage was a mere accessory to the contract of loan executed
between PNB and RBL. The latter was undisputably the absolute owner of the properties covered by the chattel
mortgage. Clearly, the lessor was never a party to either the loan or the Mortgage Contract.
The Real Nature of a Mortgage
The records show that all the real estate and chattel mortgages were registered with the Register of Deeds of Bago
City, Negros Occidental, and annotated at the back of the mortgaged titles. Thus, petitioner had ample security to
protect its interest. As correctly held by the appellate court, the lessor’s nonconformity to the Mortgage Contract
would not cause petitioner any undue prejudice or disadvantage, because the registration and the annotation were
considered sufficient notice to third parties that the property was subject to an encumbrance.9
Article 2126 of the Civil Code describes the real nature of a mortgage: it is a real right following the property, such
that in subsequent transfers by the mortgagor, the transferee must respect the mortgage. A registered mortgage lien
is considered inseparable from the property inasmuch as it is a right in rem.10 The mortgage creates a real right or a
lien which, after being recorded, follows the chattel wherever it goes. Under Article 2129 of the same Code, the
mortgage on the property may still be foreclosed despite the transfer.
Indeed, even if the mortgaged property is in the possession of the debtor, the creditor is still protected. To protect the
latter from the former’s possible disposal of the property, the chattel mortgage is made effective against third persons
by the process of registration.
PNB violated the Loan Agreement when it refused to release the P1,000,000 balance. As regards the partial release
of that amount, over which respondents executed three Promissory Notes, the bank is deemed to have complied with
its reciprocal obligation. The Promissory Notes compelled them to pay that initial amount when it fell due. Their failure
to pay any overdue amortizations under those Promissory Notes rendered them liable thereunder.
Effect of Failure of Consideration
Since PNB failed to release the P1,000,000 balance of the loan, the Real Estate and Chattel Mortgage Contract
became unenforceable to that extent. Relevantly, we quote this Court’s ruling in Central Bank of the Philippines v.
Court of Appeals:11
"The consideration of the accessory contract of real estate mortgage is the same as that of the principal
contract. For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the
accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt.
xxx xxx xxx
"[W]hen there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such
failure. Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in
the mortgage, the mortgage cannot be enforced for more than the actual sum due."12
Second Issue:
Propriety of Award for Damages and Attorney’s Fees
In reducing the award for actual damages from P985,722.15 to P380,713.55, the CA explained:
"The alleged projected cash flow and net income for the 5-year period of operations were not substantiated
by any other evidence to sufficiently establish the attainability of the projection. No evidence was also
introduced to show the accounts payable of and other expenses incurred by [respondents]. The court a quo
therefore, erred when it ruled that [respondents] incurred actual damages and losses amounting
to P985,722.15 from 1990 to 1992, when no evidence was presented to establish the same.
 "Compensatory or actual damages cannot be presumed. They cannot be allowed if there are no specific
facts, which should be a basis for measuring the amount. The trial court cannot rely on speculation as to the
fact and amount of damages, but must depend on actual proof that damage had been suffered. The amount
of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence to support his claim for actual damages.
"At most, the court a quo may declare as lost income and unrealized profits, the amount of P380,713.55 for
the 3-year period of business operations from 1990 when PNB refused to release the loans until closure of
business in 1992, based on the highest quarterly taxable income earned in 1989 in the amount
of P28,754.80, with a conservative and reasonable increase of 10% per year on the net income. The amount
of actual damages is therefore, reduced from P985,722.15 to P380,713.55 x x x."13
We see no reason to overturn these findings. True, indemnification for damages comprises not only the loss that was
actually suffered, but also the profits -- referred to as compensatory damages -- that the obligee failed to obtain. To
justify a grant of actual or compensatory damages, however, it would be necessary to prove the amount of loss with a
reasonable degree of certainty, based upon competent proof and the best evidence obtainable by the injured
party.14 The quarterly income tax report of Respondent RBL Enterprises, Inc., which was presented by petitioner and
used by the appellate court as basis for computing the average profits earned by respondents in their business,
provided a reasonable means for ascertaining their claims for lost profits. Thus, we believe that the assessment by
the Court of Appeals was fair and just.
On the other hand, the award for moral and exemplary damages should be deleted, because respondents failed to
prove malice or bad faith on the part of petitioner.
Moral damages are explicitly authorized in breaches of contract when the defendant has acted fraudulently or in bad
faith.15 Concededly, the bank was remiss in its obligation to release the balance of the loan extended to respondents.
Nothing in the findings of the trial and the appellate courts, however, sufficiently indicate a deliberate intent on the
part of PNB to cause harm to respondents.
Exemplary damages, in turn, are intended to serve as an example or a correction for the public good. Courts may
award them if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.16 Given the above premises and the circumstances here obtaining, the exemplary damages granted by the
courts a quo cannot be sustained.
Finally, the award of attorney’s fees as part of the damages is just and equitable under the circumstances.17 Such
fees may be awarded when parties are compelled to litigate or to incur expenses to protect their interest by reason of
an unjustified act of the opposing party.18 In the present case, petitioner’s refusal to release the balance of the loan
has compelled respondents to institute an action for injunction and damages in order to protect their clear rights and
interests.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision is hereby AFFIRMED, with
the MODIFICATION that the award of actual and exemplary damages is deleted. No costs.
SO ORDERED.
Davide, Jr.*, Ynares-Santiago**, Carpio, and Azcuna, JJ., concur.
Footnotes
*
On official leave.
**
Working Chairman.
1
Rollo, pp. 8-22.
2
Id., pp. 24-34. Eleventh Division. Penned by Justice Juan Q. Enriquez Jr. and concurred in by Justices
Ruben T. Reyes (Division chairman) and Presbitero J. Velasco Jr. (member).
3
CA Decision, pp. 9-10; rollo, pp. 32-33.
4
Id., pp. 2-3 & 25-26. Italics in the original.
5
This case was deemed submitted for decision on July 9, 2002, upon this Court’s actual receipt of
respondent’s Memorandum, which was signed by Atty. William N. Mirano. Petitioners’ Memorandum, signed
by Attys. Eligio P. Petilla and Jose Troy A. Almario, was received by the Court on June 28, 2002.
6
Petitioners’ Memorandum, p. 7; rollo, p. 112. Original in upper case.
7
RTC Decision, pp. 11–12; records, pp. 372–373.
8
17A Am. Jur. 2d, S 471, p. 491.
9
Isaguirre v. De Lara, 332 SCRA 803, May 31, 2000; Asuncion v. Evangelista, 316 SCRA 848, October 13,
1999; Northern Motors, Inc. v. Coquia, 68 SCRA 374, December 15, 1975; Ong Liong Tiak v. Luneta Motor
Company, 66 Phil. 459, November 7, 1938.
 10
Ganzon v. Inserto, 208 Phil. 630, July 25, 1983.
11
139 SCRA 46, October 3, 1985.
12
Id., p. 56, per Makasiar, CJ.
13
CA Decision, p. 8; rollo, p. 31. Citations omitted.
14
Integrated Packaging Corporation v. Court of Appeals, 333 SCRA 170, June 8, 2000.
15
Mirasol v. Court of Appeals, 351 SCRA 44, February 1, 2001.
16
Article 2232 of the Civil Code; Far East Bank and Trust Company v. Court of Appeals, supra.
17
Article 2208 of the Civil Code.

Rem on building
EN BANC
G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff, vs. ISABEL IYA, ADRIANO VALINO and LUCIA
VALINO, defendants.
ISABEL IYA, plaintiff, vs. ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY
COMPANY. INC., defendants.
FELIX, J.: chanrobles virtual law library

Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house of strong materials
constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan, Rizal, which they purchased on
installment basis from the Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on credit rice
from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the
Associated Insurance and Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino executed an
alleged chattel mortgage on the aforementioned house in favor of the surety company, which encumbrance was duly
registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted that at the time said
undertaking took place, the parcel of land on which the house is erected was still registered in the name of the Philippine
Realty Corporation. Having completed payment on the purchase price of the lot, the Valinos were able to secure
on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884). Subsequently, however, or on October 24,
1952, the Valinos, to secure payment of an indebtedness in the amount of P12,000.00, executed a real estate
mortgage over the lot and the house in favor of Isabel Iya, which was duly registered and annotated at the back of the
certificate of title. chanroblesvirtualawlibrary chanrobles virtual law library

On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety company was compelled to
pay the same pursuant to the undertaking of the bond. In turn, the surety company demanded reimbursement from the
spouses Valino, and as the latter likewise failed to do so, the company foreclosed the chattel mortgage over the house. As
a result thereof, a public sale was conducted by the Provincial Sheriff of Rizal onDecember 26, 1952, wherein the property
was awarded to the surety company for P8,000.00, the highest bid received therefor. The surety company then caused the
said house to be declared in its name for tax purposes (Tax Declaration No. 25128). chanroblesvirtualawlibra ry chanrobles virtual law library

Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage over the lot covered by
T.C.T. No. 26884 together with the improvements thereon; thus, said surety company instituted Civil Case No. 2162 of the
Court of First Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as defendants. The
complaint prayed for the exclusion of the residential house from the real estate mortgage in favor of defendant Iya and the
declaration and recognition of plaintiff's right to ownership over the same in virtue of the award given by the Provincial
Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the Court to sentence the
spouses Valino to pay said surety moral and exemplary damages, attorney's fees and costs. Defendant Isabel Iya filed her
answer to the complaint alleging among other things, that in virtue of the real estate mortgage executed by her co-
defendants, she acquired a real right over the lot and the house constructed thereon; that the auction sale allegedly
conducted by the Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the house was null and
void for non-compliance with the form required by law. She, therefore, prayed for the dismissal of the complaint and
anullment of the sale made by the Provincial Sheriff. She also demanded the amount of P5,000.00 from plaintiff as
counterclaim, the sum of P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs. chanroblesvirtualawlibra ry chanrobles virtual law library

Defendants spouses in their answer admitted some of the averments of the complaint and denied the others. They,
however, prayed for the dismissal of the action for lack of cause of action, it being alleged that plaintiff was already the
owner of the house in question, and as said defendants admitted this fact, the claim of the former was already
satisfied.
chanroblesvirtualawlibrary chanrobles virtual law library

On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company (Civil Case No. 2504
of the Court of First Instance of Manila) stating that pursuant to the contract of mortgage executed by the spouses Valino
on October 24, 1952, the latter undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a
month, which indebtedness was payable in 4 years, extendible for only one year; that to secure payment thereof, said
defendants mortgaged the house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park
Subdivision, Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a party defendant
because it claimed to have an interest on the residential house also covered by said mortgage; that it was stipulated in the
aforesaid real estate mortgage that default in the payment of the interest agreed upon would entitle the mortgagee to
foreclose the same even before the lapse of the 4-year period; and as defendant spouses had allegedly failed to pay the
interest for more than 6 months, plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with
interest thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of the
total obligation as damages, and for costs. As an alternative in case such demand may not be met and satisfied plaintiff
prayed for a decree of foreclosure of the land, building and other improvements thereon to be sold at public auction and
the proceeds thereof applied to satisfy the demands of plaintiff; that the Valinos, the surety company and any other person
claiming interest on the mortgaged properties be barred and foreclosed of all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the proceeds of the sale of the mortgaged property would be insufficient to
satisfy the claim of plaintiff. chanroblesvirtualawlibrary chanrobles virtual law library

Defendant surety company, in answer to this complaint insisted on its right over the building, arguing that as the lot on
which the house was constructed did not belong to the spouses at the time the chattel mortgage was executed, the house
might be considered only as a personal property and that the encumbrance thereof and the subsequent foreclosure
proceedings made pursuant to the provisions of the Chattel Mortgage Law were proper and legal. Defendant therefore
prayed that said building be excluded from the real estate mortgage and its right over the same be declared superior to
that of plaintiff, for damages, attorney's fees and costs. chanroblesvirtualawlibrary chanrobles virtual law library

Taking side with the surety company, defendant spouses admitted the due execution of the mortgage upon the land but
assailed the allegation that the building was included thereon, it being contended that it was already encumbered in favor
of the surety company before the real estate mortgage was executed, a fact made known to plaintiff during the
preparation of said contract and to which the latter offered no objection. As a special defense, it was asserted that the
action was premature because the contract was for a period of 4 years, which had not yet elapsed. chanroblesvirtualawlibra ry chanrobles virtual law library

The two cases were jointly heard upon agreement of the parties, who submitted the same on a stipulation of facts, after
which the Court rendered judgment dated March 8, 1956, holding that the chattel mortgage in favor of the Associated
Insurance and Surety Co., Inc., was preferred and superior over the real estate mortgage subsequently executed in favor
of Isabel Iya. It was ruled that as the Valinos were not yet the registered owner of the land on which the building in
question was constructed at the time the first encumbrance was made, the building then was still a personality and a
chattel mortgage over the same was proper. However, as the mortgagors were already the owner of the land at the time
the contract with Isabel Iya was entered into, the building was transformed into a real property and the real estate
mortgage created thereon was likewise adjudged as proper. It is to be noted in this connection that there is no evidence
on record to sustain the allegation of the spouses Valino that at the time they mortgaged their house and lot to Isabel Iya,
the latter was told or knew that part of the mortgaged property, i.e., the house, had previously been mortgaged to the
surety company. chanroblesvirtualawlibrary chanrobles virtual law library

The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel Iya, although the latter
could exercise the right of a junior encumbrance. So the spouses Valino were ordered to pay the amount demanded by
said mortgagee or in their default to have the parcel of land subject of the mortgage sold at public auction for the
satisfaction of Iya's claim. chanroblesvirtualawlibrary chanrobles virtual law library

There is no question as to appellant's right over the land covered by the real estate mortgage; however, as the building
constructed thereon has been the subject of 2 mortgages; controversy arise as to which of these encumbrances should
receive preference over the other. The decisive factor in resolving the issue presented by this appeal is the determination
of the nature of the structure litigated upon, for where it be considered a personality, the foreclosure of the chattel
mortgage and the subsequent sale thereof at public auction, made in accordance with the Chattel Mortgage Law would be
valid and the right acquired by the surety company therefrom would certainly deserve prior recognition; otherwise,
appellant's claim for preference must be granted. The lower Court, deciding in favor of the surety company, based its
ruling on the premise that as the mortgagors were not the owners of the land on which the building is erected at the time
the first encumbrance was made, said structure partook of the nature of a personal property and could properly be the
subject of a chattel mortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of a
building, has said:
. . . while it is true that generally, real estate connotes the land and the building constructed thereon, it is
obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may
constitute real properties (Art. 415, new Civil Code) could only mean one thing - that a building is by itself an
immovable property . . . Moreover, and in view of the absence of any specific provision to the contrary, a building
is an immovable property irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed
belongs to another. To hold it the other way, the possibility is not remote that it would result in confusion, for to cloak the
building with an uncertain status made dependent on the ownership of the land, would create a situation where a
permanent fixture changes its nature or character as the ownership of the land changes hands. In the case at bar, as
personal properties could only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in
question is not one, the execution of the chattel mortgage covering said building is clearly invalid and a nullity. While it is
true that said document was correspondingly registered in the Chattel Mortgage Register of Rizal, this act produced no
effect whatsoever for where the interest conveyed is in the nature of a real property, the registration of the document in
the registry of chattels is merely a futile act. Thus, the registration of the chattel mortgage of a building of strong materials
produce no effect as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we give
any consideration to the contention of the surety that it has acquired ownership over the property in question by reason of
the sale conducted by the Provincial Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue of a
chattel mortgage constituted in his favor, which mortgage has been declared null and void with respect to said
real properties, acquires no right thereto by virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the rights of the surety
company, over the building superior to that of Isabel Iya and excluding the building from the foreclosure prayed for by the
latter is reversed and appellant Isabel Iya's right to foreclose not only the land but also the building erected thereon is
hereby recognized, and the proceeds of the sale thereof at public auction (if the land has not yet been sold), shall be
applied to the unsatisfied judgment in favor of Isabel Iya. This decision however is without prejudice to any right that the
Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and Lucia Valino on account of the
mortgage of said building they executed in favor of said surety company. Without pronouncement as to costs. It is so
ordered.chanroblesvirtualawlibrary chanrobles virtual law library

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., and Endencia,
JJ.,concur.

Foreclosure of a deceased’s estate

G.R. No. 121597 June 29, 2001

PHILIPPINE NATIONAL BANK, petitioner,
vs.
HON. COURT OF APPEALS, ALLAN M. CHUA as Special Administrator of the Intestate Estate of the late
ANTONIO M. CHUA and Mrs. ASUNCION M. CHUA, respondents.
QUISUMBING, J.:
This petition assails the decision1 of the Court of Appeals dated July 25, 1995 in CA-G.R. CV No. 36546, affirming the
decision dated September 4, 1991 of the Regional Trial Court of Balayan, Batangas, Branch 10 in Civil Case No.
1988.
The facts, as found by the trial court and by the Court of Appeals, are not disputed.
The spouses Antonio M. Chua and Asuncion M. Chua were the owners of a parcel of land covered by Transfer
Certificate of Title No. P-142 and registered in their names. Upon Antonio’s death, the probate court appointed his
son, private respondent Allan M. Chua, special administrator of Antonio’s intestate estate. The court also authorized
Allan to obtain a loan accommodation of five hundred fifty thousand (P550,000.00) pesos from petitioner Philippine
National Bank to be secured by a real estate mortgage over the above-mentioned parcel of land.
On June 29, 1989, Allan obtained a loan of P450,000.00 from petitioner PNB evidenced by a promissory note,
payable on June 29, 1990, with interest at 18.8 percent per annum. To secure the loan, Allan executed a deed of real
estate mortgage on the aforesaid parcel of land.
On December 27, 1990, for failure to pay the loan in full, the bank extrajudicially foreclosed the real estate mortgage,
through the Ex-Officio Sheriff, who conducted a public auction of the mortgaged property pursuant to the authority
provided for in the deed of real estate mortgage. During the auction, PNB was the highest bidder with a bid
price P306,360.00. Since PNB’s total claim as of the date of the auction sale was P679,185.63, the loan had a
payable balance of P372,825.63. To claim this deficiency, PNB instituted an action with the RTC, Balayan, Batangas,
Branch 10, docketed as Civil Case No. 1988, against both Mrs. Asuncion M. Chua and Allan Chua in his capacity as
special administrator of his father’s intestate estate.
Despite summons duly served, private respondents did not answer the complaint. The trial court declared them in
default and received evidence ex parte.
On September 4, 1991, the RTC rendered its decision, ordering the dismissal of PNB’s complaint.2
On appeal, the Court of Appeals affirmed the RTC decision by dismissing PNB’s appeal for lack of merit.3
Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner cites two grounds:
I
THE CA ERRED IN HOLDING THAT PNB CAN NO LONGER PURSUE ITS DEFICIENCY CLAIM
AGAINST THE ESTATE OF DECEASED ANTONIO M. CHUA, HAVING ELECTED ONE OF ITS
ALTERNATIVE RIGHT PURSUANT TO SECTION 7 RULE 86 OF THE RULES OF COURT DESPITE A
SPECIAL ENACTMENT (ACT. NO. 3135) COVERING EXTRAJUDICIAL FORECLOSURE SALE
ALLOWING RECOURSE FOR A DEFICIENCY CLAIM AS SUPPORTED BY CONTEMPORARY
JURISPRUDENCE.
II
THE CA ERRED IN HOLDING THAT ALLAN M. CHUA, AS SPECIAL ADMINISTRATOR OF THE
INTESTATE ESTATE OF HIS DECEASED FATHER ANTONIO M. CHUA ON ONE HAND, AND HIM AND
HIS MOTHER ASUNCION CHUA AS HEIRS ON THE OTHER HAND ARE NO LONGER LIABLE FOR THE
DEBTS OF THE ESTATE.4
The primary issue posed before us is whether or not it was error for the Court of Appeals to rule that petitioner may
no longer pursue by civil action the recovery of the balance of indebtedness after having foreclosed the property
securing the same. A resolution of this issue will also resolve the secondary issue concerning any further liability of
respondents and of the decedent’s estate.
Petitioner contends that under prevailing jurisprudence, when the proceeds of the sale are insufficient to pay the debt,
the mortgagee has the right to recover the deficiency from the debtor.5 It also contends that Act 3135, otherwise
known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages," is the law applicable to this case of foreclosure sale and not Section 7 of Rule 86 of the Revised Rules of
Court6 as held by the Court of Appeals.7
Private respondents argue that having chosen the remedy of extrajudicial foreclosure of the mortgaged property of
the deceased, petitioner is precluded from pursuing its deficiency claim against the estate of Antonio M. Chua. This
they say is pursuant to Section 7, Rule 86 of the Rules of Court, which states that:
Sec. 7. Rule 86. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured
by mortgage or other collateral security, may abandon the security and prosecute his claim in the manner
 provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose his
mortgage or realize upon his security, by action in court, making the executor or administrator a party
defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the
property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his
deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or
other security alone and foreclose the same at any time within the period of the statute of limitations, and in
that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other
assets of the estate; but nothing herein contained shall prohibit the executor or administrator from
redeeming the property mortgaged or pledged by paying the debt for which it is hold as security, under the
direction of the court if the court shall adjudge it to be for the interest of the estate that such redemption shall
be made.
Pertinent to the issue at bar, according to petitioner, are our decisions he cited.8 Prudential Bank v. Martinez, 189
SCRA 612, 615 (1990), is particularly cited by petitioner as precedent for holding that in extrajudicial foreclosure of
mortgage, when the proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to recover the
deficiency from the mortgagor.
However, it must be pointed out that petitioner’s cited cases involve ordinary debts secured by a mortgage. The case
at bar, we must stress, involves a foreclosure of mortgage arising out of a settlement of estate, wherein the
administrator mortgaged a property belonging to the estate of the decedent, pursuant to an authority given by the
probate court. As the Court of Appeals correctly stated, the Rules of Court on Special Proceedings comes into play
decisively.
To begin with, it is clear from the text of Section 7, Rule 89, that once the deed of real estate mortgage is recorded in
the proper Registry of Deeds, together with the corresponding court order authorizing the administrator to mortgage
the property, said deed shall be valid as if it has been executed by the deceased himself. Section 7 provides in part:
Sec. 7. Rule 89. Regulations for granting authority to sell, mortgage, or otherwise encumber estate – The
court having jurisdiction of the estate of the deceased may authorize the executor or administrator to sell
personal estate, or to sell, mortgage, or otherwise encumber real estate, in cases provided by these rules
when it appears necessary or beneficial under the following regulations:
xxx
(f) There shall be recorded in the registry of deeds of the province in which the real estate thus sold,
mortgaged, or otherwise encumbered is situated, a certified copy of the order of the court, together with the
deed of the executor or administrator for such real estate, which shall be valid as if the deed had been
executed by the deceased in his lifetime.
In the present case, it is undisputed that the conditions under the aforecited rule have been complied with. It follows
that we must consider Sec. 7 of Rule 86, appropriately applicable to the controversy at hand.
Case law now holds that this rule grants to the mortgagee three distinct, independent and mutually exclusive
remedies that can be alternatively pursued by the mortgage creditor for the satisfaction of his credit in case the
mortgagor dies, among them:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
(3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription
without right to file a claim for any deficiency.9
In Perez v. Philippine National Bank,10 reversing Pasno vs. Ravina,11 we held:
The ruling in Pasno vs. Ravina not having been reiterated in any other case, we have carefully reexamined
the same, and after mature deliberation have reached the conclusion that the dissenting opinion is more in
conformity with reason and law. Of the three alternative courses that section 7, Rule 87 (now Rule 86),
offers the mortgage creditor, to wit, (1) to waive the mortgage and claim the entire debt from the estate of
the mortgagor as an ordinary claim; (2) foreclose the mortgage judicially and prove any deficiency as an
ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is
barred by prescription, without right to file a claim for any deficiency, the majority opinion in Pasno vs.
Ravina, in requiring a judicial foreclosure, virtually wipes out the third alternative con ceded by the Rules to
the mortgage creditor, and which would precisely include extra-judicial foreclosures by contrast with the
second alternative.
The plain result of adopting the last mode of foreclosure is that the creditor waives his right to recover any deficiency
from the estate.12 Following the Perez ruling that the third mode includes extrajudicial foreclosure sales, the result of
extrajudicial foreclosure is that the creditor waives any further deficiency claim. The dissent in Pasno,as adopted
in Perez, supports this conclusion, thus:
 When account is further taken of the fact that a creditor who elects to foreclose by extrajudicial sale waives
all right to recover against the estate of the deceased debtor for any deficiency remaining unpaid after the
sale it will be readily seen that the decision in this case (referring to the majority opinion) will impose a
burden upon the estates of deceased persons who have mortgaged real property for the security of debts,
without any compensatory advantage.
Clearly, in our view, petitioner herein has chosen the mortgage-creditor’s option of extrajudicially foreclosing the
mortgaged property of the Chuas. This choice now bars any subsequent deficiency claim against the estate of the
deceased, Antonio M. Chua. Petitioner may no longer avail of the complaint for the recovery of the balance of
indebtedness against said estate, after petitioner foreclosed the property securing the mortgage in its favor. It follows
that in this case no further liability remains on the part of respondents and the late Antonio M. Chua’s estate.
WHEREFORE, finding no reversible error committed by respondent Court of Appeals, the instant petition is hereby
DENIED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 36546 is AFFIRMED. Costs against
petitioner. 1âwphi1.nêt

SO ORDERED.
Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.

Footnote
1
Rollo, pp. 28-36.
2
Id. at 28.
3
Id. at 36.
4
Id. at 17.
5
Id. at 18.
6
Id.
7
Supra, note 5.
8
DBP vs. Tomeldan, 101 SCRA 171, 174 (1980); DBP vs. Zaragoza, 84 SCRA 668 (1978); DBP vs. Mirang,
66 SCRA 141 (1975); DBP vs. Vda. De Moll, 43 SCRA 82 (1972); Philippine Bank of Commerce vs. De
Vera, 6 SCRA 1026 (1962).
9
Maglaque vs. PDB, 307 SCRA 156, 161-162 (1999); Vda. De Jacob vs. Court of Appeals, 184 SCRA 294,
301 (1990); Bicol Savings and Loan Association vs. CA, et al., 171 SCRA 630 (1989).
10
124 Phil. 260 (1966).
11
54 Phil. 378 (1930).
12
Pasno v. Ravina, supra.

Redemption of mortgage

G.R. No. 178242 January 20, 2009

HEIRS OF NORBERTO J. QUISUMBING, Petitioners,
vs.
PHILIPPINE NATIONAL BANK and SANTIAGO LAND DEVELOPMENT CORPORATION, Respondents.
DECISION
CARPIO MORALES, J.:
From the Court of Appeals Decision1 of February 14, 2007 denying petitioners’ appeal from the Decision2 of the
Regional Trial Court, Branch 62, Makati City in Civil Case No. 10513, they come to this Court on petition for review on
certiorari.
Culled from the eight-volume records of the case are the following facts:
In 1984, spouses Ricardo C. Silverio and Beatriz Sison-Silverio (spouses Silverio) and Ricardo C. Silverio as
Chairman of the Board of the following companies, namely Delta Motors Corporation (Delta Motors), Komatsu
Industries (Komatsu), R.C. Silverio Management Corporation (RCSMC), through Deeds of Assignment3 dated April
11 and 12, 1985, assigned to Atty. Norberto J. Quisumbing (Quisumbing) their rights of redemption with respect to
various real properties which herein respondent Philippine National Bank (PNB) had foreclosed and acquired as the
highest bidder. The properties included lots in Quezon City, Manila, Pampanga and Bulacan in the name of Ricardo
C. Silverio, married to Beatriz Sison; a lot in Tagaytay in the name of Ricardo C. Silverio; lots in Nueva Ecija in the
name of RCSMC; lots in Baguio and Benguet in the name of Delta Motors; a lot in Zambales in the name of RCSMC;
and a lot in Rizal (actually Pasong Tamo, Makati) including improvements in the name of Komatsu (hereafter referred
to as Pasong Tamo property).
By letter4 dated April 8, 1985, Quisumbing made a formal tender of redemption to PNB for the abovementioned
properties, with the request that he be informed within 10 days of the total amount of the redemption prices so "he
would know how much to pay." Quisumbing furnished the sheriffs who conducted the sales, as well as the registers
of deeds in the various localities where the properties are situated, with a copy of said tender letter.
Acting on Quisumbing’s tender of redemption, the PNB, by letter of April 15, 1985, requested copies of the Deeds of
Assignment so that it may "have a basis to reply to" his request.5 Quisumbing furnished PNB with copies of the
Deeds, requesting a reply to his tender letter and requested for the computation of the total amount of redemption
price for which he gave PNB until April 30, 1985 to do so. Before PNB could reply, however, or on April 23, 1985,
Quisumbing executed an Affidavit of Redemption,6 furnishing PNB, the sheriffs and the registers of deeds a copy
thereof.
Before the one-year redemption period expired, PNB, by letter dated May 3, 1985,7 denied Quisumbing’s offer of
redemption on the ground that the Deeds of Assignment were invalid for not having been registered and for being
against Art. 1491 (5) of the Civil Code; that the tender was not proper because it was not accompanied by actual
money payment; and that the amount Quisumbing offered was way below that required under Sec. 25 of P.D. No.
694.
Quisumbing thus filed a Complaint8 before the Regional Trial Court (RTC) of Makati9 against PNB to compel it to allow
him to exercise his right of redemption over the foreclosed properties and to inform him of the total amount of
redemption price. At the same time, he caused the annotation of a notice of lis pendens on the certificates of title of
the properties.
In its Answer,10 PNB contended that Quisumbing had no cause of action as his tender offer was "pro-forma," as the
same was unaccompanied by cash payment; that the offer was not in accordance with Section 25 of P.D. No. 694, as
amended; that the assignment of rights made in Quisumbing’s favor was ineffectual because the same was not
registered and annotated on the certificates of title of the properties; that the Deeds of Assignment executed by
RSCMC, Komatsu and Delta Motors were defectively acknowledged as public instruments; and that the assignments
were barred by Article 1491 (5) of the Civil Code.11 During the pendency of the case, Quisumbing died, hence, he was
substituted by his heirs-herein petitioners on September 14, 1990.
On December 8, 1989, with the approval by Branch 149 of the Makati RTC, the herein other respondent Santiago
Land Development Corporation (SLDC) intervened, it having purchased pendente lite from PNB the Pasong Tamo
property, and adopted in its Answer-in-Intervention PNB’s defenses as set forth in its Answer, and raised additional
defenses.
Petitioners thus filed before the appellate court a Petition for Certiorari, docketed as CA-G.R. SP No. 25826,
questioning, inter alia, the trial court’s grant of SLDC’s move to intervene, arguing that SLDC should have joined as
an additional defendant for it to be bound by all prior proceedings.
By Decision dated July 6, 1992, the appellate court granted the petition of petitioners and nullified the trial court’s
Order granting SLDC’s intervention. SLDC appealed to this Court via certiorari, docketed as G.R. No. 106194.
By Decision12 of January 28, 1997, the Court dismissed SLDC’s petition and affirmed the appellate court’s decision,
ruling that SLDC is a transferee pendente lite and, as such, could no longer intervene as the law already considers it
joined or substituted in the pending action, hence, bound by all prior proceedings and barred from presenting a new
or different claim.
SLDC thereupon filed a Motion for Partial Substitution in Civil Case No. 10513, which was granted on April 14, 1998.
By Decision13 of October 24, 2000, the trial court dismissed petitioner’s Amended Complaint as against PNB, as well
as that against SLDC, ruling that Quisumbing did not make a valid tender of redemption as it was not accompanied
by cash payment; that Sec. 25 of P.D. No. 694 is not unconstitutional and was applicable not only to direct
debtors/mortgagors but constructively also to accommodation mortgagors following Nepomuceno v. RFC.14Aggrieved,
petitioners appealed to the Court of Appeals.
By the assailed Decision of February 14, 2007, the appellate court affirmed the trial court’s decision, holding that
there was no valid offer to redeem the properties owing to Quisumbing’s failure to validly tender payment; and that
even if his filing of the complaint was considered as judicial redemption, it was still ineffectual due to non-tender of the
redemption price. On account of such ruling, the appellate court no longer ruled on the issue of the constitutionality of
Sec. 25 of P.D. 694 and on the validity of the Deeds of Assignment. Petitioners’ motion for reconsideration having
been denied by Resolution dated June 5, 2007, this present petition was filed.
Petitioners insist that Quisumbing made a valid tender of redemption because he did not have to tender the
redemption prices due to, so they claim, PNB’s outright refusal to accept or allow any redemption, and that
he perfected a ‘judicial redemption’ following Tioseco v. CA.15 They assail the ruling of the trial court that
spouses Silverio were accommodation mortgagors or direct debtors/mortgagors and that Sec. 25 of P.D. No.
694 applies to accommodation mortgagors, as well as the trial and appellate court’s ruling that Sec. 25 is not
unconstitutional despite its being violative, so petitioners contend, of the due process and equal protection
clauses of the Constitution.
Petitioners maintain that Sec. 25 applies only to debtors-mortgagors, hence, the case at bar should have been
governed by the general law on redemption ─ Sec. 6 of Republic Act No. 3135 vis a vis Rule 39, Sec. 30. In support
of their position, they draw attention to the fact that all the certificates of sale state that the proceedings/sale were
pursuant to an "extra-judicial foreclosure of real estate mortgage under RA 3135 as amended," without any mention
whatsoever of P.D. No. 694. Petitioners thus conclude that Sec. 25 of P.D. No. 694 should be struck down for being
void for vagueness; and that it is arbitrary and unreasonable because it grants a preferred position to PNB which may
abuse to unjustly enrich itself at the expense of mortgagors, hence, violative of the right to due process.
At all events, they argue that assuming that Sec. 25 applies to accommodation mortgagors such as the spouses
Silverio still, the redemption price would be based on the value of the properties foreclosed, not on the obligations of
the debtor, as what PNB insists on doing.
In its Comment,16 PNB, averring that what petitioners are raising are questions of fact, maintains that the Deeds of
Assignment are void for being against public policy because at the time they were executed, Quisumbing was already
the lawyer not only of the spouses Silverio but also of Komatsu and the other companies, the properties of which
were being foreclosed.
In its separate Comment,17 SLDC argues that the present petition, insofar as the Pasong Tamo property is concerned,
is barred by res judicata, the Court in Komatsu Industries (Phils.) Inc. v. Philippine National Bank and Santiago Land
Development Corporation and Maximo Contreras, (Komatsu case)18 having declared PNB’s extrajudicial foreclosure
of the said property and eventual sale to SLDC valid. It adds that, since in G.R. No. 106194 or the "Intervention
Case," it was held that a purchaser pendente lite ─ SLDC is bound by the outcome of the case instituted by the
transferor ─ PNB, then Quisumbing, as transferee pendente lite of Komatsu’s right to redeem the Pasong Tamo
property, "must also necessarily be bound by the outcome of the Komatsu case" ─ and that, perforce, "if he cannot
intervene, then neither can he be allowed to file or maintain a separate case."
Maintaining that Quisumbing’s "judicial redemption" should not be allowed, SLDC contends that since redemption is
inconsistent with the claim of invalidity of a foreclosure sale, then Komatsu’s act of assigning its right of redemption to
Quisumbing was incompatible with its earlier remedy of contesting the validity of PNB’s foreclosure and is, therefore,
prohibited.
SLDC further avers that Sec. 25 of PD No. 694 does not violate the due process clause, its provision requiring the
mortgagors to pay the redemption price being in line with the purpose of the law, viz "to protect the investment of the
government in the institution."
Aside from reiterating their previous arguments, petitioners, in their Consolidated Reply,19 refute SLDC’s and PNB’s
arguments. They contend that the action is not barred by res judicata because in the Komatsu case, the Court
"contemplated" that the issue of validity of the exercise of redemption would not be resolved in that case but in Civil
Case No. 10513, and the reason why Quisumbing was not required to intervene in Komatsu was because he was not
a party thereto, and the case involved annulment of the foreclosure sale, not the exercise of the right of redemption.
Petitioners further maintain that the issue of whether the assignment of rights made in Quisumbing’s favor was barred
for being against public policy (under Art. 1491[5] of the Civil Code) can no longer be raised as an issue, respondents
having failed to raise it in the proceedings below; and assuming arguendo that it had been raised, said provision
would not apply, as what were assigned were merely the rights of redemption, not the properties themselves, and
Quisumbing did not represent Komatsu or the other companies in the annulment of foreclosure proceedings.
In a Supplemental Petition20 filed on August 28, 2007, petitioners submit that the sale of the Philippine Government’s
remaining minority shares (12.28%) in the PNB on August 1, 2007 reinforces their argument that if Sec. 25 of P.D.
No. 694 is made applicable to accommodation mortgagors, the same should be struck down for being
unconstitutional, as it would then be violative of the equal protection clause. And they assert that if, indeed, the
purpose of said provision is to protect the government’s investment in PNB, then it has ceased to exist due to the
privatization of said institution and, as such, Sec. 25 should be struck down.
The pivotal issue that needs to be resolved is whether the original plaintiff, Atty. Norberto J. Quisumbing,
made a valid tender of redemption.
The Court rules in the negative.
Sec. 25 of P.D. No. 694 otherwise known as the Revised Charter of the Philippine National Bank enacted on May 8,
1975 provides:
Section 25. Right of redemption of foreclosed property Right of possession during redemption period. Within one
year from the registration of the foreclosure sale of real estate, the mortgagor shall have the right to redeem the
property by paying all claims of the Bank against him on the date of the sale including all the costs and other
expenses incurred by reason of the foreclosure sale and custody of the property, as well as charges and accrued
interests.
The Bank may take possession of the foreclosed property during the redemption period. When the Bank takes
possession during such period, it shall be entitled to the fruits of the property with no obligation to account for them,
the same being considered compensation for the interest that would otherwise accrue on the account. Neither shall
the Bank be obliged to post a bond for the purpose of such possession. (Emphasis supplied)
On the other hand, under Act No. 3135, An Act to Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Real Estate Mortgages (which took effect on March 6, 1924), as amended by Act. No. 4118, redemption
of extra-judicially foreclosed properties is undertaken as follows:
SECTION 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, in so far as these are not inconsistent with the provisions of this Act. (Emphasis supplied)
And the pertinent provision of the Code of Civil Procedure, now Section 28 of Rule 39 of the Revised Rules of Civil
Procedure, reads:
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 of 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. (Emphasis
supplied)
As to the requisites for a valid tender of redemption in case of extra-judicially foreclosed properties by banks, Banco
Filipino Savings and Mortgage Bank, Inc., v. Court of Appeals,21 instructs:
Section 6 of Act 3135 provides for the requisites for a valid redemption, 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 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, insofar as these are not inconsistent with the provisions of this Act.
However, considering that petitioner is a banking institution, the determination of the redemption price is governed by
Section 78 of the General Banking Act which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for
any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose
real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation
to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the
sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the
amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be,
with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred
by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said
\property less the income received from the property.
Clearly, the right of redemption should be exercised within the specified time limit, which is one year from
the date of registration of the certificate of sale. The redemptioner should make an actual tender in good faith
of the full amount of the purchase price as provided above, i.e., the amount fixed by the court in the order of
execution or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate
specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or
institution concerned by reason of the execution and sale and as a result of the custody of said property less
the income received from the property.
xxxx
In BPI Family Savings Bank, Inc. vs. Veloso, we held:
The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire
to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment.
This constitutes the exercise of the right to repurchase.
xxxx
Whether or not respondents were diligent in asserting their willingness to pay is irrelevant. Redemption within the
period allowed by law is not a matter of intent but a question of payment or valid tender of the full redemption price
within said period. (Emphasis supplied)
Evidently, whether the redemption is being made under Act No. 3135 or the General Banking Act, as amended by
Presidential Decree No. 1828, or under P.D. No. 694, the mortgagor or his assignee is required to tender payment
to make said redemption valid – something which petitioners’ predecessor failed to do. The only instance when this
rule may be construed liberally, i.e., allow the non-simultaneous tender of payment, is if a judicial action is instituted
by the redemptioner. 22
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals and Lee Chuy
Realty Corporation v. Court of Appeals that in case of disagreement over the redemption price, the redemptioner may
preserve his right of redemption through judicial action which must be filed within the one-year period of redemption.
The filing of a court action to enforce redemption, being equivalent to a formal offer to redeem, would have the effect
of preserving his redemptive rights and "freezing" the expiration of the one-year period. Bona fidetender of the
redemption price, within the prescribed period is only essential to preserve the right of redemption for future
enforcement beyond such period of redemption and within the period prescribed for the action by the statute of
limitations. Where the right to redeem is exercised through judicial action within the reglementary period, the offer to
redeem, accompanied by a bona fide tender of the redemption price, while proper, may be unessential. (Emphasis
supplied)
For this exception to apply, however, certain conditions must be met, viz:
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals, we held that the action for judicial
redemption should be filed on time and in good faith, the redemption price is finally determined and paid
within a reasonable time, and the rights of the parties are respected. Stated otherwise, the foregoing
interpretation has three critical dimensions: (1) timely redemption or redemption by expiration date; (2) good
faith as always, meaning, the filing of the action must have been for the sole purpose of determining the
redemption price and not to stretch the redemptive period indefinitely; and (3) once the redemption price is
determined within a reasonable time, the redemptioner must make prompt payment in full. (Emphasis
supplied)
While Quisumbing filed the Complaint on May 7, 1985, days or even weeks before the expiration of the one-year
redemption period reckoned from the dates of registration of the different certificates of sale, it cannot be said that he
was motivated by good faith when he filed the Complaint, as contemplated in the above ruling. For the Complaint was
filed not for the sole purpose of determining the redemption price, but, as Quisumbing himself admitted on direct
examination, it was to seek the annulment of Sec. 25 of P.D. No. 694, thus:
Q: And what is the purpose of your present suit?
A: To compel the redemption, because the redemption were (sic) disallowed unless the entire obligation rather than
just leaving the purchase price of the foreclosure sale is paid. The purpose of suit therefore, is to seek the annulment
of that provision of Section 25 of the Revised Chapter (sic) of the Philippine National Bank, which provides that
redemption can be effected only by paying the entire claim of the Philippine National Bank, against in this case, Delta
Motors Corporation. As the Complaint alleges the sale . . . contrary to law, moral, customs, public security, since the
law favors in the long line of decisions of the right of redemption. Second, with such a provision no one can get a fair
price at a foreclosure sale of an individual property.23 (Emphasis and underscoring supplied)
And on cross-examination, when questioned why he wrote to PNB on April 8, 1985 offering to redeem the property
when the Deeds of Assignment in his favor were not yet executed, Quisumbing replied:
xxxx
Q: The Deeds of Assignment were executed either on April 12 or 11 in the case of Komatsu, 1985. Why did you write
PNB a tender of letter as early as April 8 when the Deeds of Assignment were not yet executed – have not yet been
executed?
A: Well, there might have been a delay in the execution of the Deeds of Assignment; but since I was certain that PNB
will reject a redemption, not in accordance with Sec. 25 of its charter. In other words, just offering the purchase price
derive from… we began the process of redemption early. Besides, the Philippine National Bank, in some cases, in
other creditors of . . . 24
x x x x (Emphasis and underscoring supplied)
Clearly, from the admissions reflected in the testimony, Quisumbing’s filing of the Complaint was not solely due to a
mere disagreement in the redemption price; rather, it was because he was not willing to pay whatever amount PNB
would compute on the basis of Sec. 25 of P.D. No. 694. By questioning the constitutionality of said provision,
Quisumbing, wittingly delayed the redemption, since he must have known that raising the issue of constitutionality of
a statute in any suit would result in a litigious process which could stretch for an indefinite period as, in fact, the
history of the present case shows. More importantly, his act of executing his Affidavit of Redemption on April 23, 1985
and alleging therein his oft-repeated excuse of "PNB’s refusal to allow him to redeem the subject properties" even
before PNB could provide him the computations by April 30, 1985, as he himself requested in his April 23, 1985 letter,
and before PNB’s actual refusal as stated in its May 3, 1985 letter, reflected that from the very beginning, his mindset
was that if any redemption would be had, the same should be made according to his terms and conditions and under
Act No. 3135, not P.D. No. 694. Indubitably, such actuations belie good faith and, therefore, the exception as
enunciated in Tolentino case would not apply.
Had Quisumbing believed in good faith that Act No. 3135 was applicable, he could have tendered the amount as
computed thereunder, if only to show that he was able and willing to redeem the properties.
Respecting the issues raised by petitioners that Sec. 25 of P.D. No. 694 is unconstitutional, the same has been
rendered moot and academic by the full privatization of PNB pursuant to E.O. 8025 which repealed said P.D., as well
as the subsequent sale of the remaining shares of the government on August, 2007 which converted it from a
government financial institution to a private banking institution.
The foregoing discussions render it unnecessary to address the other points pleaded by petitioners, such as the
validity of the Deeds of Assignment, whether the Silverio spouses are accommodation mortgagors or direct
debtors/mortgagors, or whether the suit is barred by the principle of res judicata.
WHEREFORE, the petition is DENIED. The February 14, 2007 Decision of the Court of Appeals and the June 5,
2007 Resolution in CA-G.R. CV No. 69337 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:

DANTE O. TINGA MINITA V. CHICO-NAZARIO*

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. ARTURO D. BRION

Associate Justice Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES*
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s Attestation, I certify that
the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice

Footnotes
*
Acting Chairperson in lieu of Justice Leonardo A. Quisumbing who took no part.
Additional member per Raffle dated September 3, 2007 and pursuant to Administrative Circular No. 42-
**

2007 in A.M. No. 07-6-13-SC.

1
"Heirs of Norberto Quisumbing v. Philippine National Bank and Santiago Land Development Corporation,"
Annex "A" of Petition, rollo, pp. 130-145. Penned by Associate Justice Jose C. Reyes, Jr., and concurred in
by Associate Justices Jose L. Sabio, Jr., and Myrna Dimaranan Vidal.
2
Annex "EE," id at. 747-757. Penned by Judge Roberto C. Diokno.
3
Exhibit "BB," id at 316-324.
4
Annex "N," id at 188-192.
5
Vide letter, Annex "O," id at 357 and 359.
6
Annex "Q," id at 193-196.
7
Vide letter, records, Vol. I, pp. 142-143.
8
Annex "C," id at 147-155.
9
N.B.: initially filed with Branch 149 but assailed Decision rendered by Branch 62.
10
Annex "D," id. at 209-213.
11
Art. 1491(5) justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights in litigation or
levied upon an execution before the court within whose jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of any litigation in which they may take part by
virtue of their profession;
Santiago Land Development Corporation v. Court of Appeals, G.R. No. 106194, January 28, 1997, 267
12

SCRA 79.
13
Vide note 2.
14
110 Phil 42 (1960).
15
G.R. No. L-66597, August 29, 1986, 143 SCRA 705.
16
Rollo, pp. 1663-1715.
17
Id. at 1485-1589.
18
G.R. No. 127682, April 24, 1998, 289 SCRA 604.
19
Rollo, pp. 1728-1809.
20
Id. at 1469-1479.
21
G.R. No. 143896, July 8, 2005, 463 SCRA 64, 73-76.
Tolentino v. Court of Appeals and Citytrust Banking Corporation, G.R. No. 171354, March 7, 2007, 517
22

SCRA 732, 744-745.

23
TSN, hearing of Civil Case No. 10513 on March 3, 1987, records, Vol. III, pp. 190-191.
24
Id. at 199.
25
EXECUTIVE ORDER NO. 80
PROVIDING FOR THE 1986 REVISED CHARTER OF THE PHILIPPINE NATIONAL BANK
(December 3, 1986)
xxxx
 Sec. 38. Repealing Clauses. Subject to Section 31 of this Charter, Presidential Decree No. 694, as
amended, is hereby repealed. All other laws, decrees, acts, executive orders, administrative orders,
proclamations, rules and regulations or parts thereof inconsistent with any of the provisions of this
Charter are hereby repealed or modified accordingly. (emphasis supplied)
xxxx
Sec. 31. Banking Operations under the 1986 Revised Charters; Governing Laws. The Banking
operations of the Bank shall be governed by the provisions of this Charter beginning on January 1,
1987, or on such subsequent date as may be determine by the President of the Philippine upon the
recommendation of the Minister of Finance. (Emphasis supplied)

G.R. No. 171354 March 7, 2007

MARYLOU B. TOLENTINO, M.D., Petitioner,
vs.
COURT OF APPEALS and CITYTRUST BANKING CORPORATION, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 assails the October 28, 2005 Decision2 of the Court of Appeals in CA-G.R. CV.
No. 83794, which reversed the April 22, 2004 Decision3 of the Regional Trial Court of Mandaluyong City, Branch 213
in Civil Case No. MC-00-1063, as well as the January 31, 2006 Resolution4 denying petitioner's Motion for
Reconsideration.
The antecedent facts are as follows:
In May 1996, petitioner Marylou B. Tolentino (Tolentino) applied for and was granted by private respondent Citytrust
Banking Corporation ("Citytrust," now Bank of the Philippine Islands) a Business Credit Line Facility for
P2,450,0005 secured by a First Real Estate Mortgage6 over her property covered by Transfer Certificate of Title (TCT)
No. 1933.7
On July 16, 1998, Citytrust informed Tolentino that her credit line has expired thereby making her P2,611,440.23
outstanding balance immediately due and demandable.8 Tolentino failed to settle her obligations thus her property
was extrajudicially foreclosed and sold in a public auction, with Citytrust as the highest bidder. On April 13, 1999, the
Certificate of Sale was registered and duly annotated on TCT No. 1933.
As of March 17, 2000, the "Statement of Account To Redeem" 9 sent by Citytrust showed petitioner's outstanding
obligation at P5,386,993.91. Petitioner asked for a re-computation and the deletion of certain charges, such as the
late payment charges, foreclosure expenses, attorney's fees, liquidated damages, and interests, but was denied by
Citytrust. As of April 10, 2000, petitioner's outstanding balance amounted to P5,431,337.41.
On April 7, 2000, petitioner filed a Complaint for Judicial Redemption, Accounting and Damages, with application for
the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction, against Citytrust and the Register of
Deeds of Mandaluyong City.10 Petitioner alleged that the bank unilaterally increased the interest charges in her credit
line from 17.75% to 23.04%; that she was forced to convert her existing Home Owners Credit Line into an Amortized
Term Loan with interest of 19.50%;11 that the bank cancelled her credit line when she refused the said conversion;
that her mortgaged property was foreclosed and sold at public auction but the bank did not remit the balance of the
proceeds of the foreclosure sale; and that the bank unjustifiably refused her request for accounting and re-
computation of the redemption amount.
In its Answer with Counterclaim,12 Citytrust asserted that petitioner's credit line has a term of one year and that upon
the expiration of the said period, it may be cancelled and closed; that the inclusion of late payment charges,
foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and interests in the redemption price was
in accordance with the terms and conditions of their loan and mortgage contracts; that the bid price was applied to
the outstanding obligations of petitioner; and that the Complaint of petitioner was merely dilatory and frivolous
considering that she has admitted having defaulted in the payment of her obligations.
Meanwhile, TCT No. 1933 was cancelled and a new title13 was issued in favor of Citytrust. However, petitioner was
able to secure a writ of preliminary injunction,14 which enjoined Citytrust from taking possession, selling, and/or
otherwise disposing of the foreclosed property.
After trial on the merits, the Regional Trial Court of Mandaluyong City, Branch 213, rendered judgment upholding
petitioner's right of redemption, but at the price computed by private respondent. The dispositive portion of the
Decision reads:
WHEREFORE, judgment is hereby rendered upholding the right of the herein plaintiff MARILOU TOLENTINO to
redeem the foreclosed property covered by Transfer Certificate of Title No. 1933 in accordance however with the
computation stated in the account to redeem as of April 10, 2000 issued by the defendant CITYTRUST BANKING
CORPORATION (now FAMILY BANK) particularly marked as Exhibit 10 for the Defendant.
SO ORDERED.15
The trial court held that the filing of an action for judicial redemption by petitioner is equivalent to a formal offer to
redeem. Having exercised her right of legal redemption, petitioner should not be barred from redeeming the property,
but at the redemption price as computed by Citytrust pursuant to the provisions of their loan agreement. The trial
court held that petitioner cannot belatedly claim that the loan agreement and mortgage contract are contracts of
adhesion considering that she freely and voluntarily executed the same, nor was she ignorant of the nature and
provisions of the agreements.
Both the petitioner and the bank appealed to the Court of Appeals, which rendered the assailed Decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, the appeal of plaintiff is DISMISSED for lack of merit, while the appeal of
defendant Bank of the Philippine Islands is hereby GRANTED. The appealed Decision dated April 22, 2004 of the
Regional Trial Court of Mandaluyong City, Branch 213 is hereby REVERSED and SET ASIDE. A new judgment is
hereby entered DISMISSING the complaint in Civil Case No. MC-00-1063.
With costs against the plaintiff-appellant.
SO ORDERED.16
The Court of Appeals held that petitioner's act of filing an action for judicial redemption without simultaneous
consignation of redemption money was not valid. Having failed to exercise her right of redemption within the one-year
period provided by law, petitioner thus lost all her rights over the foreclosed property. The appellate court noted that
as early as March 17, 2000, Citytrust computed the redemption price at P5,386,993.91; however, petitioner only
offered to pay P3 million pesos, without attempting to tender a single centavo to private respondent. Further, records
show that when asked during trial if she was prepared to tender the amount, petitioner replied in the negative.
Petitioner's motion for reconsideration was denied; hence, this petition.
Petitioner insists that the mortgage agreement is a contract of adhesion since it was solely prepared by the bank and
her only participation thereto was to affix her signature; that the 25% attorney's fees, penalty, late payment charges,
and liquidated damages are excessive and unconscionable; that the capital gains tax should not have been added to
the computation of the redemption price; that the filing of the complaint for judicial redemption effectively tolled the
running one-year prescriptive period; that the consignation of the redemption price is only necessary if the redemption
suit was filed after the expiration of the redemption period; and that without admitting the loss of right to redeem, the
surplus of the proceeds of the foreclosure sale should have been returned to her.
The petition lacks merit.
A contract of adhesion is an agreement where one of the parties imposes a ready-made form of contract which the
other party may accept or reject, but which the latter 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.17
It bears stressing that a contract of adhesion is just as binding as ordinary contracts. However, there are instances
when this Court has struck down such contract as void when the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing. Nevertheless, a contract of adhesion is not invalid per se; it is not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his
consent.18
Should there be any ambiguity in a contract of adhesion, such ambiguity is to be construed against the party who
prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the
parties, the literal meaning of its stipulations must be held controlling.19
In the instant case, it has not been shown that petitioner signed the contracts through mistake, violence, intimidation,
undue influence, or fraud. Petitioner even admitted during trial that she was not compelled to sign the contracts, nor
was she totally ignorant of their nature, having been engaged in business since 1984.20 Petitioner only raised in issue
the following stipulations before the redemption period expired, to wit:
2. Loan Line - CityTrust shall make the Loan Line available to Client for a period of one (1) year from the date of this
Agreement subject to Section 19; xxx
19. Cancellation - (a) The Loan Line may be cancelled by either party upon thirty-day written notice to the other
party.
(b) CityTrust may shorten the period of availability of the Loan Line upon thirty-day written notice to Client.
(c) Upon cancellation of the Loan Line or expiration of the period of availability of the Loan Line, the Loan
Account and CityTrust Business Credit Line Current Account shall be automatically cancelled/closed and
Client shall immediately pay the entire Outstanding Balance. Client shall immediately surrender to CityTrust
any and all unused CityTrust Business Credit Line Check(s) as well as the ATM card issued to access the
CityTrust Business Credit Line Current Account.
7. Interest on Outstanding Balance - The Outstanding Balance shall earn simple interest, computed daily, at such
per annum rate for such interest period (of not less than 30 days) as shall be determined in advance by CityTrust and
advised initially through the Letter of Approval and thereafter through the Statement of Loan Account. Interest shall
be calculated on the basis of actual number of days elapsed and a year of 360 days. Interest accrued shall be
automatically debited by the CityTrust against the Loan Account.
9. Penalty Charges - Failure to make the full remittance required to cover the Excess Availment within fifteen (15)
days from the date that the same is incurred shall subject the Excess Availment to penalty charge. Failure to make
the full remittance required to cover an Excess Availment within fifty-nine (59) days from the date that the same is
incurred shall subject the entire Outstanding Balance to the aforesaid penalty charge. Penalty charges shall be
imposed by CityTrust without prejudice to Sections 7 (Interest on Outstanding Balance) and 15 [Events of Default].
The penalty charge shall be such per annum rate as shall be determined by CityTrust and advised through the
Statement of Loan Account and Demand Statement. Sail penalty charge shall be fixed for thirty (30) days or such
other period as may be determined by CityTrust and shall be automatically debited against the Loan Account.
20. Collection/Attorney's Fees - in the event CityTrust is compelled to litigate or engage the services of a lawyer or
collection agent for collection or implementation of the terms of the Agreements, Client shall pay attorney's fees in the
sum equivalent to twenty-five (25%) percent of the amount due but which attorney's fees shall in any case be not less
than FIVE THOUSAND PESOS (P5,000.00) plus costs of suit and other litigation expenses and, in addition,
liquidated damages in the sum equivalent to ten (10%) percent of the amount due but which liquidated damages shall
in any case be not less than ONE THOUSAND PESOS (P1,000.00).21
We find the above-quoted provisions explicit and leave no room for construction. It is easily understood, especially by
a businesswoman like the petitioner. Thus, we agree with the conclusion of the trial and appellate courts that no
compelling reasons were presented to declare the subject contractual documents as void contracts of adhesion.22
Anent the legality of petitioner's judicial redemption and the bank's computation of the redemption price, Section 6 of
Act No. 3135,23 as amended,24 provides for the requisites for a valid redemption, 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 sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, insofar as these are not inconsistent with the provisions of this Act.
However, considering that private respondent is a banking institution, the determination of the redemption price is
governed by Section 78 of the General Banking Act,25 as amended by Presidential Decree No. 1828, which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for
any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose
real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation
to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the
sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the
amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be,
with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred
by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said
property less the income received from the property.
Section 78 of the General Banking Act amended Section 6 of Act No. 3135 insofar as the redemption price is
concerned when the mortgagee is a bank or a banking or credit institution.26 Thus, the amount at which the foreclosed
property is redeemable is the amount due under the mortgage deed, or the outstanding obligation of the mortgagor
plus interest and expenses in accordance with Section 78 of the General Banking Act.27
In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,28 we ruled that the redemptioner should make an
actual tender in good faith of the full amount of the purchase price, i.e., the amount fixed by the court in the order of
execution or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified
in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by
reason of the execution and sale and as a result of the custody of said property less the income received from the
property.29
As correctly pointed out by the appellate court, the general rule in redemption is that it is not sufficient that a person
offering to redeem simply manifests his/her desire to do so. The statement of intention must be accompanied by an
actual and simultaneous tender of payment. This constitutes the exercise of the right to repurchase. Bona fide
redemption necessarily implies a reasonable and valid tender of the entire purchase price, otherwise the rule on the
redemption period fixed by law can easily be circumvented.30
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals 31 and Lee Chuy
Realty Corporation v. Court of Appeals32 that in case of disagreement over the redemption price, the redemptioner
may preserve his right of redemption through judicial action which must be filed within the one-year period of
redemption. The filing of a court action to enforce redemption, being equivalent to a formal offer to redeem, would
have the effect of preserving his redemptive rights and "freezing" the expiration of the one-year period.33 Bona
fide tender of the redemption price, within the prescribed period is only essential to preserve the right of redemption
for future enforcement beyond such period of redemption and within the period prescribed for the action by the
statute of limitations. Where the right to redeem is exercised through judicial action within the reglementary period,
the offer to redeem, accompanied by a bona fide tender of the redemption price, while proper, may be unessential.34
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,35 we held that the action for judicial
redemption should be filed on time and in good faith, the redemption price is finally determined and paid within a
reasonable time, and the rights of the parties are respected. Stated otherwise, the foregoing interpretation has three
critical dimensions: (1) timely redemption or redemption by expiration date; (2) good faith as always, meaning, the
filing of the action must have been for the sole purpose of determining the redemption price and not to stretch the
redemptive period indefinitely; and (3) once the redemption price is determined within a reasonable time, the
redemptioner must make prompt payment in full.36
The records show that the correct redemption price had been determined prior to the filing of the complaint for judicial
redemption. Petitioner had been furnished updated Statements of Account specifying the redemption price even prior
to the consolidation of the title of the foreclosed property in the bank's name. The inclusion of late payment charges,
foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and interests therein was pursuant to the
Loan Agreement. Considering that the Loan Agreement was read and freely adhered to by petitioner, the stipulations
therein are binding on her.37
Moreover, petitioner admitted during trial that she was not questioning the computation of the redemption price, but
she was requesting for a condonation of certain fees and charges.
Q. Now Madam Witness, during the last hearing, you were questioning the statement of account, the computation, is
that correct?
A. Yes, sir.
Q. In particular, you were questioning the attorney's fees of twenty five percent (25%), is that correct?
A. Yes, sir.
Q. Did you not read the mortgage loan agreement, Madam Witness?
A. I know its [sic] there in the mortgage loan what I said is that I was requesting for a condonation.
Q. So, you are [sic] not questioning it?
A. Yes, sir.
Q. In your complaint there is an allegation that the computation has no basis, do you confirm that, do you still
maintain that?
A. Yes.
Q. Why do you say so?
A. I was just hoping that some of the items could be condone[d] because they were rather high, although, normally, in
the mortgage contract it is really stated that they charge twenty five percent for attorney's fees, so I agreed with it.
Q. So, it is not your statement in your complaint that the computation has no basis, is not correct?
A. Yes, sir.
Q. So, the twenty five percent computation here has a basis, which is the mortgage loan agreement, correct?
A. Yes, in your agreement.
Q. And in that agreement you have your signature therein?
A. Yes.
Q. And you have read that before signing it?
A. Yes, sir.
Q. So, also with this liquidated damages of ten percent (10%), there is a basis under the mortgage loan agreement?
A. I'm not sure.
Q. I will show you again the mortgage loan agreement xxx.
xxxx
Q. Now, Ms. Witness, can you now say that this statement of account is with basis, accurate and with basis [sic]?
A. It has a basis, based on your conditions as prepared by the bank.
Q. Which you have conform[ed] to?
A. Yes, I have to because I executed a loan.
Q. But the bank did not compel you to apply for a loan?
A. No, they did not compel me.
Q. And you are only asking this court to reduce?
A. Yes, if possible.38(Emphasis supplied)
The records also reveal that petitioner offered to redeem the foreclosed property for P3 million but failed to tender or
consign the same, to wit:
Q. Ms. Witness, you stated that based on your computation[,] the redemption price should be three million pesos
(P3,000,000.00) more or less?
A. More or less.
Q. Do you have this amount right now? Do you have this three million (P3M) more or less, do you have this amount
right now?
A. Not right now, but if we will be given a few days to produce it, we will give us [sic] that kind.
xxxx
Q. Did you tender this amount of three million pesos (P3M) more or less, to the bank?
A. No, because that is not the amount that they were asking for.
Q. Did you at least offer to pay this amount of three million pesos (P3M) more or less?
A. During the discussion with the manager, Ms. Lolita Carrido, I ask [sic] her if the deletion of the said [sic] is possible
but she said it's not possible.
xxxx
Q. Did you also consign with this amount of three million pesos (P3M) more or less?
A. No, sir.39
Based on the foregoing, it is clear that petitioner did not file the instant case for judicial redemption in good faith. It was not filed for the purpose of determining the correct redemption price but to stretch
the redemption period indefinitely, which is not allowed by law.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV. No. 83794 dismissing the complaint for judicial redemption for lack of merit
and the Resolution denying petitioner's motion for reconsideration are AFFIRMED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
 (on leave)
ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO
Associate Justice Asscociate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

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

REYNATO S. PUNO
Chief Justice

Footnotes

1 Rollo, pp. 8-32.

2 Id. at 33-48; penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Associate Justices Edgardo F. Sundiam and Japar B. Dimaampao.

3 Id. at 33-34.

4 Id. at 49.

5 Records, pp. 51-54, 99-101, also known as Homeowners' Credit Line.

6 Rollo, pp. 50-53.

7 Records, pp. 20-23.

8 Id. at 24.

9 Id. at 32.

10 Id. at 7-14.

11 Id. at 102.

12 Id. at 44-49.

13 TCT No. 15625, id. at 72.

14 Id. at 167-168.

15 CA Rollo, pp. 44-56.

16 Id. at 48.

17 South Pachem Development, Inc. v. Court of Appeals, G.R. No. 126260, December 16, 2004, 447 SCRA 85, 95.

18 Rizal Commercial Banking Corporation v. Court of Appeals, 364 Phil. 947, 953-954 (2002).

19 South Pachem Development, Inc. v. Court of Appeals, supra note 17 at 95-96.

20 TSN, October 7, 2002, pp. 14-15.

21 Records, pp. 51-53.

22 Rollo, p. 40.

23 An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages (1924).

24 Act No. 4118 (1933).

25 Republic Act No. 337 (1948).

26 Sy v. Court of Appeals, G.R. No. 83139, April 12, 1989, 172 SCRA 125, 133-134.

27 Union Bank of the Philippines v. Court of Appeals, 412 Phil. 64, 76 (2001).

28 G.R. No. 143896, July 8, 2005, 463 SCRA 64.

29 Id. at 75.

30 BPI Family Savings Bank, Inc. v. Veloso, G.R. No. 141974, August 9, 2004, 436 SCRA 1, 6.

31 Supra note 28.

32 321 Phil. 185 (1995).

33 Banco Filipino Savings and Mortgage Bank v. Court of Appeals, supra note 28 at 75.

34 Lee Chuy Realty Corporation v. Court of Appeals, supra note 32 at 190-191.

35 437 Phil. 483 (2002).

36 Id. at 493.

37 Consing v. Court of Appeals, G.R. No. 143584, March 10, 2004, 425 SCRA 192, 203.

38 TSN, October 7, 2002, pp. 16-19.

39 TSN, September 22, 2000, pp. 33-35.

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PHILIPPINE SUPREME COURT

JURISPRUDENCE

THE 2010 PRE-WEEK BAR EXAM NOTES ON LABOR LAW

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Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

LAMBERT S. RAMOS,G.R. No. 184905

Petitioner,
Present:
cralaw

Ynares-Santiago, J. (Chairperson),
- versus - Chico-Nazario,
cralaw

Velasco,
Jr.,

Nachura,
and

Peralta,
JJ.

C.O.L. REALTY CORPORATION,

Respondent.Promulgated:

August 28, 2009

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

DECISION

YNARES-SANTIAGO, J.:

The issue for resolution is whether petitioner

can be held solidarily liable with his driver, Rodel
Ilustrisimo, to pay respondent C.O.L. Realty the
amount of P51,994.80 as actual damages suffered in
a vehicular collision.chanroblesvirtualawlibrary

The facts, as found by the appellate court, are

as follows:

On or about 10:40 oclock in the

morning of 8 March 2004, along
Katipunan (Avenue), corner Rajah
Matanda (Street), Quezon City, a
vehicular accident took place between a
Toyota Altis Sedan bearing Plate Number
XDN 210, owned by petitioner C.O.L.
Realty Corporation, and driven by
Aquilino Larin (Aquilino), and a Ford
Expedition, owned by x x x Lambert
Ramos (Ramos) and driven by Rodel
Ilustrisimo (Rodel), with Plate Number
LSR 917. A passenger of the sedan, one
Estela Maliwat (Estela) sustained
injuries. She was immediately rushed to
the hospital for treatment.
chanroblesvirtuallawlibrary

(C.O.L. Realty) averred that its

driver, Aquilino, was slowly driving the
Toyota Altis car at a speed of five to ten
kilometers per hour along Rajah Matanda
Street and has just crossed the center
lane of Katipunan Avenue when (Ramos)
Ford Espedition violently rammed against
the cars right rear door and fender. With
the force of the impact, the sedan turned
180 degrees towards the direction where
it came from.
chanroblesvirtuallawlibrary

Upon investigation, the Office of

the City Prosecutor of Quezon City found
probable cause to indict Rodel, the driver
of the Ford Expedition, for Reckless
Imprudence Resulting in Damage to
Property. In the meantime, petitioner
demanded from respondent
reimbursement for the expenses incurred
in the repair of its car and the
hospitalization of Estela in the aggregate
amount of P103,989.60. The demand fell
on deaf ears prompting (C.O.L. Realty)
to file a Complaint for Damages based on
quasi-delict before the Metropolitan Trial
Court of Metro Manila (MeTC), Quezon
City, docketed as Civil Case No. 33277,
and subsequently raffled to Branch 42.
chanroblesvirtuallawlibrary

As could well be expected,

(Ramos) denied liability for damages
insisting that it was the negligence of
Aquilino, (C.O.L. Realtys) driver, which
was the proximate cause of the accident.
(Ramos) maintained that the sedan car
crossed Katipunan Avenue from Rajah
Matanda Street despite the concrete
barriers placed thereon prohibiting
vehicles to pass through the intersection.
chanroblesvirtuallawlibrary

(Ramos) further claimed that he

was not in the vehicle when the mishap
occurred. He asserted that he exercised
the diligence of a good father of a family
in the selection and supervision of his
driver, Rodel.
chanroblesvirtuallawlibrary

Weighing the respective evidence

of the parties, the MeTC rendered the
Decision dated 1 March 2006 exculpating
(Ramos) from liability, thus:

WHEREFORE, the
instant case is DISMISSED
for lack of merit. The
Counterclaims of the
defendant are likewise
DISMISSED for lack of
sufficient factual and legal
basis.
chanroblesvirtuallawlibrary

SO ORDERED.
chanroblesvirtuallawlibrary
 The aforesaid judgment did not sit
well with (C.O.L. Realty) so that he (sic)
appealed the same before the RTC of
Quezon City, raffled to Branch 215,
which rendered the assailed Decision
dated 5 September 2006, affirming the
MeTCs Decision. (C.O.L. Realtys) Motion
for Reconsideration met the same fate as
it was denied by the RTC in its Order
dated 5 June 2007.[1]cralaw

C.O.L. Realty appealed to the Court of Appeals

which affirmed the view that Aquilino was negligent in
crossing Katipunan Avenue from Rajah Matanda
Street since, as per Certification of the Metropolitan
Manila Development Authority (MMDA) dated
November 30, 2004, such act is specifically
prohibited. Thus:

This is to certify that as per

records found and available in this
office the crossing of vehicles
at Katipunan Avenue from Rajah
Matanda Street to Blue Ridge
Subdivision, Quezon City has (sic)
not allowed since January 2004 up
to the present in view of the ongoing
road construction at the area.
[2]
(Emphasis supplied)
cralaw

Barricades were precisely placed along the

intersection of Katipunan Avenue and Rajah Matanda
Street in order to prevent motorists from
crossing Katipunan Avenue. Nonetheless, Aquilino
crossed Katipunan Avenue through certain portions of
the barricade which were broken, thus violating the
MMDA rule.[3] cralaw

However, the Court of Appeals likewise noted

that at the time of the collision, Ramos vehicle was
moving at high speed in a busy area that was then
the subject of an ongoing construction (the Katipunan
Avenue-Boni Serrano Avenue underpass), then
smashed into the rear door and fender of the
passengers side of Aquilinos car, sending it spinning
in a 180-degree turn.[4] It therefore found the driver
cralaw

Rodel guilty of contributory negligence for driving the

Ford Expedition at high speed along a busy
intersection.
chanroblesvirtualawlibrary

Thus, on May 28, 2008, the appellate court

rendered the assailed Decision,[5] the dispositive cralaw

portion of which reads, as follows:

WHEREFORE, the Decision dated 5

September 2006 of the Regional Trial
Court of Quezon City, Branch 215 is
hereby MODIFIED in that respondent
Lambert Ramos is held solidarily liable
with Rodel Ilustrisimo to pay petitioner
C.O.L. Realty Corporation the amount of
P51,994.80 as actual damages.
Petitioner C.O.L. Realty Corporations
claim for exemplary damages, attorneys
fees and cost of suit are DISMISSED for
lack of merit.
chanroblesvirtuallawlibrary

SO ORDERED.
chanroblesvirtuallawlibrary

Petitioner filed a Motion for Reconsideration but

it was denied. Hence, the instant petition, which
raises the following sole issue:

THE COURT OF APPEALS

DECISION IS CONTRARY TO LAW AND
JURISPRUDENCE, AND THE EVIDENCE
TO SUPPORT AND JUSTIFY THE SAME IS
INSUFFICIENT. chanroblesvirtualawlibra ry

We resolve to GRANT the petition. chanroblesvirtualawlibrary

There is no doubt in the appellate courts mind

that Aquilinos violation of the MMDA prohibition
against crossing Katipunan Avenue from Rajah
Matanda Street was the proximate cause of the
accident. Respondent does not dispute this; in its
Comment to the instant petition, it even conceded
that petitioner was guilty of mere contributory
negligence.[6]
cralaw

Thus, the Court of Appeals acknowledged that:

The Certification dated 30

November 2004 of the Metropolitan
Manila Development Authority (MMDA)
evidently disproved (C.O.L. Realtys)
barefaced assertion that its driver,
Aquilino, was not to be blamed for the
accident

TO WHOM IT MAY
CONCERN:

This is to certify that

as per records found and
 available in this office the
crossing of vehicles
at Katipunan
Avenue from Rajah Matanda
Street to Blue Ridge
Subdivision, Quezon
City has (sic) not allowed
since January 2004 up to
the present in view of the
ongoing road construction
at the area.
chanroblesvirtuallawlibrary

This certification is
issued upon request of the
interested parties for
whatever legal purpose it
may serve.
chanroblesvirtuallawlibrary

(C.O.L. Realty) admitted that

there were barricades along the
intersection ofKatipunan
Avenue and Rajah Matanda Street. The
barricades were placed thereon to
caution drivers not to pass through the
intersecting roads. This prohibition
stands even if, as (C.O.L. Realty)
claimed, the barriers were broken at that
point creating a small gap through which
any vehicle could pass. What is clear to
Us is that Aquilino recklessly ignored
these barricades and drove through it.
Without doubt, his negligence is
established by the fact that he violated a
traffic regulation. This finds support in
Article 2185 of the Civil Code
 Unless there is proof
to the contrary, it is
presumed that a person
driving a motor vehicle has
been negligent if at the time
of the mishap, he was
violating any traffic
regulation.
chanroblesvirtuallawlibrary

Accordingly, there ought to be no

question on (C.O.L. Realtys) negligence
which resulted in the vehicular mishap.[7] cralaw

However, it also declared Ramos liable

vicariously for Rodels contributory negligence in
driving the Ford Expedition at high speed along a
busy intersection. On this score, the appellate court
made the following pronouncement:

As a professional driver, Rodel

should have known that driving his
vehicle at a high speed in a major
thoroughfare which was then subject of
an on-going construction was a perilous
act. He had no regard to (sic) the safety
of other vehicles on the road. Because of
the impact of the collision, (Aquilinos)
sedan made a 180-degree turn as
(Ramos) Ford Expedition careened and
smashed into its rear door and fender.
We cannot exculpate Rodel from liability.
chanroblesvirtuallawlibrary

Having thus settled the

contributory negligence of Rodel, this
created a presumption of negligence on
the part of his employer, (Ramos). For
the employer to avoid the solidary
liability for a tort committed by his
employee, an employer must rebut the
presumption by presenting adequate and
convincing proof that in the selection and
supervision of his employee, he or she
exercises the care and diligence of a
good father of a family. Employers must
submit concrete proof, including
documentary evidence, that they
complied with everything that was
incumbent on them.
chanroblesvirtuallawlibrary

(Ramos) feebly attempts to escape

vicarious liability by averring that Rodel
was highly recommended when he
applied for the position of family driver
by the Social Service Committee of his
parish. A certain Ramon Gomez, a
member of the churchs livelihood
program, testified that a background
investigation would have to be made
before an applicant is recommended to
the parishioners for employment.
(Ramos) supposedly tested Rodels
driving skills before accepting him for the
job. Rodel has been his driver since
2001, and except for the mishap in
2004, he has not been involved in any
road accident.
chanroblesvirtuallawlibrary

Regrettably, (Ramos) evidence

which consisted mainly of testimonial
evidence remained unsubstantiated and
are thus, barren of significant weight.
There is nothing on the records which
would support (Ramos) bare allegation of
Rodels 10-year unblemished driving
 record. He failed to present convincing
proof that he went to the extent of
verifying Rodels qualifications, safety
record, and driving history.
chanroblesvirtuallawlibrary

So too, (Ramos) did not bother to

refute (C.O.L. Realtys) stance that his
driver was texting with his cellphone
while running at a high speed and that
the latter did not slow down albeit he
knew that Katipunan Avenue was then
undergoing repairs and that the road was
barricaded with barriers. The
presumption juris tantum that there was
negligence in the selection of driver
remains unrebutted. As the employer of
Rodel, (Ramos) is solidarily liable for the
quasi-delict committed by the former.
chanroblesvirtuallawlibrary

Certainly, in the selection of

prospective employees, employers are
required to examine them as to their
qualifications, experience and service
records. In the supervision of employees,
the employer must formulate standard
operating procedures, monitor their
implementation and impose disciplinary
measures for the breach thereof. These,
(Ramos) failed to do.[8] cralaw

Petitioner disagrees, arguing that since

Aquilinos willful disregard of the MMDA prohibition
was the sole proximate cause of the accident, then
respondent alone should suffer the consequences of
the accident and the damages it incurred. He argues:
 20.It becomes apparent therefore
that the only time a plaintiff, the
respondent herein, can recover damages
is if its negligence was only contributory,
and such contributory negligence was
the proximate cause of the accident. It
has been clearly established in this case,
however, that respondents negligence
was not merely contributory, but
the sole proximate cause of the
accident.
chanroblesvirtuallawlibrary

xxxx

22.As culled from the foregoing,

respondent was the sole proximate cause
of the accident. Respondents vehicle
should not have been in that position
since crossing the said intersection was
prohibited. Were it not for the obvious
negligence of respondents driver in
crossing the intersection that was
prohibited, the accident would not have
happened. The crossing of respondents
vehicle in a prohibited intersection
unquestionably produced the injury, and
without which the accident would not
have occurred. On the other hand,
petitioners driver had the right to be
where he was at the time of the mishap.
As correctly concluded by the RTC, the
petitioners driver could not be expected
to slacken his speed while travelling
along said intersection since nobody, in
his right mind, would do the same.
Assuming, however, that petitioners
driver was indeed guilty of any
contributory negligence, such was not
 the proximate cause of the accident
considering that again, if respondents
driver did not cross the prohibited
intersection, no accident would have
happened. No imputation of any lack of
care on Ilustrisimos could thus be
concluded. It is obvious then that
petitioners driver was not guilty of any
negligence that would make petitioner
vicariously liable for damages.
chanroblesvirtuallawlibrary

23.As the sole proximate cause of

the accident was respondents own
driver, respondent cannot claim damages
from petitioner.[9] cralaw

On the other hand, respondent in its Comment

merely reiterated the appellate courts findings and
pronouncements, conceding that petitioner is guilty of
mere contributory negligence, and insisted on his
vicarious liability as Rodels employer under Article
2184 of the Civil Code.
chanroblesvirtualawlibra ry

Articles 2179 and 2185 of the Civil Code on

quasi-delicts apply in this case, viz:

Article 2179.When the plaintiffs

own negligence was the immediate and
proximate cause of his injury, he cannot
recover damages. But if his negligence
was only contributory, the immediate
and proximate cause of the injury being
the defendants lack of due care, the
plaintiff may recover damages, but the
courts shall mitigate the damages to be
 awarded.
chanroblesvirtuallawlibrary

Article 2185.Unless there is proof

to the contrary, it is presumed that a
person driving a motor vehicle has been
negligent if at the time of the mishap, he
was violating any traffic regulation.
chanroblesvirtuallawlibrary

If the master is injured by the negligence of a

third person and by the concurring contributory
negligence of his own servant or agent, the latters
negligence is imputed to his superior and will defeat
the superiors action against the third person,
assuming of course that the contributory negligence
was the proximate cause of the injury of which
complaint is made.[10] cralaw

Applying the foregoing principles of law to the

instant case, Aquilinos act of crossingKatipunan
Avenue via Rajah Matanda constitutes negligence
because it was prohibited by law.Moreover, it was the
proximate cause of the accident, and thus precludes
any recovery for any damages suffered by respondent
from the accident.chanroblesvirtualawlibra ry

Proximate cause is defined as that cause,

which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the
injury, and without which the result would not have
occurred. And more comprehensively, the proximate
legal cause is that acting first and producing the
injury, either immediately or by setting other events
in motion, all constituting a natural and continuous
chain of events, each having a close causal
connection with its immediate predecessor, the final
event in the chain immediately effecting the injury as
a natural and probable result of the cause which first
acted, under such circumstances that the person
responsible for the first event should, as an ordinary
prudent and intelligent person, have reasonable
ground to expect at the moment of his act or default
that an injury to some person might probably result
therefrom.[11] cralaw

If Aquilino heeded the MMDA prohibition

against crossing Katipunan Avenue from Rajah
Matanda, the accident would not have happened. This
specific untoward event is exactly what the MMDA
prohibition was intended for. Thus, a prudent and
intelligent person who resides within the vicinity
where the accident occurred, Aquilino had reasonable
ground to expect that the accident would be a natural
and probable result if he crossed Katipunan Avenue
since such crossing is considered dangerous on
account of the busy nature of the thoroughfare and
the ongoing construction of the Katipunan-Boni
Avenue underpass.It was manifest error for the Court
of Appeals to have overlooked the principle embodied
in Article 2179 of the Civil Code, that when the
plaintiffs own negligence was the immediate and
proximate cause of his injury, he cannot recover
damages. chanroblesvirtualawlibrary

Hence, we find it unnecessary to delve into the

issue of Rodels contributory negligence, since it
cannot overcome or defeat Aquilinos recklessness
which is the immediate and proximate cause of the
accident. Rodels contributory negligence has
relevance only in the event that Ramos seeks to
recover from respondent whatever damages or
injuries he may have suffered as a result; it will have
the effect of mitigating the award of damages in his
favor. In other words, an assertion of contributory
negligence in this case would benefit only the
petitioner; it could not eliminate respondents liability
for Aquilinos negligence which is the proximate result
of the accident. chanroblesvirtualawlibrary

WHEREFORE, the petition is GRANTED.The

Decision of the Court of Appeals dated May 28, 2008
in CA-G.R. SP No. 99614 and its Resolution of October
13, 2008 are hereby REVERSED and SET
ASIDE. The Decision of the Regional Trial Court of
Quezon City, Branch 215 dated September 5, 2006
dismissing for lack of merit respondents complaint for
damages is herebyREINSTATED. chanroblesvirtualawlibrary

SO ORDERED.

CONSUELO
YNARES-SANTIAGO

Associate Justice

WE CONCUR:

MINITA V. CHICO-NAZARIO

Associate Justice

PRESBITERO J. VELASCO, JR.ANTONIO EDUARDO B.

NACHURA
Associate JusticeAssociate Justice

DIOSDADO M. PERALTA

Associate Justice

ATTESTATION

I attest that the conclusions in the above decision

were reached in consultation before the case was
assigned to the writer of the opinion of the Courts
Division.
chanroblesvirtualawlibrary

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson, Third Division

 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution

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

REYNATO S. PUNO

Chief Justice

Endnotes:
[1]
Rollo, pp. 31-32.
cralaw

[2]
Id. at 34.
cralaw

[3]
Id.
cralaw

[4]
Id. at 35.
cralaw

[5]
Id. at 30-37; penned by Associate Justice Japar
cralaw

B. Dimaampao and concurred in by Associate

Justices Mario L. Guaria III and Romeo F. Barza.
[6]
Id. at 161.
cralaw