MARIA TORBELA, represented by her

heirs, namely: EULOGIO TOSINO,

husband
and
children:
CLARO,
MAXIMINO, CORNELIO, OLIVIA and
CALIXTA, all surnamed TOSINO,
APOLONIA
TOSINO
VDA.
DE
RAMIREZ and JULITA TOSINO DEAN;
PEDRO TORBELA, represented by his
heirs, namely: JOSE and DIONISIO,
both
surnamed
TORBELA;
EUFROSINA TORBELA ROSARIO,
represented by her heirs, namely:
ESTEBAN T. ROSARIO, MANUEL T.
ROSARIO, ROMULO T. ROSARIO and
ANDREA
ROSARIO-HADUCA;
LEONILA
TORBELA
TAMIN;
FERNANDO TORBELA, represented
by his heirs, namely: SERGIO T.
TORBELA, EUTROPIA T. VELASCO,
PILAR T. ZULUETA, CANDIDO T.
TORBELA, FLORENTINA T. TORBELA
and PANTALEON T. TORBELA;
DOLORES
TORBELA
TABLADA;
LEONORA
TORBELA
AGUSTIN,
represented by her heirs, namely:
PATRICIO, SEGUNDO, CONSUELO
and FELIX, all surnamed AGUSTIN;
and
SEVERINA
TORBELA
ILDEFONSO,
Petitioners,
- versus SPOUSES
ANDRES
T. ROSARIOand LENA DUQUEROSARIO and BANCO FILIPINO
SAVINGS AND MORTGAGE BANK,
Respondents.
x-----------------------x

G.R. No. 140528

LENA DUQUE-ROSARIO,
Petitioner,

- versus G.R. No. 140553

Present:
BANCO FILIPINO SAVINGS
MORTGAGE BANK,
Respondent.

AND

CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
Promulgated:

December 7, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
LEONARDO-DE CASTRO, J.:
Presently before the Court are two consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court, both assailing the
Decision[1] dated June 29, 1999and Resolution[2] dated October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.
[6]

The petitioners in G.R. No. 140528 are siblings Maria Torbela, [3] Pedro Torbela,[4] Eufrosina Torbela Rosario,[5] Leonila Torbela Tamin, Fernando Torbela,
Dolores Torbela Tablada, Leonora Torbela Agustin,[7] and Severina Torbela Ildefonso (Torbela siblings).

The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was married to, but now legally separated from, Dr. Andres T. Rosario (Dr.
Rosario). Dr. Rosario is the son of Eufrosina Torbela Rosario and the nephew of the other Torbela siblings.

The controversy began with a parcel of land, with an area of 374 square meters, located in Urdaneta City, Pangasinan (Lot No. 356-A). It was originally part
of a larger parcel of land, known as Lot No. 356 of the Cadastral Survey of Urdaneta, measuring 749 square meters, and covered by Original Certificate of Title
(OCT) No. 16676,[8] in the name of Valeriano Semilla (Valeriano), married to Potenciana Acosta. Under unexplained circumstances, Valeriano gave Lot No. 356-A
to his sister Marta Semilla, married to Eugenio Torbela (spouses Torbela). Upon the deaths of the spouses Torbela, Lot No. 356-A was adjudicated in equal shares
among their children, the Torbela siblings, by virtue of a Deed of Extrajudicial Partition [9] dated December 3, 1962.
On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim [10] over Lot No. 356-A in favor of Dr. Rosario. According to the said
Deed, the Torbela siblings for and in consideration of the sum of NINE PESOS ( P9.00) x x x transfer[red] and convey[ed] x x x unto the said Andres T. Rosario,
that undivided portion of THREE HUNDRED SEVENTY-FOUR square meters of that parcel of land embraced in Original Certificate of Title No. 16676 of the land
records of Pangasinan x x x. [11] Four days later, on December 16, 1964, OCT No. 16676 in Valerianos name was partially cancelled as to Lot No. 356-A and TCT
No. 52751[12] was issued in Dr. Rosarios name covering the said property.
Another Deed of Absolute Quitclaim [13] was subsequently executed on December 28, 1964, this time by Dr. Rosario, acknowledging that he only borrowed
Lot No. 356-A from the Torbela siblings and was already returning the same to the latter for P1.00. The Deed stated:
That for and in consideration of the sum of one peso (P1.00), Philippine Currency and the fact that I only borrowed the above described parcel
of land from MARIA TORBELA, married to Eulogio Tosino, EUFROSINA TORBELA, married to Pedro Rosario, PEDRO TORBELA, married to Petra
Pagador, LEONILA TORBELA, married to Fortunato Tamen, FERNANDO TORBELA, married to Victoriana Tablada, DOLORES TORBELA, widow,
LEONORA TORBELA, married to Matias Agustin and SEVERINA TORBELA, married to Jorge Ildefonso, x x x by these presents do hereby cede,
transfer and convey by way of this ABSOLUTE QUITCLAIM unto the said Maria, Eufrosina, Pedro, Leonila, Fernando, Dolores, Leonora and
Severina, all surnamed Torbela the parcel of land described above. [14] (Emphasis ours.)
The aforequoted Deed was notarized, but was not immediately annotated on TCT No. 52751.
Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development Bank of the Philippines (DBP) on February 21, 1965 in the
sum ofP70,200.00, secured by a mortgage constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751 on September 21, 1965 as Entry No.
243537.[15] Dr. Rosario used the proceeds of the loan for the construction of improvements on Lot No. 356-A.
On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of Adverse Claim, [16] on behalf of the Torbela siblings. Cornelio deposed in said
Affidavit:
3.
That ANDRES T. ROSARIO later quitclaimed his rights in favor of the former owners by virtue of a Deed of Absolute Quitclaim which
he executed before Notary Public Banaga, and entered in his Notarial Registry as Dec. No. 43; Page No. 9; Book No. I; Series of 1964;
4.
That it is the desire of the parties, my aforestated kins, to register ownership over the above-described property or to perfect their title
over the same but their Deed could not be registered because the registered owner now, ANDRES T. ROSARIO mortgaged the property with the
DEVELOPMENT BANK OF THE PHILIPPINES, on September 21, 1965, and for which reason, the Title is still impounded and held by the said bank;

5.
That pending payment of the obligation with the DEVELOPMENT BANK OF THE PHILIPPINES or redemption of the Title from said
bank, I, CORNELIO T. TOSINO, in behalf of my mother MARIA TORBELA-TOSINO, and my Aunts EUFROSINA TORBELA, LEONILA TORBELATAMEN, DOLORES TORBELA, LEONORA TORBELA-AGUSTIN, SEVERINA TORBELA-ILDEFONSO, and my Uncles PEDRO TORBELA and
FERNANDO, also surnamed TORBELA, I request the Register of Deeds of Pangasinan to annotate their adverse claim at the back of Transfer
Certificate of Title No. 52751, based on the annexed document, Deed of Absolute Quitclaim by ANDRES T. ROSARIO, dated December 28, 1964,
marked as Annex A and made a part of this Affidavit, and it is also requested that the DEVELOPMENT BANK OF THE PHILIPPINES be informed
accordingly.[17]
The very next day, on May 17, 1967, the Torbela siblings had Cornelios Affidavit of Adverse Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute
Quitclaim dated December 28, 1964 annotated on TCT No. 52751 as Entry Nos. 274471[18] and 274472,[19] respectively.
The construction of a four-storey building on Lot No. 356-A was eventually completed. The building was initially used as a hospital, but was later converted
to a commercial building. Part of the building was leased to PT&T; and the rest to Mrs. Andrea Rosario-Haduca, Dr. Rosarios sister, who operated the Rose Inn
Hotel and Restaurant.
Dr. Rosario was able to fully pay his loan from DBP. Under Entry No. 520197 on TCT No. 52751[20] dated March 6, 1981, the mortgage appearing under
Entry No. 243537 was cancelled per the Cancellation and Discharge of Mortgage executed by DBP in favor of Dr. Rosario and ratified before a notary public
on July 11, 1980.
In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank (PNB) sometime in 1979-1981. Records do not reveal though the
original amount of the loan from PNB, but the loan agreement was amended on March 5, 1981 and the loan amount was increased to P450,000.00. The loan was
secured by mortgages constituted on the following properties: (1) Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosarios name; (2) Lot No. 4489, with an area
of 1,862 square meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832; and (3) Lot No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters,
located in Nancayasan, Urdaneta, Pangasinan, covered by TCT No. 104189. [21] The amended loan agreement and mortgage on Lot No. 356-A was annotated on
TCT No. 52751 on March 6, 1981 as Entry No. 520099.[22]
Five days later, on March 11, 1981, another annotation, Entry No. 520469,[23] was made on TCT No. 52751, canceling the adverse claim on Lot No. 356-A
under Entry Nos. 274471-274472, on the basis of the Cancellation and Discharge of Mortgage executed by Dr. Rosario on March 5, 1981. Entry No. 520469
consisted of both stamped and handwritten portions, and exactly reads:
Entry No. 520469. Cancellation of Adverse Claim executed by Andres Rosario in favor of same. The incumbrance/mortgage appearing under Entry
No. 274471-72 is now cancelled as per Cancellation and Discharge of Mortgage Ratified before Notary Public Mauro G. Meris on March 5, 1981:
Doc. No. 215; Page No. 44; Book No. 1; Series Of 1981.
Lingayen, Pangasinan, 3-11, 19981
[Signed: Pedro dela Cruz]
Register of Deeds

[24]

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario), acquired a third loan in the amount of P1,200,000.00 from Banco
Filipino Savings and Mortgage Bank (Banco Filipino). To secure said loan, the spouses Rosario again constituted mortgages on Lot No. 356-A, Lot No. 4489, and
Lot No. 5-F-8-C-2-B-2-A. The mortgage on Lot No. 356-A was annotated on TCT No. 52751 as Entry No. 533283[25] on December 18, 1981. Since the
construction of a two-storey commercial building on Lot No. 5-F-8-C-2-B-2-A was still incomplete, the loan value thereof as collateral was deducted from the
approved loan amount. Thus, the spouses Rosario could only avail of the maximum loan amount of P830,064.00 from Banco Filipino.
Because Banco Filipino paid the balance of Dr. Rosarios loan from PNB, the mortgage on Lot No. 356-A in favor of PNB was cancelled per Entry No.
533478[26] on TCT No. 52751 dated December 23, 1981.
On February 13, 1986, the Torbela siblings filed before the Regional Trial Court (RTC) of Urdaneta, Pangasinan, a Complaint for recovery of ownership and
possession of Lot No. 356-A, plus damages, against the spouses Rosario, which was docketed as Civil Case No. U-4359. On the same day, Entry Nos. 593493
and 593494 were made on TCT No. 52751 that read as follows:
Entry No. 593494 Complaint Civil Case No. U-4359 (For: Recovery of Ownership and Possession and Damages. (Sup. Paper).
Entry No. 593493 Notice of Lis Pendens The parcel of land described in this title is subject to Lis Pendens executed by Liliosa B. Rosario, CLAO,
Trial Attorney dated February 13, 1986. Filed to TCT No. 52751
February 13, 1986-1986 February 13 3:30 p.m.
(SGD.)

PACIFICO M. BRAGANZA
Register of Deeds[27]

The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of April 2, 1987, the spouses Rosarios outstanding principal obligation and
penalty charges amounted to P743,296.82 and P151,524.00, respectively.[28]
Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. During the public auction on April 2,
1987, Banco Filipino was the lone bidder for the three foreclosed properties for the price of P1,372,387.04. The Certificate of Sale[29] dated April 2, 1987, in favor
of Banco Filipino, was annotated on TCT No. 52751 on April 14, 1987 as Entry No. 610623.[30]
On December 9, 1987, the Torbela siblings filed before the RTC their Amended Complaint, [31] impleading Banco Filipino as additional defendant in Civil
Case No. U-4359 and praying that the spouses Rosario be ordered to redeem Lot No. 356-A from Banco Filipino.
The spouses Rosario instituted before the RTC on March 4, 1988 a case for annulment of extrajudicial foreclosure and damages, with prayer for a writ of
preliminary injunction and temporary restraining order, against Banco Filipino, the Provincial Ex Officio Sheriff and his Deputy, and the Register of Deeds of
Pangasinan. The case was docketed as Civil Case No. U-4667. Another notice of lis pendens was annotated on TCT No. 52751 on March 10, 1988 as Entry No.
627059, viz:

Entry No. 627059 Lis Pendens Dr. Andres T. Rosario and Lena Duque Rosario, Plaintiff versus Banco Filipino, et. al. Civil Case No. U-4667 or
Annulment of ExtraJudicial Foreclosure of Real Estate Mortgage The parcel of land described in this title is subject to Notice of Lis Pendens
subscribed and sworn to before Notary Public Mauro G. Meris, as Doc. No. 21; Page No. 5; Book 111; S-1988. March 7, 1988-1988 March 10, 1:00
p.m.
(SGD.)

RUFINO M. MORENO, SR.

Register of Deeds[32]

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990, the RTC issued an Order [33] dismissing without prejudice Civil Case
No. U-4667 due to the spouses Rosarios failure to prosecute.
Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but their efforts were unsuccessful. Upon the expiration of the one-year
redemption period in April 1988, the Certificate of Final Sale [34] and Affidavit of Consolidation[35] covering all three foreclosed properties were executed on May 24,
1988 and May 25, 1988, respectively.
On June 7, 1988, new certificates of title were issued in the name of Banco Filipino, particularly, TCT No. 165812 for Lot No. 5-F-8-C-2-B-2-A and TCT No.
165813 for Lot No. 356-A .[36]
The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint [37] for annulment of the Certificate of Final Sale dated May 24, 1988,
judicial cancelation of TCT No. 165813, and damages, against Banco Filipino, the Ex Officio Provincial Sheriff, and the Register of Deeds of Pangasinan, which
was docketed as Civil Case No. U-4733.
On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta City a Petition for the issuance of a writ of possession. In said Petition, docketed as Pet.
Case No. U-822, Banco Filipino prayed that a writ of possession be issued in its favor over Lot No. 5-F-8-C-2-B-2-A and Lot No. 356-A, plus the improvements
thereon, and the spouses Rosario and other persons presently in possession of said properties be directed to abide by said writ.
The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822. The Decision[38] on these three cases was promulgated on January
15, 1992, the dispositive portion of which reads:
WHEREFORE, judgment is rendered:
1.
Declaring the real estate mortgage over Lot 356-A covered by TCT 52751 executed by Spouses Andres Rosario in favor of
Banco Filipino, legal and valid;
2.
Declaring the sheriffs sale dated April 2, 1987 over Lot 356-A covered by TCT 52751 and subsequent final Deed of Sale dated
May 14, 1988 over Lot 356-A covered by TCT No. 52751 legal and valid;

3.

Declaring Banco Filipino the owner of Lot 356-A covered by TCT No. 52751 (now TCT 165813);

4.
Banco Filipino is entitled to a Writ of Possession over Lot 356-A together with the
(Rose Inn Building). The Branch Clerk of Court is hereby ordered to issue a writ of possession in favor of Banco Filipino;

improvements

thereon

5.
[The Torbela siblings] are hereby ordered to render accounting to Banco Filipino the rental they received from tenants
of Rose Inn Building from May 14, 1988;
6.

[The Torbela siblings] are hereby ordered to pay Banco Filipino the sum of P20,000.00 as attorneys fees;

7.
Banco Filipino is hereby ordered to give [the Torbela siblings] the right of first refusal over Lot 356-A. The Register of Deeds is
hereby ordered to annotate the right of [the Torbela siblings] at the back of TCT No. 165813 after payment of the required fees;
8.
Dr. Rosario and Lena Rosario are hereby ordered to reimburse [the Torbela siblings] the market value of Lot 356-A as of
December, 1964 minus payments made by the former;
9.
Dismissing the complaint of [the Torbela siblings] against Banco Filipino, Pedro Habon and Rufino Moreno in Civil Case No. U4733; and against Banco Filipino in Civil Case No. U-4359. [39]

The RTC released an Amended Decision[40] dated January 29, 1992, adding the following paragraph to the dispositive:
Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-2-A of the subdivision plan (LRC) Psd-122471, covered by Transfer
Certificate of Title 104189 of the Registry of Deeds of Pangasinan[.] [41]
The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the Court of Appeals. Their appeal was docketed as CA-G.R. CV No.
39770.
In its Decision[42] dated June 29, 1999, the Court of Appeals decreed:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification. Items No. 6 and 7 of the appealed
decision are DELETED. Item No. 8 is modified requiring [Dr. Rosario] to pay [the Torbela siblings] actual damages, in the amount of P1,200,000.00
with 6% per annum interest from finality of this decision until fully paid. [Dr. Rosario] is further ORDERED to pay [the Torbela siblings] the amount
of P300,000.00 as moral damages; P200,000.00 as exemplary damages and P100,000.00 as attorneys fees.
Costs against [Dr. Rosario].[43]

The Court of Appeals, in a Resolution[44] dated October 22, 1999, denied the separate Motions for Reconsideration of the Torbela siblings and Dr. Rosario.
The Torbela siblings come before this Court via the Petition for Review in G.R. No. 140528, with the following assignment of errors:
First Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE REGISTRATION OF THE DEED OF ABSOLUTE
QUITCLAIM EXECUTED BY [DR. ANDRES T. ROSARIO] IN FAVOR OF THE [TORBELA SIBLINGS] DATED DECEMBER 28, 1964 AND
THE REGISTRATION OF THE NOTICE OF ADVERSE CLAIM EXECUTED BY THE [TORBELA SIBLINGS], SERVE AS THE OPERATIVE
ACT TO CONVEY OR AFFECT THE LAND AND IMPROVEMENTS THEREOF IN SO FAR AS THIRD PERSONS ARE CONCERNED.
Second Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE SUBJECT PROPERTY COVERED BY T.C.T. NO.
52751 IS CLEAN AND FREE, DESPITE OF THE ANNOTATION OF ENCUMBRANCES OF THE NOTICE OF ADVERSE CLAIM AND THE
DEED OF ABSOLUTE QUITCLAIM APPEARING AT THE BACK THEREOF AS ENTRY NOS. 274471 AND 274472, RESPECTIVELY.
Third Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE NOTICE OF ADVERSE CLAIM OF THE [TORBELA
SIBLINGS] UNDER ENTRY NO. 274471 WAS VALIDLY CANCELLED BY THE REGISTER OF DEEDS, IN THE ABSENCE OF A PETITION
DULY FILED IN COURT FOR ITS CANCELLATION.
Fourth Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENT BANCO FILIPINO SAVINGS AND
MORTGAGE BANK IS A MORTGAGEE IN GOOD FAITH.
Fifth Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE FILING OF A CIVIL CASE NO. U-4359 ON
DECEMBER 9, 1987, IMPLEADING RESPONDENT BANCO FILIPINO AS ADDITIONAL PARTY DEFENDANT, TOLL OR SUSPEND THE
RUNNING OF THE ONE YEAR PERIOD OF REDEMPTION.
Sixth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE OWNERSHIP OVER THE SUBJECT PROPERTY
WAS PREMATURELY CONSOLIDATED IN FAVOR OF RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK.
Seventh Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE SUBJECT PROPERTY IS AT LEAST
WORTH P1,200,000.00.[45]
The Torbela siblings ask of this Court:
WHEREFORE, in the light of the foregoing considerations, the [Torbela siblings] most respectfully pray that the questioned DECISION
promulgated on June 29, 1999 (Annex A, Petition) and the RESOLUTION dated October 22, 1999 (Annex B, Petition) be REVERSED and SET
ASIDE, and/or further MODIFIED in favor of the [Torbela siblings], and another DECISION issue ordering, among other reliefs, the respondent Banco
Filipino to reconvey back Lot No. 356-A, covered by T.C.T. No. 52751, in favor of the [Torbela siblings] who are the actual owners of the same.
The [Torbela siblings] likewise pray for such other reliefs and further remedies as may be deemed just and equitable under the premises. [46]
Duque-Rosario, now legally separated from Dr. Rosario, avers in her Petition for Review in G.R. No. 140553 that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A
were registered in her name, and she was unlawfully deprived of ownership of said properties because of the following errors of the Court of Appeals:
A
THE HON. COURT OF APPEALS PATENTLY ERRED IN NOT FINDING THAT THE PERIOD TO REDEEM THE PROPERTY HAS NOT
COMMENCED, HENCE, THE CERTIFICATE OF SALE, THE CONSOLIDATION OF OWNERSHIP BY [BANCO FILIPINO], ARE NULL AND VOID.
B
THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO RULE THAT THE FILING OF THE COMPLAINT BEFORE THE COURT A QUO
BY THE [TORBELA SIBLINGS] HAD ALREADY BEEN PRESCRIBED.[47]
Duque-Rosario prays that the appealed decision of the Court of Appeals be reversed and set aside, and that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A be
freed from all obligations and encumbrances and returned to her.
Review of findings of fact by the RTC and the Court of Appeals warranted.

A disquisition of the issues raised and/or errors assigned in the Petitions at bar unavoidably requires a re-evaluation of the facts and evidence presented by
the parties in the court a quo.
In Republic v. Heirs of Julia Ramos,[48] the Court summed up the rules governing the power of review of the Court:
Ordinarily, this Court will not review, much less reverse, the factual findings of the Court of Appeals, especially where such findings coincide with those of
the trial court. The findings of facts of the Court of Appeals are, as a general rule, conclusive and binding upon this Court, since this Court is not a trier of
facts and does not routinely undertake the re-examination of the evidence presented by the contending parties during the trial of the case.
The above rule, however, is subject to a number of exceptions, such as (1) when the inference made is manifestly mistaken, absurd or impossible; (2)
when there is grave abuse of discretion; (3) when the finding is grounded entirely on speculations, surmises, or conjectures; (4) when the judgment of the Court
of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of both parties; (7) when the findings of the Court of Appeals are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (10) when the findings of
fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.[49]
As the succeeding discussion will bear out, the first, fourth, and ninth exceptions are extant in these case.
Barangay conciliation was not a pre-requisite to the institution of Civil Case No. U-4359.
Dr. Rosario contends that Civil Case No. U-4359, the Complaint of the Torbela siblings for recovery of ownership and possession of Lot No. 356-A, plus
damages, should have been dismissed by the RTC because of the failure of the Torbela siblings to comply with the prior requirement of submitting the dispute
to barangay conciliation.
The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986, when Presidential Decree No. 1508, Establishing a System of Amicably Settling
Disputes at the Barangay Level, was still in effect. [50] Pertinent provisions of said issuance read:
Section 2. Subject matters for amicable settlement. The Lupon of each barangay shall have authority to bring together the parties actually
residing in the same city or municipalityfor amicable settlement of all disputes except:
1.
Where one party is the government, or any subdivision or instrumentality thereof;
2.
Where one party is a public officer or employee, and the dispute relates to the performance of his official functions;
3.
Offenses punishable by imprisonment exceeding 30 days, or a fine exceeding P200.00;
4.
Offenses where there is no private offended party;
5.
Such other classes of disputes which the Prime Minister may in the interest of justice determine upon recommendation of the Minister
of Justice and the Minister of Local Government.

Section 3. Venue. Disputes between or among persons actually residing in the same barangay shall be brought for amicable settlement before
the Lupon of said barangay. Those involving actual residents of different barangays within the same city or municipality shall be brought in the
barangay where the respondent or any of the respondents actually resides, at the election of the complainant. However, all disputes which involved
real property or any interest therein shall be brought in the barangay where the real property or any part thereof is situated.
The Lupon shall have no authority over disputes:
1.
involving parties who actually reside in barangays of different cities or municipalities, except where such barangays adjoin each other ;
and
2.
involving real property located in different municipalities.
xxxx
Section 6. Conciliation, pre-condition to filing of complaint. No complaint, petition, action or proceeding involving any matter within the
authority of the Lupon as provided in Section 2 hereof shall be filed or instituted in court or any other government office for adjudication unless there
has been a confrontation of the parties before the Lupon Chairman or the Pangkat and no conciliation or settlement has been reached as certified by
the Lupon Secretary or the Pangkat Secretary, attested by the Lupon or Pangkat Chairman, or unless the settlement has been repudiated. x x x.
(Emphases supplied.)
The Court gave the following elucidation on the jurisdiction of the Lupong Tagapayapa in Tavora v. Hon. Veloso[51]:
The foregoing provisions are quite clear. Section 2 specifies the conditions under which the Lupon of a barangay shall have authority to
bring together the disputants for amicable settlement of their dispute: The parties must be actually residing in the same city or municipality. At the
same time, Section 3 while reiterating that the disputants must be actually residing in the same barangay or in different barangays within the
same city or municipality unequivocably declares that the Lupon shall have no authority over disputes involving parties who actually reside in
barangays of different cities or municipalities, except where such barangays adjoin each other.
Thus, by express statutory inclusion and exclusion, the Lupon shall have no jurisdiction over disputes where the parties are not actual
residents of the same city or municipality, except where the barangays in which they actually reside adjoin each other.
It is true that immediately after specifying the barangay whose Lupon shall take cognizance of a given dispute, Sec. 3 of PD 1508 adds:
"However, all disputes which involve real property or any interest therein shall be brought in the barangay where the real
property or any part thereof is situated."
Actually, however, this added sentence is just an ordinary proviso and should operate as such.
The operation of a proviso, as a rule, should be limited to its normal function, which is to restrict or vary the operation of the principal clause,
rather than expand its scope, in the absence of a clear indication to the contrary.

The natural and appropriate office of a proviso is . . . to except something from the enacting clause; to limit, restrict, or qualify
the statute in whole or in part; or to exclude from the scope of the statute that which otherwise would be within its terms. (73 Am Jur 2d
467.)
Therefore, the quoted proviso should simply be deemed to restrict or vary the rule on venue prescribed in the principal clauses of the first
paragraph of Section 3, thus: Although venue is generally determined by the residence of the parties, disputes involving real property shall be
brought in the barangay where the real property or any part thereof is situated, notwithstanding that the parties reside elsewhere within the same
city/municipality.[52] (Emphases supplied.)
The original parties in Civil Case No. U-4359 (the Torbela siblings and the spouses Rosario) do not reside in the same barangay, or in different barangays
within the same city or municipality, or in different barangays of different cities or municipalities but are adjoining each other. Some of them reside outside
Pangasinan and even outside of the country altogether. The Torbela siblings reside separately in Barangay Macalong, Urdaneta, Pangasinan; Barangay
Consolacion, Urdaneta, Pangasinan; Pangil, Laguna;Chicago, United States of America; and Canada. The spouses Rosario are residents of Calle Garcia,
Poblacion, Urdaneta, Pangasinan. Resultantly, the Lupon had no jurisdiction over the dispute and barangay conciliation was not a pre-condition for the filing of
Civil Case No. U-4359.
The Court now looks into the merits of Civil Case No. U-4359.
There was an express trust between the Torbela siblings and Dr. Rosario.
There is no dispute that the Torbela sibling inherited the title to Lot No. 356-A from their parents, the Torbela spouses, who, in turn, acquired the same from
the first registered owner of Lot No. 356-A, Valeriano.
Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12, 1964 in which they transferred and conveyed Lot No. 356-A to Dr.
Rosario for the consideration of P9.00. However, the Torbela siblings explained that they only executed the Deed as an accommodation so that Dr. Rosario could
have Lot No. 356-A registered in his name and use said property to secure a loan from DBP, the proceeds of which would be used for building a hospital on Lot
No. 356-A a claim supported by testimonial and documentary evidence, and borne out by the sequence of events immediately following the execution by the
Torbela siblings of said Deed. On December 16, 1964, TCT No. 52751, covering Lot No. 356-A, was already issued in Dr. Rosarios name. On December 28,
1964, Dr. Rosario executed his own Deed of Absolute Quitclaim, in which he expressly acknowledged that he only borrowed Lot No. 356-A and was transferring
and conveying the same back to the Torbela siblings for the consideration of P1.00. OnFebruary 21, 1965, Dr. Rosarios loan in the amount of P70,200.00,
secured by a mortgage on Lot No. 356-A, was approved by DBP. Soon thereafter, construction of a hospital building started on Lot No. 356-A.
Among the notable evidence presented by the Torbela siblings is the testimony of Atty. Lorenza Alcantara (Atty. Alcantara), who had no apparent personal
interest in the present case. Atty. Alcantara, when she was still a boarder at the house of Eufrosina Torbela Rosario (Dr. Rosarios mother), was consulted by the
Torbela siblings as regards the extrajudicial partition of Lot No. 356-A. She also witnessed the execution of the two Deeds of Absolute Quitclaim by the Torbela
siblings and Dr. Rosario.

[53]

In contrast, Dr. Rosario presented TCT No. 52751, issued in his name, to prove his purported title to Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals,
the Court made a clear distinction between title and the certificate of 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. Besides, the certificate cannot always be considered as conclusive evidence of ownership. Mere
issuance of the certificate of title in the name of any person does not foreclose the possibility that the real property may be under co-ownership with
persons not named in the certificate or that the registrant may only be a trustee or that other parties may have acquired interest subsequent to the
issuance of the certificate of title. To repeat, registration is not the equivalent of title, but is only the best evidence thereof. Title as a concept of
ownership should not be confused with the certificate of title as evidence of such ownership although both are interchangeably used. x x x.
[54]
(Emphases supplied.)

[55]

Registration does not vest title; it is merely the evidence of such title. Land registration laws do not give the holder any better title than what he actually has.
Consequently, Dr. Rosario must still prove herein his acquisition of title to Lot No. 356-A, apart from his submission of TCT No. 52751 in his name.

Dr. Rosario testified that he obtained Lot No. 356-A after paying the Torbela siblings P25,000.00, pursuant to a verbal agreement with the latter. The Court
though observes that Dr. Rosarios testimony on the execution and existence of the verbal agreement with the Torbela siblings lacks significant details (such as the
names of the parties present, dates, places, etc.) and is not corroborated by independent evidence.
In addition, Dr. Rosario acknowledged the execution of the two Deeds of Absolute Quitclaim dated December 12, 1964 and December 28, 1964, even
affirming his own signature on the latter Deed. The Parol Evidence Rule provides that when the terms of the agreement have been reduced into writing, it is
considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than
the contents of the written agreement. [56] Dr. Rosario may not modify, explain, or add to the terms in the two written Deeds of Absolute Quitclaim since he did not
put in issue in his pleadings (1) an intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of the Deeds to express the true intent and the agreement
of the parties thereto; (3) the validity of the Deeds; or (4) the existence of other terms agreed to by the Torbela siblings and Dr. Rosario after the execution of the
Deeds.[57]
Even if the Court considers Dr. Rosarios testimony on his alleged verbal agreement with the Torbela siblings, the Court finds the same unsatisfactory. Dr.
Rosario averred that the two Deeds were executed only because he was planning to secure loan from the Development Bank of the Philippines and Philippine
National Bank and the bank needed absolute quitclaim[.] [58] While Dr. Rosarios explanation makes sense for the first Deed of Absolute Quitclaim dated December
12, 1964 executed by the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario for P9.00.00), the same could not be said for the second Deed of
Absolute Quitclaim dated December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosarios Deed of Absolute Quitclaim (in which he admitted that he only
borrowed Lot No. 356-A and was transferring the same to the Torbela siblings for P1.00.00) would actually work against the approval of Dr. Rosarios loan by the
banks. Since Dr. Rosarios Deed of Absolute Quitclaim dated December 28, 1964 is a declaration against his self-interest, it must be taken as favoring the
truthfulness of the contents of said Deed. [59]

It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over Lot No. 356-A based on his Deed of Absolute Quitclaim
dated December 28, 1964. Dr. Rosario's admission in the said Deed that he merely borrowed Lot No. 356-A is deemed conclusive upon him. Under Article 1431
of the Civil Code, [t]hrough estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon.[60] That admission cannot now be denied by Dr. Rosario as against the Torbela siblings, the latter having relied upon his
representation.
Considering the foregoing, the Court agrees with the RTC and the Court of Appeals that Dr. Rosario only holds Lot No. 356-A in trust for the Torbela
siblings.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to
deal with the property for the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the
intention of the trustor or of the parties, while an implied trust comes into being by operation of law. [61]
Express trusts are created by direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an
intention to create a trust. Under Article 1444 of the Civil Code, [n]o particular words are required for the creation of an express trust, it being sufficient that a trust
is clearly intended.[62] It is possible to create a trust without using the word trust or trustee. Conversely, the mere fact that these words are used does not
necessarily indicate an intention to create a trust. The question in each case is whether the trustor manifested an intention to create the kind of relationship which
to lawyers is known as trust. It is immaterial whether or not he knows that the relationship which he intends to create is called a trust, and whether or not he knows
the precise characteristics of the relationship which is called a trust. [63]
In Tamayo v. Callejo,[64] the Court recognized that a trust may have a constructive or implied nature in the beginning, but the registered owners subsequent
express acknowledgement in a public document of a previous sale of the property to another party, had the effect of imparting to the aforementioned trust the
nature of an express trust. The same situation exists in this case. When Dr. Rosario was able to register Lot No. 356-A in his name under TCT No. 52751
on December 16, 1964, an implied trust was initially established between him and the Torbela siblings under Article 1451 of the Civil Code, which provides:
ART. 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of the true owner.
Dr. Rosarios execution of the Deed of Absolute Quitclaim on December 28, 1964, containing his express admission that he only borrowed Lot No. 356-A
from the Torbela siblings, eventually transformed the nature of the trust to an express one. The express trust continued despite Dr. Rosario stating in his Deed of
Absolute Quitclaim that he was already returning Lot No. 356-A to the Torbela siblings as Lot No. 356-A remained registered in Dr. Rosarios name under TCT No.
52751 and Dr. Rosario kept possession of said property, together with the improvements thereon.

The right of the Torbela siblings to recover Lot No. 356-A has not yet prescribed.
The Court extensively discussed the prescriptive period for express trusts in the Heirs of Maximo Labanon v. Heirs of Constancio Labanon,[65] to wit:

On the issue of prescription, we had the opportunity to rule in Bueno v. Reyes that unrepudiated written express trusts are imprescriptible:
While there are some decisions which hold that an action upon a trust is imprescriptible, without distinguishing between express
and implied trusts, the better rule, as laid down by this Court in other decisions, is that prescription does supervene where the trust is
merely an implied one. The reason has been expressed by Justice J.B.L. Reyes inJ.M. Tuason and Co., Inc. vs. Magdangal, 4 SCRA
84, 88, as follows:
Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real property prescribed in 10 years,
excepting only actions based on continuing or subsisting trusts that were considered by section 38 as imprescriptible. As
held in the case of Diaz v. Gorricho, L-11229, March 29, 1958, however, the continuing or subsisting trusts contemplated
in section 38 of the Code of Civil Procedure referred only to express unrepudiated trusts, and did not include constructive
trusts (that are imposed by law) where no fiduciary relation exists and the trustee does not recognize the trust at all.
This principle was amplified in Escay v. Court of Appeals this way: Express trusts prescribe 10 years from the repudiation of the trust (Manuel
Diaz, et al. vs. Carmen Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil Procedure).
In the more recent case of Secuya v. De Selma, we again ruled that the prescriptive period for the enforcement of an express trust of ten (10)
years starts upon the repudiation of the trust by the trustee. [66]
To apply the 10-year prescriptive period, which would bar a beneficiarys action to recover in an express trust, the repudiation of the trust must be proven by
clear and convincing evidence and made known to the beneficiary.[67] The express trust disables the trustee from acquiring for his own benefit the property
committed to his management or custody, at least while he does not openly repudiate the trust, and makes such repudiation known to the beneficiary or cestui que
trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the rules on adverse possession do not apply to continuing and subsisting ( i.e.,
unrepudiated) trusts. In an express trust, the delay of the beneficiary is directly attributable to the trustee who undertakes to hold the property for the former, or
who is linked to the beneficiary by confidential or fiduciary relations. The trustee's possession is, therefore, not adverse to the beneficiary, until and unless the
latter is made aware that the trust has been repudiated. [68]
Dr. Rosario argues that he is deemed to have repudiated the trust on December 16, 1964, when he registered Lot No. 356-A in his name under TCT No.
52751, so when on February 13, 1986, the Torbela siblings instituted before the RTC Civil Case No. U-4359, for the recovery of ownership and possession of Lot
No. 356-A from the spouses Rosario, over 21 years had passed. Civil Case No. U-4359 was already barred by prescription, as well as laches.
The Court already rejected a similar argument in Ringor v. Ringor[69] for the following reasons:
A trustee who obtains a Torrens title over a property held in trust for him by another cannot repudiate the trust by relying on the registration. A
Torrens Certificate of Title in Joses name did not vest ownership of the land upon him. The Torrens system does not create or vest title. It only
confirms and records title already existing and vested. It does not protect a usurper from the true owner. The Torrens system was not intended to
foment betrayal in the performance of a trust. It does not permit one to enrich himself at the expense of another. Where one does not have a rightful

claim to the property, the Torrens system of registration can confirm or record nothing. Petitioners cannot rely on the registration of the lands in
Joses name nor in the name of the Heirs of Jose M. Ringor, Inc., for the wrong result they seek. For Jose could not repudiate a trust by relying on
a Torrens title he held in trust for his co-heirs. The beneficiaries are entitled to enforce the trust, notwithstanding the irrevocability of
the Torrens title. The intended trust must be sustained.[70] (Emphasis supplied.)
In the more recent case of Heirs of Tranquilino Labiste v. Heirs of Jose Labiste,[71] the Court refused to apply prescription and laches and reiterated that:
[P]rescription and laches will run only from the time the express trust is repudiated. The Court has held that for acquisitive prescription to bar the
action of the beneficiary against the trustee in an express trust for the recovery of the property held in trust it must be shown that: (a) the trustee has
performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made
known to the cestui que trust, and (c) the evidence thereon is clear and conclusive. Respondents cannot rely on the fact that theTorrens title was
issued in the name of Epifanio and the other heirs of Jose. It has been held that a trustee who obtains a Torrens title over property held in trust by
him for another cannot repudiate the trust by relying on the registration. The rule requires a clear repudiation of the trust duly communicated to the
beneficiary. The only act that can be construed as repudiation was when respondents filed the petition for reconstitution in October 1993. And since
petitioners filed their complaint in January 1995, their cause of action has not yet prescribed, laches cannot be attributed to them. [72] (Emphasis
supplied.)
It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A by Dr. Rosario in his name under TCT No. 52751 on December 16, 1964
is not the repudiation that would have caused the 10-year prescriptive period for the enforcement of an express trust to run.
The Court of Appeals held that Dr. Rosario repudiated the express trust when he acquired another loan from PNB and constituted a second mortgage on
Lot No. 356-A sometime in 1979, which, unlike the first mortgage to DBP in 1965, was without the knowledge and/or consent of the Torbela siblings.
The Court only concurs in part with the Court of Appeals on this matter.
For repudiation of an express trust to be effective, the unequivocal act of repudiation had to be made known to the Torbela siblings as the cestuis que
trust and must be proven by clear and conclusive evidence. A scrutiny of TCT No. 52751 reveals the following inscription:
Entry No. 520099
Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in the sense that the consideration thereof has been increased to
PHILIPPINE PESOS Four Hundred Fifty Thousand Pesos only (P450,000.00) and to secure any and all negotiations with PNB, whether contracted
before, during or after the date of this instrument, acknowledged before Notary Public of Pangasinan Alejo M. Dato as Doc. No. 198, Page No. 41,
Book No. 11, Series of 1985.
Date of Instrument March 5, 1981
Date of Inscription March 6, 1981[73]

Although according to Entry No. 520099, the original loan and mortgage agreement of Lot No. 356-A between Dr. Rosario and PNB was previously
inscribed as Entry No. 490658, Entry No. 490658 does not actually appear on TCT No. 52751 and, thus, it cannot be used as the reckoning date for the start of the
prescriptive period.
The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-A to PNB on March 6, 1981 when the amended loan and mortgage
agreement was registered on TCT No. 52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole world [74] that Lot No. 356-A was
mortgaged by Dr. Rosario to PNB as security for a loan, the amount of which was increased to P450,000.00. Hence, Dr. Rosario is deemed to have effectively
repudiated the express trust between him and the Torbela siblings on March 6, 1981, on which day, the prescriptive period for the enforcement of the express trust
by the Torbela siblings began to run.
From March 6, 1981, when the amended loan and mortgage agreement was registered on TCT No. 52751, to February 13, 1986, when the Torbela siblings
instituted before the RTC Civil Case No. U-4359 against the spouses Rosario, only about five years had passed. The Torbela siblings were able to institute Civil
Case No. U-4359 well before the lapse of the 10-year prescriptive period for the enforcement of their express trust with Dr. Rosario.
Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to assert it. As the Court explained in the preceding paragraphs, the Torbela
siblings instituted Civil Case No. U-4359 five years after Dr. Rosarios repudiation of the express trust, still within the 10-year prescriptive period for enforcement of
such trusts. This does not constitute an unreasonable delay in asserting one's right. A delay within the prescriptive period is sanctioned by law and is not
considered to be a delay that would bar relief. Laches apply only in the absence of a statutory prescriptive period. [75]
Banco Filipino is not a mortgagee and buyer in good faith.
Having determined that the Torbela siblings are the true owners and Dr. Rosario merely the trustee of Lot No. 356-A, the Court is next faced with the issue
of whether or not the Torbela siblings may still recover Lot No. 356-A considering that Dr. Rosario had already mortgaged Lot No. 356-A to Banco Filipino, and
upon Dr. Rosarios default on his loan obligations, Banco Filipino foreclosed the mortgage, acquired Lot No. 356-A as the highest bidder at the foreclosure sale,
and consolidated title in its name under TCT No. 165813. The resolution of this issue depends on the answer to the question of whether or not Banco Filipino was
a mortgagee in good faith.
Under Article 2085 of the Civil Code, one of the essential requisites of the contract of mortgage is that the mortgagor should be the absolute owner of the
property to be mortgaged; otherwise, the mortgage is considered null and void. However, an exception to this rule is the doctrine of mortgagee in good
faith. Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are
given effect by reason of public policy. This principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers
or mortgagees, are not required to go beyond what appears on the face of the title. This is the same rule that underlies the principle of innocent purchasers for
value. The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security
and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful
owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled to protection. [76]

On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in good faith because as early as May 17, 1967, they had already annotated
Cornelios Adverse Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim dated December 28, 1964 on TCT No. 52751 as Entry Nos. 274471274472, respectively.
On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because per Section 70 of Presidential Decree No. 1529, otherwise
known as the Property Registration Decree, the notice of adverse claim, registered on May 17, 1967 by the Torbela siblings under Entry Nos. 274471-274472 on
TCT No. 52751, already lapsed after 30 days or on June 16, 1967. Additionally, there was an express cancellation of Entry Nos. 274471-274472 by Entry No.
520469 dated March 11, 1981. So when Banco Filipino approved Dr. Rosarios loan for P1,200,000.00 and constituted a mortgage on Lot No. 356-A (together with
two other properties) on December 8, 1981, the only other encumbrance on TCT No. 52751 was Entry No. 520099 dated March 6, 1981, i.e., the amended loan
and mortgage agreement between Dr. Rosario and PNB (which was eventually cancelled after it was paid off with part of the proceeds from Dr. Rosarios loan from
Banco Filipino). Hence, Banco Filipino was not aware that the Torbela siblings adverse claim on Lot No. 356-A still subsisted.
The Court finds that Banco Filipino is not a mortgagee in good faith. Entry Nos. 274471-274472 were not validly cancelled, and the improper cancellation
should have been apparent to Banco Filipino and aroused suspicion in said bank of some defect in Dr. Rosarios title.
The purpose of annotating the adverse claim on the title of the disputed land is to apprise third persons that there is a controversy over the ownership of the
land and to preserve and protect the right of the adverse claimant during the pendency of the controversy. It is a notice to third persons that any transaction
regarding the disputed land is subject to the outcome of the dispute. [77]
Adverse claims were previously governed by Section 110 of Act No. 496, otherwise known as the Land Registration Act, quoted in full below:
ADVERSE CLAIM
SEC. 110. 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 Act for registering the same, make a statement in writing setting forth fully his alleged
right or interest, and how or under whom acquired, and a reference to the volume and page 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 claimants residence, and designate a place at which all notices may
be served upon him. This statement shall be entitled to registration as an adverse claim, and the court, upon a petition of any party in interest, shall
grant a speedy hearing upon the question of the validity of such adverse claim and shall enter such decree therein as justice and equity may
require. If the claim is adjudged to be invalid, the registration shall be cancelled. If in any case the court after notice and hearing shall find that a
claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble costs in its discretion.
Construing the aforequoted provision, the Court stressed in Ty Sin Tei v. Lee Dy Piao[78] that [t]he validity or efficaciousness of the [adverse] claim x x x may
only be determined by the Court upon petition by an interested party, in which event, the Court shall order the immediate hearing thereof and make the proper
adjudication as justice and equity may warrant. And it is ONLY when such claim is found unmeritorious that the registration thereof may be cancelled . The Court

likewise pointed out in the same case that while a notice of lis pendens may be cancelled in a number of ways, the same is not true in a registered adverse claim,
for it may be cancelled only in one instance, i.e., after the claim is adjudged invalid or unmeritorious by the Court x x x; and if any of the registrations should be
considered unnecessary or superfluous, it would be the notice of lis pendens and not the annotation of the adverse claim which is more permanent and cannot be
cancelled without adequate hearing and proper disposition of the claim.
With the enactment of the Property Registration Decree on June 11, 1978, Section 70 thereof now applies to adverse claims:
SEC. 70. Adverse claim. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the
date of the original registrations, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth
fully his alleged right, or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the
name of the registered owner, and a description of the land in which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse claimants 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.
Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the
cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render
judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in any
case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less
than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse
claim by filing with the Register of Deeds a sworn petition to that effect. (Emphases supplied.)
In Sajonas v. Court of Appeals,[79]the Court squarely interpreted Section 70 of the Property Registration Decree, particularly, the new 30-day period not
previously found in Section 110 of the Land Registration Act, thus:
In construing the law aforesaid, care should be taken that every part thereof be given effect and a construction that could render a provision
inoperative should be avoided, and inconsistent provisions should be reconciled whenever possible as parts of a harmonious whole. For taken in
solitude, a word or phrase might easily convey a meaning quite different from the one actually intended and evident when a word or phrase is
considered with those with which it is associated. In ascertaining the period of effectivity of an inscription of adverse claim, we must read the law in
its entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides:
The adverse claim shall be effective for a period of thirty days from the date of registration.
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 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.
A statute's clauses and phrases must not be taken separately, but in its relation to the statute's totality. Each statute must, in fact, be
construed as to harmonize it with the pre-existing body of laws. Unless clearly repugnant, provisions of statutes must be reconciled. The printed
pages of the published Act, its history, origin, and its purposes may be examined by the courts in their construction. x x x.
xxxx
Construing the provision as a whole would reconcile the apparent inconsistency between the portions of the law such that the provision on
cancellation of adverse claim by verified petition would serve to qualify the provision on the effectivity period. The law, taken together, simply means
that the cancellation of the adverse claim is still necessary to render it ineffective, otherwise, the inscription will remain annotated and shall continue
as a lien upon the property. For if the adverse claim has already ceased to be effective upon the lapse of said period, its cancellation is no longer
necessary and the process of cancellation would be a useless ceremony.
It should be noted that the law employs the phrase "may be cancelled," which obviously indicates, as inherent in its decision making power,
that the court may or may not order the cancellation of an adverse claim, notwithstanding such provision limiting the effectivity of an adverse claim for
thirty days from the date of registration. The court cannot be bound by such period as it would be inconsistent with the very authority vested in it. A
fortiori, the limitation on the period of effectivity is immaterial in determining the validity or invalidity of an adverse claim which is the principal issue to
be decided in the court hearing. It will therefore depend upon the evidence at a proper hearing for the court to determine whether it will order the
cancellation of the adverse claim or not.
To interpret the effectivity period of the adverse claim as absolute and without qualification limited to thirty days defeats the very purpose for
which the statute provides for the remedy of an inscription of adverse claim, as the annotation of an adverse claim is a measure designed to protect
the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land
Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves as a warning to third parties dealing with said property
that someone is claiming an interest or the same or a better right than the registered owner thereof.
The reason why the law provides for a hearing where the validity of the adverse claim is to be threshed out is to afford the adverse claimant an
opportunity to be heard, providing a venue where the propriety of his claimed interest can be established or revoked, all for the purpose of
determining at last the existence of any encumbrance on the title arising from such adverse claim. This is in line with the provision immediately
following:
Provided, however, that after cancellation, no second adverse claim shall be registered by the same claimant.

Should the adverse claimant fail to sustain his interest in the property, the adverse claimant will be precluded from registering a second
adverse claim based on the same ground.
It was held that validity or efficaciousness of the claim may only be determined by the Court upon petition by an interested party, in which
event, the Court shall order the immediate hearing thereof and make the proper adjudication as justice and equity may warrant. And it is only when
such claim is found unmeritorious that the registration of the adverse claim may be cancelled, thereby protecting the interest of the adverse claimant
and giving notice and warning to third parties. [80] (Emphases supplied.)
Whether under Section 110 of the Land Registration Act or Section 70 of the Property Registration Decree, notice of adverse claim can only be cancelled
after a party in interest files a petition for cancellation before the RTC wherein the property is located, and the RTC conducts a hearing and determines the said
claim to be invalid or unmeritorious.
No petition for cancellation has been filed and no hearing has been conducted herein to determine the validity or merit of the adverse claim of the Torbela
siblings. Entry No. 520469 cancelled the adverse claim of the Torbela siblings, annotated as Entry Nos. 274471-774472, upon the presentation by Dr. Rosario of a
mere Cancellation and Discharge of Mortgage.
Regardless of whether or not the Register of Deeds should have inscribed Entry No. 520469 on TCT No. 52751, Banco Filipino could not invoke said
inscription in support of its claim of good faith. There were several things amiss in Entry No. 520469 which should have already aroused suspicions in Banco
Filipino, and compelled the bank to look beyond TCT No. 52751 and inquire into Dr. Rosarios title. First, Entry No. 520469 does not mention any court order as
basis for the cancellation of the adverse claim. Second, the adverse claim was not a mortgage which could be cancelled with Dr. Rosarios Cancellation and
Discharge of Mortgage. And third, the adverse claim was against Dr. Rosario, yet it was cancelled based on a document also executed by Dr. Rosario.
It is a well-settled rule that a purchaser or mortgagee 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 or mortgagor. His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of the existence of a defect in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee for
value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he
acted with the measure of precaution which may be required of a prudent man in a like situation. [81]
While the defective cancellation of Entry Nos. 274471-274472 by Entry No. 520469 might not be evident to a private individual, the same should have been
apparent to Banco Filipino. Banco Filipino is not an ordinary mortgagee, but is a mortgagee-bank, whose business is impressed with public interest. In fact, in one
case, [82] the Court explicitly declared that the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks. In
another case,[83] the Court adjudged that unlike private individuals, a bank is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or
condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.

Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in good faith at the foreclosure sale of Lot No. 356-A. Hence, the right
of the Torbela siblings over Lot No. 356-A is superior over that of Banco Filipino; and as the true owners of Lot No. 356-A, the Torbela siblings are entitled to a
reconveyance of said property even from Banco Filipino.
Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement was not the result of a dishonest purpose, some moral obliquity, or
breach of a known duty for some interest or ill will that partakes of fraud that would justify damages. [84]
Given the reconveyance of Lot No. 356-A to the Torbela siblings, there is no more need to address issues concerning redemption, annulment of the
foreclosure sale and certificate of sale (subject matter of Civil Case No. U-4733), or issuance of a writ of possession in favor of Banco Filipino (subject matter of
Pet. Case No. U-822) insofar as Lot No. 356-A is concerned. Such would only be superfluous. Banco Filipino, however, is not left without any recourse should the
foreclosure and sale of the two other mortgaged properties be insufficient to cover Dr. Rosarios loan, for the bank may still bring a proper suit against Dr. Rosario
to collect the unpaid balance.
The rules on accession shall govern the improvements on Lot No. 356-A and the rents thereof.
The accessory follows the principal. The right of accession is recognized under Article 440 of the Civil Code which states that [t]he ownership of property
gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially.
There is no question that Dr. Rosario is the builder of the improvements on Lot No. 356-A. The Torbela siblings themselves alleged that they allowed Dr.
Rosario to register Lot No. 356-A in his name so he could obtain a loan from DBP, using said parcel of land as security; and with the proceeds of the loan, Dr.
Rosario had a building constructed on Lot No. 356-A, initially used as a hospital, and then later for other commercial purposes. Dr. Rosario supervised the
construction of the building, which began in 1965; fully liquidated the loan from DBP; and maintained and administered the building, as well as collected the rental
income therefrom, until the Torbela siblings instituted Civil Case No. U-4359 before the RTC on February 13, 1986.
When it comes to the improvements on Lot No. 356-A, both the Torbela siblings (as landowners) and Dr. Rosario (as builder) are deemed in bad faith. The
Torbela siblings were aware of the construction of a building by Dr. Rosario on Lot No. 356-A, while Dr. Rosario proceeded with the said construction despite his
knowledge that LotNo. 356-A belonged to the Torbela siblings. This is the case contemplated under Article 453 of the Civil Code, which reads:
ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of
the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.
It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on
his part. (Emphasis supplied.)
When both the landowner and the builder are in good faith, the following rules govern:

ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his
own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay
the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has
been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof.
ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments
with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the
amount expended.
Whatever is built, planted, or sown on the land of another, and the improvements or repairs made thereon, belong to the owner of the land. Where,
however, the planter, builder, or sower has acted in good faith, a conflict of rights arises between the owners and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the impracticability of creating what Manresa calls a state of "forced co-ownership," the
law has provided a just and equitable solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity or to
oblige the builder or planter to pay for the land and the sower to pay the proper rent. It is the owner of the land who is allowed to exercise the option because his
right is older and because, by the principle of accession, he is entitled to the ownership of the accessory thing. [85]
The landowner has to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the
land. But even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the
owner of the building to remove the building from the land without first exercising either option. It is only if the owner chooses to sell his land, and the builder or
planter fails to purchase it where its value is not more than the value of the improvements, that the owner may remove the improvements from the land. The
owner is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same. [86]
This case then must be remanded to the RTC for the determination of matters necessary for the proper application of Article 448, in relation to Article 546, of
the Civil Code. Such matters include the option that the Torbela siblings will choose; the amount of indemnity that they will pay if they decide to appropriate the
improvements on Lot No. 356-A; the value of Lot No. 356-A if they prefer to sell it to Dr. Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to Dr.
Rosario but the value of the land is considerably more than the improvements. The determination made by the Court of Appeals in its Decision dated June 29,
1999 that the current value of Lot No. 356-A isP1,200,000.00 is not supported by any evidence on record.

Should the Torbela siblings choose to appropriate the improvements on Lot No. 356-A, the following ruling of the Court in Pecson v. Court of Appeals[87] is
relevant in the determination of the amount of indemnity under Article 546 of the Civil Code:
Article 546 does not specifically state how the value of the useful improvements should be determined. The respondent court and the private
respondents espouse the belief that the cost of construction of the apartment building in 1965, and not its current market value, is sufficient
reimbursement for necessary and useful improvements made by the petitioner. This position is, however, not in consonance with previous rulings of
this Court in similar cases. In Javier vs. Concepcion, Jr., this Court pegged the value of the useful improvements consisting of various fruits,
bamboos, a house and camarin made of strong material based on the market value of the said improvements. In Sarmiento vs. Agana, despite the
finding that the useful improvement, a residential house, was built in 1967 at a cost of between eight thousand pesos ( P8,000.00) to ten thousand
pesos (P10,000.00), the landowner was ordered to reimburse the builder in the amount of forty thousand pesos ( P40,000.00), the value of the house
at the time of the trial. In the same way, the landowner was required to pay the "present value" of the house, a useful improvement, in the case of De
Guzman vs. De la Fuente, cited by the petitioner.
The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated
in Rivera vs. Roman Catholic Archbishop of Manila that the said provision was formulated in trying to adjust the rights of the owner and possessor in
good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that
which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis
of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued
income-yielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to adduce evidence on
the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by
the landowner.[88] (Emphases supplied.)
Still following the rules of accession, civil fruits, such as rents, belong to the owner of the building. [89] Thus, Dr. Rosario has a right to the rents of the
improvements on Lot No. 356-A and is under no obligation to render an accounting of the same to anyone. In fact, it is the Torbela siblings who are required to
account for the rents they had collected from the lessees of the commercial building and turn over any balance to Dr. Rosario. Dr. Rosarios right to the rents of
the improvements on Lot No. 356-A shall continue until the Torbela siblings have chosen their option under Article 448 of the Civil Code. And in case the Torbela
siblings decide to appropriate the improvements, Dr. Rosario shall have the right to retain said improvements, as well as the rents thereof, until the indemnity for
the same has been paid.[90]
Dr. Rosario is liable for damages to the Torbela siblings.
The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings P300,000.00 as moral damages; P200,000.00 as exemplary damages;
and P100,000.00 as attorneys fees.
Indeed, Dr. Rosarios deceit and bad faith is evident when, being fully aware that he only held Lot No. 356-A in trust for the Torbela siblings, he mortgaged
said property to PNB and Banco Filipino absent the consent of the Torbela siblings, and caused the irregular cancellation of the Torbela siblings adverse claim on

TCT No. 52751. Irrefragably, Dr. Rosarios betrayal had caused the Torbela siblings (which included Dr. Rosarios own mother, Eufrosina Torbela Rosario) mental
anguish, serious anxiety, and wounded feelings. Resultantly, the award of moral damages is justified, but the amount thereof is reduced to P200,000.00.
In addition to the moral damages, exemplary damages may also be imposed given that Dr. Rosarios wrongful acts were accompanied by bad
faith. However, judicial discretion granted to the courts in the assessment of damages must always be exercised with balanced restraint and measured
objectivity. The circumstances of the case call for a reduction of the award of exemplary damages to P100,000.00.
As regards attorney's fees, they may be awarded when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest. Because of Dr. Rosarios acts, the Torbela siblings were constrained to institute several cases against Dr. Rosario and his
spouse, Duque-Rosario, as well as Banco Filipino, which had lasted for more than 25 years. Consequently, the Torbela siblings are entitled to an award of
attorney's fees and the amount of P100,000.00 may be considered rational, fair, and reasonable.
Banco Filipino is entitled to a writ of possession for Lot No. 5-F-8-C-2-B-2-A.
The Court emphasizes that Pet. Case No. U-822, instituted by Banco Filipino for the issuance of a writ of possession before the RTC of Urdaneta, included
only Lot No. 5-F-8-C-2-B-2-A and Lot No. 356-A (Lot No. 4489, the third property mortgaged to secure Dr. Rosarios loan from Banco Filipino, is located in
Dagupan City, Pangasinan, and the petition for issuance of a writ of possession for the same should be separately filed with the RTC of Dagupan City). Since the
Court has already granted herein the reconveyance of Lot No. 356-A from Banco Filipino to the Torbela siblings, the writ of possession now pertains only to Lot No.
5-F-8-C-2-B-2-A.
To recall, the Court of Appeals affirmed the issuance by the RTC of a writ of possession in favor of Banco Filipino. Dr. Rosario no longer appealed from said
judgment of the appellate court. Already legally separated from Dr. Rosario, Duque-Rosario alone challenges the writ of possession before this Court through her
Petition in G.R. No. 140553.
Duque-Rosario alleges in her Petition that Lot No. 5-F-8-C-2-B-2-A had been registered in her name under TCT No. 104189. Yet, without a copy of TCT No.
104189 on record, the Court cannot give much credence to Duque-Rosarios claim of sole ownership of Lot No. 5-F-8-C-2-B-2-A. Also, the question of whether
Lot No. 5-F-8-C-2-B-2-A was the paraphernal property of Duque-Rosario or the conjugal property of the spouses Rosario would not alter the outcome of DuqueRosarios Petition.
The following facts are undisputed: Banco Filipino extrajudicially foreclosed the mortgage constituted on Lot No. 5-F-8-C-2-B-2-A and the two other
properties after Dr. Rosario defaulted on the payment of his loan; Banco Filipino was the highest bidder for all three properties at the foreclosure sale on April 2,
1987; the Certificate of Sale dated April 2, 1987 was registered in April 1987; and based on the Certificate of Final Sale dated May 24, 1988 and Affidavit of
Consolidation dated May 25, 1988, the Register of Deeds cancelled TCT No. 104189 and issued TCT No. 165812 in the name of Banco Filipino for Lot No. 5-F-8C-2-B-2-A on June 7, 1988.
The Court has consistently ruled that the one-year redemption period should be counted not from the date of foreclosure sale, but from the time the
certificate of sale is registered with the Registry of Deeds. [91] No copy of TCT No. 104189 can be found in the records of this case, but the fact of annotation of the
Certificate of Sale thereon was admitted by the parties, only differing on the date it was made: April 14, 1987 according to Banco Filipino and April 15, 1987 as

maintained by Duque-Rosario. Even if the Court concedes that the Certificate of Sale was annotated on TCT No. 104189 on the later date, April 15, 1987, the
one-year redemption period already expired on April 14, 1988.[92] The Certificate of Final Sale and Affidavit of Consolidation were executed more than a month
thereafter, on May 24, 1988 and May 25, 1988, respectively, and were clearly not premature.
It is true that the rule on redemption is liberally construed in favor of the original owner of the property. The policy of the law is to aid rather than to defeat
him in the exercise of his right of redemption. [93] However, the liberal interpretation of the rule on redemption is inapplicable herein as neither Duque-Rosario nor
Dr. Rosario had made any attempt to redeem Lot No. 5-F-8-C-2-B-2-A. Duque-Rosario could only rely on the efforts of the Torbela siblings at redemption, which
were unsuccessful. While the Torbela siblings made several offers to redeem Lot No. 356-A, as well as the two other properties mortgaged by Dr. Rosario, they
did not make any valid tender of the redemption price to effect a valid redemption. 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. The redemption price
should either be fully offered in legal tender or else validly consigned in court. Only by such means can the auction winner be assured that the offer to redeem is
being made in good faith. [94] In case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through judicial action,
which in every case, must be filed within the one-year period of redemption. The filing of the 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. [95] But no such action was instituted by
the Torbela siblings or either of the spouses Rosario.
Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-C-2-B-2-A in favor of Banco Filipino by invoking the pendency of
Civil Case No. U-4359, the Torbela siblings action for recovery of ownership and possession and damages, which supposedly tolled the period for redemption of
the foreclosed properties. Without belaboring the issue of Civil Case No. U-4359 suspending the redemption period, the Court simply points out to Duque-Rosario
that Civil Case No. U-4359 involved Lot No. 356-A only, and the legal consequences of the institution, pendency, and resolution of Civil Case No. U-4359 apply to
Lot No. 356-A alone.
Equally unpersuasive is Duque-Rosarios argument that the writ of possession over Lot No. 5-F-8-C-2-B-2-A should not be issued given the defects in the
conduct of the foreclosure sale (i.e., lack of personal notice to Duque-Rosario) and consolidation of title (i.e., failure to provide Duque-Rosario with copies of the
Certificate of Final Sale).
The right of the purchaser to the possession of the foreclosed property becomes absolute upon the expiration of the redemption period. The basis of this
right to possession is the purchaser's ownership of the property. After the consolidation of title in the buyer's name for failure of the mortgagor to redeem, the writ
of possession becomes a matter of right and its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function. [96]
The judge with whom an application for a writ of possession is filed need not look into the validity of the mortgage or the manner of its foreclosure. Any
question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of possession. Regardless of whether or
not there is a pending suit for the annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice, of course,
to the eventual outcome of the pending annulment case. The issuance of a writ of possession in favor of the purchaser in a foreclosure sale is a ministerial act
and does not entail the exercise of discretion. [97]
WHEREFORE, in view of the foregoing, the Petition of the Torbela siblings in G.R. No. 140528 is GRANTED, while the Petition of Lena Duque-Rosario in
G.R. No. 140553 is DENIED for lack of merit. The Decision dated June 29, 1999 of the Court of Appeals in CA-G.R. CV No. 39770, which affirmed with

modification the Amended Decision dated January 29, 1992 of the RTC in Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822, is AFFIRMED WITH
MODIFICATIONS, to now read as follows:
(1)

Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela siblings;

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in the name of Banco Filipino and to issue a new certificate of title in
the name of the Torbela siblings for Lot No. 356-A;
(3) The case is REMANDED to the RTC for further proceedings to determine the facts essential to the proper application of Articles 448 and 546 of the
Civil Code, particularly: (a) the present fair market value of Lot No. 356-A; (b) the present fair market value of the improvements thereon; (c) the option of the
Torbela siblings to appropriate the improvements on Lot No. 356-A or require Dr. Rosario to purchase Lot No. 356-A; and (d) in the event that the Torbela siblings
choose to require Dr. Rosario to purchase Lot No. 356-A but the value thereof is considerably more than the improvements, then the reasonable rent of Lot No.
356-A to be paid by Dr. Rosario to the Torbela siblings;
(4) The Torbela siblings are DIRECTED to submit an accounting of the rents of the improvements on Lot No. 356-A which they had received and to turn
over any balance thereof to Dr. Rosario;
(5) Dr. Rosario is ORDERED to pay the Torbela siblings P200,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as
attorneys fees; and
(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered by TCT No. 165812. The RTC Branch Clerk of Court
is ORDERED to issue a writ of possession for the said property in favor of Banco Filipino.
SO ORDERED.
G.R. No. 128471 March 6, 1998
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner,
vs.
HON. COURT OF APPEALS, (Thirteenth Division), JOSE SALONGA, TAN KIAT TIAN and JOSEFINA USMAN joined by her husband ESTEBAN
TAN, respondents.
ROMERO, J.:
This is a petition for review of the decision of the Court of Appeals in CA-G.R. CV No. 44058 entitled "Jose Salonga, et al v. Queen's Row Subdivision Inc.,
Government Service Insurance System, et al." 1 dated February 27, 1997, involving an action for declaration of ownership and cancellation of title.
Private respondents Jose Salonga, Tan Kiat Tan, and Josefina Usman were registered co-owners pro-indiviso of two parcels of land located at Molino, Bacoor,
Cavite with Transfer Certificate of Titles Nos. T-32452 and T-32453 issued by the Register of Deeds of Cavite on November 5, 1968. 2 The property was collectively
conveyed to them by Emiliano Bunag and Raymundo Catienza by virtue of a Deed of Sale dated October 31, 1968.
Sometime in 1974, the Municipal Treasurer of Cavite refused private respondents' payment for real estate taxes of the property on the ground that the tax
declarations of the property were already canceled. Upon investigation, they discovered that new tax declarations and titles of the said property were issued in the

name of Queen's Row Subdivision, Inc. (QRSI). TCT No. T-32453 was superseded by TCT No. T-54244, issued on August 27, 1971, while TCT No. T-32452 was
now covered by TCT No. T-54192, issued on August 17, 1971, both in the name of QRSI. 3
On June 17, 1974, private respondents sent a letter-complaint to the Public Assistance Office (PAO) of the then Ministry of National Defense seeking assistance
and asking for an immediate investigation of QRSI and the Register of Deeds of Cavite. 4 No action was, however, taken by the PAO.
On November 13, 1987, private respondents filed an action for declaration of ownership and cancellation of title against QRSI, the Register of Deeds of Cavite,
and the Government Service and Insurance System (GSIS) under Civil Case No. BCV-87-36 before the Regional Trial Court of Bacoor, Cavite, Branch 19.
The GSIS was impleaded in the action since records show that it entered into a project and loan agreement with QRSI wherein the former granted the latter a loan
in the amount of P14,360,000.00 secured by a real estate mortgage covering QRSI's properties in Molino, Bacoor, Cavite totaling an area of 1,300,000 square
meters. Among the properties included as collateral were private respondents' two lots. Upon QRSI's default in payment, the properties were extrajudicially
foreclosed by the GSIS.
For failure to file an Answer within the reglementary period, QRSI and the Register of Deeds of Cavite were both declared in default. The GSIS, on the other hand,
filed an Answer, and trial on the merits was conducted.
On July 21, 1992, the trial court rendered a decision 5 in favor of private respondents, the dispositive portion of which reads:
WHEREFORE, this Court finds for the plaintiffs and against the defendant Queen's Row Subdivision, Inc., the Government Service Insurance System
(GSIS) and the Register of Deeds of Cavite who are hereby ordered to:
1. maintain, revive, and/or reinstate TCT No. T-32452 and TCT No. T-32453 in the names of plaintiffs Tan Kiat Tan, Josefina Usman and Jose Salonga who
are hereby declared owners in fee simple of the same;
2. cancel TCT Nos. T-54192 and T-54244 in so far as they affect TCT Nos. T-32452 and T-32453 of plaintiffs from being procured by fraud (Bruce vs.
Apurado, 26 Phil 838) and for being issued for land already covered by prior Torrens title;
3. the Municipal Treasurer of Bacoor, Cavite to reinstate tax declaration nos. 11715 and 11716 of the said Municipal Treasurer's Office in the name of
plaintiffs;
4. pay attorney's fees of P/40,000.00 and P/50,000.00 as cost of suit to the plaintiffs.
SO ORDERED.
The GSIS then appealed the decision to the Court of Appeals, alleging that the trial court erred in its findings. The Court of Appeals dismissed the petition and
affirmed the decision of the trial court in toto. 6 Hence, this petition, where petitioner raises the following issues: (a) the Court of Appeals erred in not ruling that
petitioner GSIS was a mortgagee and purchaser in good faith; (b) that private respondents' cause of action has already prescribed; and (c) the Court of Appeals
erred in affirming the award of attorney's fees by the trial court. 7
The petition must fail.
The GSIS claims that it has a better right over the property as a mortgagee and subsequent purchaser for value in good faith. It argues that it had the right to rely
on the face of the certificates of title (T-54192 and T-54244) and it was justified in dispensing with the need for inquiring further since it had no actual knowledge of
facts or circumstances that would compel them to make an inquiry. Moreover, it had complied with all the requirements of a valid extrajudicial foreclosure of
mortgage and acquired the subject properties as highest bidder free from any lien and encumbrance and without any defect. The GSIS maintains that it should be
considered a mortgagee and subsequent purchaser for value in good faith, with a superior right to the property.
These arguments are not persuasive enough.
The GSIS was created for the purpose of providing social security and insurance benefits as well as promoting efficiency and the welfare of government
employees. 8

Under the Government Service Insurance System Act of 1997: 9

Sec. 36. Investment of Funds. The funds of the GSIS which are not needed to meet the current obligations may be invested under such terms and
conditions and rules and regulations as may be prescribed by the Board: Provided, that investments shall satisfy the requirements of liquidity, safety,
security and yield in order to ensure the actuarial solvency of the funds of the GSIS; . . . 10
It should be emphasized that the funds of the GSIS come from the monthly contributions of its members. Thus, its business is to keep in trust money belonging to
its members, the government employees.
The GSIS Act grants the GSIS the power to invest its funds, directly or indirectly. 11 Being allowed to engage in financing, the GSIS should, therefore, exercise care
and prudence in investing its funds, such as in granting loans. Although the GSIS is categorized as a social security and insurance entity, its ancillary function of
investing funds imposes upon it the duty of exercising due diligence in dealing with properties submitted as collateral for loans.
In the case of Tomas v. Tomas, 12 we had occasion to rule:
. . . Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, for their business is one affected
with public interest, keeping in trust money belonging to their depositors, which they should guard against loss by not committing any act of negligence
which amount to lack of good faith by which they would be denied the protective mantle of the land registration statute, Act 496, extended only to
purchasers for value and good faith, as well as to mortgagees of the same character and description.
This doctrine can well be applied to the instant case. The records show that QRSI mortgaged properties located at Molino, Bacoor, Cavite covering an area of
1,300,000 square meters for the construction of 4,493 housing units therein to the GSIS in consideration of the P14,360,000.00 loan granted to it. Private
respondents' properties were among those included in the mortgage. QRSI somehow managed to illegally procure its own certificates of title covering private
respondents' lots.
The same records, however, fail to reveal that the GSIS exercised due diligence in ascertaining the real owners of TCT Nos. 54192 and 54244. If the GSIS had
investigated the same, then it would have learned that said TCTs were illegally obtained. Moreover, it should have been more cautious, considering the substantial
amount of the loan granted. Thus, the GSIS cannot assert the defense of good faith, considering that it did not exercise the proper diligence required by the
situation.
In Rural Bank of Compostela v. Court of Appeals, et al., 13 this Court held that if a bank failed to observe due diligence, it is not considered a mortgagee in good
faith, thus:
. . . Secondly, the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks:
xxx xxx xxx
There is no proof at all that the petitioner observed due diligence in ascertaining who the occupants or owners of the property were, considering that Free
Patent No. (VII-I) 939 and OCT No. 0-10288 were just recently issued.
xxx xxx xxx
All told, the petitioner was not a mortgagee in good faith.
Petitioner is deemed to have failed to exercise the requisite due diligence in ascertaining if the land mortgaged to it by QRSI covered by TCT Nos. 54192 and
54244 was valid and free from any legal defect. This failure is tantamount to negligence for petitioner cannot simply rely on the face of the title of the property, as
its ancilliary function of investing funds requires a greater degree of diligence. It cannot, therefore, be considered as a mortgagee and subsequent purchaser in
good faith, and necessarily, private respondents are deemed to have a better right over the property.
The contention of petitioner that the cause of action of private respondents has prescribed in the case at bar cannot, likewise, be given consideration. Laches is
defined as the failure or neglect, for an unreasonable length of time, to do that which by exercising due diligence, could or should have done earlier. The

negligence or omission to assert a right within a reasonable time, warrants a presumption that the party entitled to assert it either has abandoned it or declined to
assert it. 14
In this case, the records show that when private respondents discovered that the tax declaration of their property was canceled, they forthwith filed a complaint
with the Public Assistance Office of the then Ministry of National Defense seeking an immediate investigation on the matter. When no action was taken by the
latter, they then filed a complaint for declaration of ownership and cancellation of title against QRSI, the Registry of Deeds of Cavite and petitioner.
For laches to exist, there should be a showing of delay in asserting the complainant's (herein private respondents') right. 15 Based on the foregoing, it cannot be
said that private respondents slept on their rights, inasmuch as from the time they discovered the cancellation of the tax declarations, they immediately filed a
complaint to assert their ownership over the property.
As regards the propriety of the monetary award, the appellate court correctly ruled that the trial court was justified in awarding the same since the attorney's fee of
P40,000.00 and litigation cost of P50,000.00 were duly proven by private respondents.
The assessment and evaluation for the award of attorney's fees and litigation cost are findings of fact ordinarily left to the trial court for its conclusive determination.
Finally, it is a fundamental and settled rule that factual findings of the trial court, adopted and confirmed by the Court of Appeals, are final and conclusive and may
not be reviewed on appeal. This Court finds no justifiable reason or exception 16 to this rule sufficient to cause a reversal of the judgments rendered by both the trial
and appellate courts.
WHEREFORE, the instant petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R. CV No. 44058 dated February 27, 1997, is AFFIRMED in
toto. No costs.
SO ORDERED.

G.R. No. L-19519

November 28, 1964
IN RE: Petition for Cancellation of Adverse Claim. ANANIAS ABUSTAN, petitioner-appellee,
vs.
RUPERTO FERRER and CONSUELO V. GOLEZ (spouses), oppositors-appellants.
Pio L. Pestrao for oppositors-appellants.
Marquez, Quirino & Associates and V. de Villar for petitioner-appellee.
CONCEPCION, J.:
The spouses Ruperto Ferrer and Consuelo V. Golez, hereinafter referred to as the Ferrers, seek the review of an order of the Court of First Instance of Rizal
directing the cancellation of an annotation of their adverse claim to a parcel of land situated in the Municipality of Makati, Province of Rizal, and covered by
Transfer Certificate of Title No. 76141 of the Office of the Register of Deeds of said province, issued in the name of appellee Ananias Abustan on May 4, 1960,
upon cancellation of Transfer Certificate of Title No. 30520 in the name of Vicente C. Gomez, married to Cirila Sulingco Manuel, of the same province.
The record shows that on April 6, 1955, Gomez had executed the document Exhibit E, constituting a mortgage on said land in favor of the Ferrers, to guarantee
the payment of P2,500.00, within one (1) year from said date; that Exhibit E provided that, if Gomez failed to redeem the property within the aforementioned
period, the Ferrers could, "at their election," assume an obligation of Gomez in favor of the Meralco Loan and Savings Association hereinafter referred to as the
Meralco Association which had a first mortgage on said property, and Gomez would execute the corresponding deed of sale thereof in favor of the Ferrers; and

that Exhibit E was neither registered nor annotated on Transfer Certificate of Title No. 30520, because the former stated erroneously that said proper was covered
by Transfer Certificate of Title No. 16488 of the City of Manila.
Subsequently, or on May 9, 1956, the mortgage in favor of the Meralco Association was cancelled in pursuance of a deed to this effect. On the same date, a deed
of real estate mortgage, executed by Gomez in favor of the spouses Brigido Campita and Fausta Domingo, for the sum of P3,000, was duly registered, but the
annotation thereof was duly cancelled on June 8, 1957, on which date another deed of mortgage on the same property, for the sum of P6,000, in favor of the
Manila Building and Loan Association hereinafter referred to as the Manila Association was duly registered. On March 4, 1959, the Ferrers instituted, against
Gomez, Civil Case No. 4820 of the Court of First Instance of Rizal, for the recovery of the sum of money referred to in Exhibit E but this case was later dismissed
for non-appearance of the parties on the date set for the hearing thereof. Instead of seeking a revocation of the order of dismissal, the Ferrers commenced, on
August 14, 1959, Civil Case No. 5726 of the same court, against Gomez and the Manila Association. In the complaint therein, the Ferrers alleged, inter alia, the
execution by Gomez of said deed Exhibit E, the failure of Gomez to pay the debt guaranteed thereby, the reason why Exhibit E was not registered, and the
execution of the deed of first mortgage in favor of the Manila Association. The Ferrers alleged further that the Manila Association had been guilty of laches in failing
to require Gomez, before lending him P6,000, to submit an affidavit stating that the property aforementioned was unencumbered and prayed that judgment be
rendered sentencing Gomez to convey said property to them (the Ferrers), as well as to pay damages, and the Manila Association to cancel the mortgage in their
favor, upon payment by the Ferrers of the amount representing the balance of the obligation of Gomez in favor of the Meralco Association outstanding on April 6,
1956 (it should be 1955), when Exhibit E was executed.
Gomez and the Manila Association moved to dismiss the complaint in Case No. 5726, upon the ground that the same is barred by the order of dismissal of Case
No. 4820. On December 10, 1959, this motion was granted and the complaint in said Case No. 5726 was, accordingly, dismissed. No appeal was taken from the
order of dismissal, which accordingly, became final and executory. Subsequently, or on March 14, 1960, Mrs. Ferrer filed with the office of the Register of Deeds of
Rizal an affidavit of adverse claim to the property above referred to, based upon Exhibit E. Soon thereafter, or on May 4, 1960, Transfer Certificate of Title No.
76141 was issued in the name of Ananias D. Abustan, married to Librada Buan. This Transfer Certificate of Title No. 76141 carried thereon two (2) memoranda, of
"encumbrances," namely, the annotation of the first mortgage in favor of the Manila Association and that of the adverse claim of the Ferrers.
On July 13, 1960, Abustan filed in Land Registration Case No. 3861, G.L.R.O. Cadastral Record No. 2029, under which the property in question is registered, a
petition for cancellation of said annotation of adverse claim upon the ground that the same had been "improperly registered in violation of Section 112 of Act 496,
because the right or interest sought to be enforced by the spouses, Ruperto Ferrer and Consuelo Golez, has become unenforceable by virtue of a final decision
rendered by the Court of First Instance of Rizal on December 10, 1959, in Civil Case No. 5726," referring to the aforementioned order of dismissal thereof. After
due hearing this petition was granted and, a reconsideration of the action thus taken by the lower court having been denied, the, Ferrers have interposed the
present appeal by writ of error.
The Ferrers maintain that the lower court erred (a) in holding that the deed of mortgage constituted in their favor had become unenforceable owing to the dismissal
of Civil Cases Nos. 4820 and 5726 of Rizal; (b) in not holding that the registration of the adverse claim in question operated as a registration of the deed of real
estate mortgage in their favor; (c) in not holding that Civil Case No. 5726 operated as a reopening of Civil Case No. 4820; and (d) in giving due course to
appellee's petition instead of requiring them to file an ordinary action.
This appeal is clearly devoid of merit. Indeed, the dismissal of Case No. 4820 had the effect of extinguishing the debt of Gomez in favor of the Ferrers. As a
consequence, the latter lost the right to demand the conveyance in their favor of the lot in dispute, such right being predicated upon the default of Gomez in the
payment of said debt. The extinction thereof necessarily operated to wipe out the default, if any, and, as a consequence, the relief stipulated for such event,

namely, the conveyance of the property to the Ferrers. Regardless of the foregoing, the dismissal of Case No. 5726 extinguished the light, if it still existed, to said
conveyance, which was sought to be enforced in that case.
Even if the annotation of the adverse claim amounted to the registration of a deed of real estate mortgage and it did not have such effect the dismissal of
Case No. 4820, had extinguished the debt secured by the mortgage, and, accordingly, of the latter. Being merely an accessory contract, a mortgage cannot exist
without the principal obligation it seeks to guarantee (Article 2085, Civil Code of the Philippines). So, too, even if Case No. 5726 had amounted to a reopening of
Case No. 4820, which is not a fact, the dismissal of Case No. 5726 wiped out the right of the Ferrers under Exhibit E to the conveyance in their favor if the property
in question regardless of its nullity under Article 2088 of the Civil Code of the Philippines no appeal having been taken from the order of dismissal of said
case No. 5726.
As regards the theory that the lower court should have required Abustan to litigate in an ordinary action, instead of allowing him to secure the cancellation of the
annotation of the adverse claim under Section 112 of the Land Registration Act, suffice it to say that the case of Tangunan vs. Republic (50 Off. Gaz., 1) relied
upon by the Ferrers is not in point, for the issue therein was controversial, whereas in the case at bar, there is no dispute about the issue in Cases Nos. 4820 and
5726, about the dismissal of both and the grounds for dismissal, and about the fact that no appeal had been taken from the orders of dismissal and that the same
had, accordingly, become final and executory. Neither can there be any controversy about the effect of said orders of dismissal. That of Case No. 4820, for nonappearance of the parties, was, pursuant to Section 3 of Rule 17 of the Rules of Court, "an adjudication upon the merits, unless otherwise provided by the court,"
and the, court did not provide otherwise. Upon the other hand, the dismissal of Case No. 5726 was based upon the ground that the cause of action therein is
barred by a prior judgment namely the dismissal of Case No. 4820.
WHEREFORE, the order appealed from is hereby affirmed, with costs against herein appellants Ruperto Ferrer and Consuelo V. Golez. It is so ordered.
G.R. No. L-17072
October 31, 1961
CRISTINA MARCELO VDA. DE BAUTISTA, plaintiff-appellee,
vs.
BRIGIDA MARCOS, ET AL., defendants-appellants.
Aladin B. Bermudez for defendants-appellants.
Cube and Fajardo for plaintiff-appellee.
REYES, J.B.L., J.:
The main question in this appeal is whether or not a mortgagee may foreclose a mortgage on a piece of land covered by a free patent where the mortgage was
executed before the patent was issued and is sought to be foreclosed within five years from its issuance.
The facts of the case appear to be as follows:
On May 17, 1954, defendant Brigida Marcos obtained a loan in the amount of P2,000 from plaintiff Cristina Marcel Vda. de Bautista and to secure payment thereof
conveyed to the latter by way of mortgage a two (2)-hectare portion of an unregistered parcel of land situated in Sta. Ignacia, Tarlac. The deed of mortgage, Exhibit
"A", provided that it was to last for three years, that possession of the land mortgaged was to be turned over to the mortgagee by way of usufruct, but with no
obligation on her part to apply the harvests to the principal obligation; that said mortgage would be released only upon payment of the principal loan of P2,000
without any interest; and that the mortgagor promised to defend and warrant the mortgagee's rights over the land mortgaged.
Subsequently, or in July, 1956, mortgagor Brigida Marcos filed in behalf of the heirs of her deceased mother Victoriana Cainglet (who are Brigida herself and her
three sisters), an application for the issuance of a free patent over the land in question, on the strength of the cultivation and occupation of said land by them and

their predecessor since July, 1915. As a result, Free Patent No. V-64358 was issued to the applicants on January 25, 1957, and on February 22, 1957, it was
registered in their names under Original Certificate of Title No. P-888 of the office of Register of Deeds for the province of Tarlac.
Defendant Brigida Marcos' indebtedness of P2,000 to plaintiff having remained unpaid up to 1959, the latter, on March 4, 1959, filed the present action against
Brigida and her husband (Civil Case No. 3382) in the court below for the payment thereof, or in default of the debtors to pay, for the foreclosure of her mortgage on
the land give as security. Defendants moved to dismiss the action, pointing out that the land in question is covered by a free patent and could not, therefore, under
the Public Land Law, be taken within five years from the issuance of the patent for the payment of any debts of the patentees contracted prior to the expiration of
said five-year period; but the lower court denied the motion to dismiss on the ground that the law cited does not apply because the mortgage sought to be
foreclosed was executed before the patent was issued. Defendants then filed their answer, reiterating the defense invoked in their motion to dismiss, and alleging
as well that the real contract between the parties was an antichresis and not a mortgage. Pre-trial of the case followed, after which the lower court rendered
judgment finding the mortgage valid to the extent of the mortgagor's pro-indiviso share of 15,333 square meters in the land in question, on the theory that the
Public Land Law does not apply in this case because the mortgage in question was executed before a patent was issued over the land in question; that the
agreement of the parties could not be antichresis because the deed Exhibit "A" clearly shows a mortgage with usufruct in favor of the mortgagee; and ordered the
payment of the mortgage loan of P2,000 to plaintiff or, upon defendant's failure to do so, the foreclosure of plaintiff's mortgage on defendant Brigida Marcos'
undivided share in the land in question. From this judgment, defendants Brigida Marcos and her husband Osmondo Apolocio appealed to this Court.
There is merit in the appeal.
The right of plaintiff-appellee to foreclose her mortgage on the land in question depends not so much on whether she could take said land within the prohibitive
period of five years from the issuance of defendants' patent for the satisfaction of the indebtedness in question, but on whether the deed of mortgage Exhibit "A" is
at all valid and enforceable, since the land mortgaged was apparently still part of the public domain when the deed of mortgage was constituted. As it is an
essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of the thing mortgaged (Art. 2085), the mortgage here in question is void
and ineffective because at the time it was constituted, the mortgagor was not yet the owner of the land mortgaged and could not, for that reason, encumber the
same to the plaintiff-appellee. Nor could the subsequent acquisition by the mortgagor of title over said land through the issuance of a free patent validate and
legalize the deed of mortgage under the doctrine of estoppel (cf. Art. 1434, New Civil Code, 1 since upon the issuance of said patient, the land in question was
thereby brought under the operation of the Public Land Law that prohibits the taking of said land for the satisfaction of debts contracted prior to the expiration of
five years from the date of the issuance of the patent (sec. 118, C.A. No. 141). This prohibition should include not only debts contracted during the five-year period
immediately preceding the issuance of the patent but also those contracted before such issuance, if the purpose and policy of the law, which is "to preserve and
keep in the family of the homesteader that portion of public land which the State has gratuitously given to him" (Pascua v. Talens, 45 O.G. No. 9 [Supp.] 413; De
los Santos v. Roman Catholic Church of Midsayap, G.R. L-6088, Feb. 24, 1954), is to be upheld.
The invalidity of the mortgage Exhibit "A" does not, however, imply the concomitant invalidity of the collate agreement in the same deed of mortgage whereby
possession of the land mortgaged was transferred to plaintiff-appellee in usufruct, without any obligation on her part to account for its harvests or deduct them from
defendants' indebtedness of P2,000. Defendant Brigida Marcos, who, together with her sisters, was in possession of said land by herself and through her
deceased mother before her since 1915, had possessory rights over the same even before title vested in her as co-owner by the issuance of the free patent to her
and her sisters, and these possessory right she could validly transfer and convey to plaintiff-appellee, as she did in the deed of mortgage Exhibit "A". The latter,
upon the other hand, believing her mortgagor to be the owner of the land mortgaged and not being aware of any flaw which invalidated her mode of acquisition,
was a possessor in good faith (Art. 526, N.C.C.), and as such had the right to all the fruits received during the entire period of her possession in good faith (Art.

544, N.C.C.). She is, therefore, entitled to the full payment of her credit of P2,000 from defendants, without any obligation to account for the fruits or benefits
obtained by her from the land in question.
WHEREFORE, the judgment appealed from is reversed insofar as it orders the foreclosure of the mortgage in question, but affirmed in all other respects. Costs
again defendants-appellants.
G.R. No. 149221
April 7, 2009
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
MARCELINO BANATAO, ROSA BANATAO, VICTORINA B. CADANGAN, AVELINO BANATAO, ROSALINDA B. GUMABAY, EDNA B. CALUCAG, CATALINA
BANATAO, ABDON BANATAO, GELACIO BANATAO, CONSTANCIO BANATAO, DOMINGO BANATAO, RICHARD BANATAO, ARNOLD BANATAO, SALVACION
BANATAO, LANIE BANATAO, VIVIAN BANATAO, ALVIN BANATAO, ROLAND BANATAO, FE SACQUING, MAXIMO SACQUING, POMPEO BANTAO, ANNIE
MALUPENG, BONG MALUPENG, EDILBERTO BANGAYAN, EVANGELINE BANGAYAN, ELPIDIO BANGAYAN, MARLIN PAMITTAN, LOIDA PAMITTAN,
VICENTE PAMITTAN, MICHAEL PAMITTAN, EDGARDO PAMITTAN, LORINA BANATAO, ASSISTED BY HUSBAND WILLY BANATAO, MARAVITA BANATAO,
PAULINA BANATAO ASSISTED BY HUSBAND DOMINGO CUNTAPAY, JULIETA BANATAO, ROSITA PAMITTAN ASSISTED BY HUSBAND SALVADOR
BANATO, AND ELENA BANATAO, Plaintiffs-Respondents,
and MARCIANO CARAG, EUGENIO SORIANO, MARIA CAUILAN, PEDRO SORIANO, PAZ TACACAY, BENJAMIN TACACAY, FAUSTA AGUSTIN, MILAGAROS
B. CARAG, Defendants-Respondents.
DECISION
BRION, J.:
This petition for review on certiorari1 brings into focus: (1) the effect of a compromise agreement entered into by some, but not all, of the parties to a litigation, and
its effect on the non-participating litigants; and (2) the prohibition against the encumbrance, within the same periods prescribed by law, of lands granted under
homestead patent.
The facts as culled from the records are outlined below.
On November 16, 1962, Banatao, et al. (plaintiffs-respondents) initiated an action docketed as Civil Case No. 1600 against Marciano Carag (one of
the defendants-respondents) before the Regional Trial Court (RTC), Branch IV, Tuguegarao, Cagayan.2 The action was for the recovery of real property (disputed
property) situated at Malabac, Iguig, Cagayan. The disputed property was a new land formation on the banks of the Cagayan River an accretion to Lot 3192 of
the Iguig Cadastre that the plaintiffs-respondents claimed as the owners of the adjoining Lot 3192. The defendants-respondents, on the other hand, were the
occupants of the disputed property.
The records show that while the case was pending, the defendants-respondents (particularly the spouses Pedro Soriano and Paz Tagacay, the spouses Eugenio
Soriano and Maria Cauilan, the spouses Benjamin Tagacay and Fausta Agustin, and Milagros B. Carag wife of Marciano Carag) were able to secure homestead
patents evidenced by Original Certificates of Title (OCTs) issued in their names, denominated as OCT Nos. 24800, 24801, 25217, and 25802, respectively. 3 The
OCTs were issued in 1965 and 1966, and all bear the proviso that, in accordance with the Public Land Act, the patented homestead shall neither be alienated nor
encumbered for five (5) years from the date of the issuance of the patent. 4
Armed with their OCTs, the defendants-respondents separately applied for loans with the Philippine National Bank (PNB or the bank) secured by real estate
mortgages on their respective titled portions of the disputed property. The bank approved the mortgages, relying solely on the OCTs which, at the time, did not
contain any notice of lis pendens or annotation of liens and encumbrances. The PNB mortgages were annotated on the defendants-respondents' respective OCTs
also in the years 1965 and 1966. 5

On February 22, 1968, the trial court decided the case in favor of the plaintiffs-respondents and against defendant-respondent Carag, and ordered the return of the
disputed property to the plaintiffs-respondents. 6Carag appealed the trial court decision to the Court of Appeals (CA).
While the appeal was pending, the appellate court discovered that the disputed property had been subject of homestead patents issued in the names of
defendants-respondents Carag, et al. Hence, in its Resolution dated April 16, 1969, the Special Fourth Division of the CA set aside the February 22, 1968 decision
of the RTC and ordered the remand of the records to the trial court for further proceedings. 7 The appellate court likewise ordered the necessary amendment of the
complaint to implead the defendants-respondents who were deemed indispensable parties to the case.1avvphi1
The plaintiffs-respondents filed on October 14, 1970 the required amended complaint, impleading as party defendants Eugenio Soriano, Maria Cauilan, Pedro
Soriano, Paz Tagacay, Benjamin Tagacay, Fausta Agustin, and Milagros B. Carag, as well as the bank. 8 The plaintiffs-respondents also added two (2) additional
causes of action, or a total of three (3) causes of action, namely: (1) recovery of real property; (2) cancellation of the OCTs; and (3) annulment of real estate
mortgage. The bank was made a party to the case in view of the suit for annulment of mortgage.
The records disclose that on March 29, 1973, while the case was pending before the trial court, the bank extrajudicially foreclosed the property covered by OCT
No. 24800 issued to the spouses Pedro Soriano and Paz Tagacay. The bank was declared the highest bidder in the ensuing public auction. The spouses Soriano
failed to redeem the foreclosed property, resulting in the consolidation of title in the banks name; hence, the issuance on October 3, 1985 of TCT No. T-65664 in
the name of the bank.9
On February 28, 1991, the plaintiffs-respondents and the defendants-respondents entered into a compromise agreement whereby ownership of virtually the
northern half of the disputed property was ceded to the plaintiffs-respondents, while the remaining southern half was given to the defendants-respondents. 10 In the
same compromise agreement, the defendants-respondents acknowledged their indebtedness to petitioner PNB and bound themselves to pay their respective
obligations to the bank, including the interests accruing thereon. Petitioner PNB, however, was not a party to the compromise agreement which reads:
COMPROMISE AGREEMENT11
Plaintiffs and defendants, by counsels, enter into and submit the following compromise agreement:
xxx
(b) That the defendant, PEDRO SORIANO, acknowledges the plaintiffs as the lawful owners of the NORTHERN PORTION of the land covered by Original
Certificate of Title No. P-24800, with an area of 85,348 square meters more or less and is more particularly described in the technical description hereto
attached as Annex "A" and forming part hereof;
(c) That the defendant, BENJAMIN TAGACAY, acknowledges the plaintiffs to be the owners of the NORTHERN PORTION of the land covered by Original
Certificate of Title No. P-25217, with an area of 98,790 square meters more or less and is more particularly described in the technical description hereto
attached as Annex "B" and forming part hereof;
(d) That the defendant, MILAGROS B. CARAG, acknowledges the plaintiffs to be the owners of the NORTHERN PORTION of the land covered by Original
Certificate of Title No. P-24802, with an area of 58,378 square meters more or less and is more particularly described in the technical description attached
hereto as Annex "C" and forming part hereof;
(e) That the defendant Pedro Soriano acknowledges indebtedness to the Philippine National Bank and binds himself to pay his loan together with the
interest and other charges;
(f) That the defendant Benjamin Tagacay acknowledges indebtedness to the Philippine National Bank and binds himself to pay his loan together with the
interest and other charges;
(g) That the defendant Milagros B. Carag acknowledges indebtedness to the Philippine National Bank and binds himself to pay his loan together with the
interest and other charges;
(h) That the private defendants acknowledge the plaintiffs to be the owners and possessors of the motherland otherwise known as Lot 3192 and the area
ceded to the plaintiffs by the private defendants;
(i) That the parties hereto submit the foregoing compromise agreement as basis for the decision in the above-entitled case by the Honorable Court.

Tuguegarao, Cagayan, December 26, 1990.

On March 15, 1991, the trial court rendered its decision, approving and adopting in toto the compromise agreement, and ordering the participating parties to strictly
comply with its terms.12 The bank moved for reconsideration of the trial courts decision and for the setting aside of the compromise agreement. The trial court
denied the motion in its Resolution of February 7, 1992, thus, compelled the bank to elevate the case to the CA. 13
The appellate court dismissed the appeal in its decision of March 30, 2001, ruling that the bank is not an indispensable party to the compromise agreement that
only settles the actions for: (1) recovery of property; and (2) cancellation of OCTs. 14 On the third cause of action for annulment of mortgage, the court held the bank
is only a necessary party and "the issue could be dealt with in a separate and distinct action." The appellate court in the same decision proceeded to strike down
the mortgages as void because the mortgagors (defendants-respondents), not being the absolute owners of the disputed parcels of land as agreed upon in the
compromise agreement, did not have the right to constitute a mortgage on these properties.
The PNB sought reconsideration of the dismissal of its appeal, but the appellate court denied its motion in a Resolution dated July 27, 2001; 15 hence, this petition
for review on certiorari.
The PNB raises the following legal issue:
WHETHER THE COMPROMISE AGREEMENT ENTERED INTO BY AND BETWEEN THE HEREIN PLAINTIFFS-RESPONDENTS AND DEFENDANTSRESPONDENTS AND APPROVED BY THE TRIAL COURT LEGALLY BINDS PETITIONER PNB WHICH IS NOT A PARTY THERETO AND CONSTITUTES
SUFFICIENT LEGAL BASIS TO NULLIFY PNB'S MORTGAGE LIEN ON THE REALTY IN QUESTION.
In attacking the compromise agreement between the plaintiffs-respondents and the defendants-respondents, the PNB argues that it is an indispensable, not
merely a necessary, party to all three causes of action, namely, for (1) recovery of real property; (2) cancellation of the OCTs; and (3) annulment of mortgages.
Arguing that the causes of action are closely intertwined and intimately related, and that the compromise was entered into precisely to put an end to the case, the
PNB submits that its consent to the compromise agreement is necessary to secure a final and complete determination of the claims and defenses of all the parties
to the case.
The PNB further argues that when the appellate court approved in toto the trial court's judgment on the compromise agreement, it failed to consider that the bank
was a mortgagee in good faith. The bank claims good faith on the position that the OCTs presented to it were all clean on their faces at the time the mortgages
were applied for; that there were no notices of lis pendens or any annotation of liens or encumbrances on all of them; and that it had no knowledge, actual or
constructive, of facts or circumstances to warrant further inquiry into the titles of the defendants-respondents.
THE COURTS RULING
We resolve to dismiss the petition for the reasons discussed below.
The compromise agreement disposed of the first two causes of action filed by plaintiffs-respondents Banatao, et al. against defendants-respondents Carag, et al.,
namely, the actions for (1) recovery of real property; and (2) cancellation of the OCTs, thereby settling the question of ownership between them. The trial court
approved the compromise agreement in toto. The appellate court, in turn, upheld the trial court, but it proceeded to discuss on the third cause of action (for
annulment of mortgage), concluding that the mortgages were void because the mortgagors were not the absolute owners of the mortgaged properties.1avvphi1 In
the words of the appellate court:
The main cause of action here is the "Recovery of Realty and Reconveyance," the "Annulment of Mortgage" is only an ancillary cause of action. In the decision
approving the compromise agreement it disposes and finally determined the "Recovery of Realty and Reconveyance."
The moment ownership of the disputed real property was clearly proven to be that of the [plaintiffs-respondents], the question of the validity of the mortgage made
by the [defendants-respondents] with [petitioner PNB] could easily be determined.
xxx
The [defendants-respondents], not being the absolute owners and not having been authorized to mortgage the subject real property, could not validly mortgage the
said real property with [petitioner PNB]. However, we are not unmindful of the [defendants-respondents'] liability to [the bank]. But such issue could be dealt with in
a separate and distinct action. [Emphasis supplied.]

With the above ruling, the bank who was not a party to the agreement was therefore affected; it was a mortgagee of a part of the disputed property, and had in fact
foreclosed the portion covered by OCT No. 24800.
It is basic in law that a compromise agreement, as a contract, is binding only upon the parties to the compromise, and not upon non-parties. This is the doctrine of
relativity of contracts. Consistent with this principle, a judgment based entirely on a compromise agreement is binding only on the parties to the compromise the
court approved, and not upon the parties who did not take part in the compromise agreement and in the proceedings leading to its submission and approval by the
court. Otherwise stated, a court judgment made solely on the basis of a compromise agreement binds only the parties to the compromise, and cannot bind a party
litigant who did not take part in the compromise agreement. In the case of Castaeda v. Heirs of Maramba,16 we held that:
Judgment based on a compromise affects only participating litigantsA partial decision, stemming from an amicable settlement among two of several parties to an
action, binds only the parties so participating in the settlement. This decision never becomes final with respect to the parties who did not take part in the settlement
confirmed by the partial decision aforesaid. [Emphasis supplied.]
Following Castaeda, the judgment on compromise rendered by the trial court in this case, and later affirmed by the appellate court, is final with respect only to the
plaintiffs-respondents and defendants-respondents, but not with respect to the PNB. Hence, the trial court's judgment on compromise which settles the issue of
ownership over the properties in question is but a partial decision that does not completely decide the case and cannot bind the PNB.
In its assailed decision, the CA, while recognizing the liability of the defendants-respondents to the PNB, declared that the mortgagors, not being the absolute
owners of the mortgaged properties as agreed upon in the compromise agreement, do not have the right to constitute the mortgage. This conclusion is legally
incorrect as the CA capitalized on the ownership issue settled between the plaintiffs-respondents and the defendants-respondents in invalidating the PNB
mortgages, without hearing the side of the PNB as mortgagee, and later, co-owner of the disputed property. As discussed above, the compromise agreement
cannot bind the bank, a non-party to the agreement; necessarily, the ownership issue which was settled by the compromise agreement cannot be made applicable
to the bank without hearing it.
Our own review of the records of the case shows that the appellate court was not without basis to properly dispose of all the causes of action, including the
annulment of mortgage issue, had it fully scrutinized the records of the case. A glaring fact that escaped the scrutiny of both the trial and appellate courts, and
which would have led them to the quick and correct disposition of the annulment issue (and of the entire case, given the compromise agreement), is the proviso
against alienation or encumbrance of lands granted by homestead patent a fact plainly evident upon a facial examination of the OCTs involved.
We conclude from our own examination of these OCTs that the mortgages cannot but be void ab initio. On the faces of all the OCTssecured through homestead
patentsare inscribed the following words that echo the mandatory provisions of law:
TO HAVE AND TO HOLD the said tract of land with the appurtenances thereunto x x x subject to the provisions of Sections 118, 121, 122 and 124 of
Commonwealth Act No. 141, as amended, which provide that except in favor of the Government or any of its branches, units or institutions, THE LAND HEREBY
ACQUIRED SHALL BE INALIENABLE AND SHALL NOT BE SUBJECT TO [E]NCUMBRANCE FOR A PERIOD OF FIVE (5) YEARS NEXT FOLLOWING THE
DATE OF THIS PATENT, and shall not be liable for the satisfaction of any debt contracted prior to the expiration of that period; x x x. 17 [Emphasis supplied.]
This inscription reproduces Section 118 18 of the Public Land Act,19 as amended, which contains a proscription against the alienation or encumbrance of homestead
patents within five years from issue. The rationale for the prohibition, reiterated in a line of cases, first laid down in Pascua v. Talens20 states that "x x x homestead
laws were designed to distribute disposable agricultural lots of the State to land-destitute citizens for their home and cultivation. Pursuant to such benevolent
intention the State prohibits the sale or encumbrance of the homestead (Section 116, now Section 118) within five years after the grant of the patent. x x x. It aims
to preserve and keep in the family of the homesteader that portion of public land which the State had gratuitously given to him."
In the present case, the annotation of the mortgage liens occurred only months after the date of the issuance of the homestead patents. The pertinent facts as
seen on the faces of the OCTs are illustrated below:
OCT

Mortgagors

Date of

Date of Annotation /

Period from

No.

Homestead
Patent

Inscription of
Mortgage

Date of
Patent21

P24800

Pedro Soriano/
Paz Tagacay

28 Apr 1965

17 Sep 1965

5 Months

P24801

Eugenio Soriano/
Maria Cauilan

28 Apr 1965

27 Oct 1965

6 Months

P24802

Milagros B.
Carag/ Marciano
Carag

28 Apr 1965

13 Oct 1965

6 Months

P25217

Benjamin
Tagacay/ Fausta
Agustin

15 Feb 1966

25 Mar 1966

1 Month

This situation is similar to that of Republic v. Heirs of Alejaga, Sr.22 where the respondent obtained a loan ofP100,000.00 in 1981 from the PNB, secured by a real
estate mortgage on the patented land. The 1981 encumbrance was contracted two years from date of issuance of the patent in 1979, for which reason the Court
cited a violation of Section 118 of the Public Land Act which proscribes the alienation or encumbrance of the patented land within five years from the date of the
patent, and which proscription clearly appears as a proviso in the OCT issued in the name of the respondent in the case. Consequently, the PNB mortgage was
declared void.
The present case deserves exactly the same treatment, and the PNB cannot claim that it is a mortgagee in good faith. The proscription against alienation or
encumbrance is unmistakable even on a cursory reading of the the OCTs. Thus, one who contracts with a homestead patentee is charged with knowledge of the
law's proscriptive provision that must necessarily be read into the terms of any agreement involving the homestead. Under the circumstances, the PNB simply
failed to observe the diligence required in the handling of its transactions and thus made the fatal error of approving the loans secured by mortgages of properties
that cannot, in the first place, be mortgaged.
Both the defendants-respondents and the bank are to be faulted for the invalidity of the mortgages. We cannot, however, apply the doctrine of pari delicto in
accordance with the ruling that the doctrine does not apply when the contract is prohibited by law. 23 A saving factor for the bank under the situation is that a
mortgage is merely an accessory agreement and does not affect the principal contract of loan. The mortgages, while void, can still be considered as instruments
evidencing the indebtedness of defendants-respondents to the PNB in a proper case for the collection of the defendants-respondents loans.
Our conclusion on the nullity of mortgage issue renders it unnecessary to decide the question of whether the compromise agreement between the plaintiffsrespondents and the defendants-respondents should be set aside for its effect on the bank. With the mortgages invalidated, the PNB no longer has any interest
that the compromise agreement can affect. In the absence of any other reason to impugn the lower court decisions approving the compromise agreement, we
affirm the approval of the compromise agreement and the disposition of the case on the basis of compromise. Given our ruling on the invalidity of the mortgages, a
remand of this issue is no longer necessary. The parties liabilities to PNB on the loans they obtained are not issues before us for disposition, and are for the
parties to act upon as matters outside the coverage of this case.1avvphi1
WHEREFORE, we hereby DECLARE the mortgages constituted on OCT Nos. 24800, 24801, 25217 and 25802 VOID and, for this reason, we DISMISS the
petition. We AFFIRM the approval of the compromise agreement by the Court of Appeals and the disposition of the case on the basis of compromise. The order to
remand the case to the Regional Trial Court, Branch IV, Tuguegarao, Cagayan, for further proceedings is therefore REVERSED.

Costs against petitioner PNB.

SO ORDERED.
G.R. No. L-40018 December 15, 1975
NORTHERN MOTORS, INC., petitioner,
vs.
HON. JORGE R. COQUIA, etc., et al., respondents, FILINVEST CREDIT CORPORATION, intervenor.
RESOLUTION
AQUINO, J.:
Respondent Honesto Ong and City Sheriff of Manila filed a motion for the reconsideration of this Court's resolution of August 29, 1975. In that resolution, it was
held that the lien of Northern Motors, Inc., as chattel mortgagee, over certain taxicabs is superior to the levy made on the said cabs by Honesto Ong, the assignee
of the unsecured judgment creditor of the chattel mortgagor, Manila Yellow Taxicab Co., Inc.
On the other hand, Northern Motors, Inc. in its motion for the partial reconsideration of the same August 29 resolution, prayed for the reversal of the lower court's
orders cancelling the bond filed by Filwriters Guaranty Assurance Corporation. Northern Motors, Inc. further prayed that the sheriff should be required to deliver to
it the proceeds of the execution sale of the mortgaged taxicabs without deducting the expenses of execution.
1. Respondents' motion for reconsideration. Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the mortgaged taxicabs. He
contends that his only recourse was to levy upon the taxicabs which were in the possession of the judgment debtor, Manila Yellow Taxicab Co. Inc., whereas,
Northern Motors, Inc., as unpaid seller and mortgagee, "has still an independent legal remedy" against the mortgagor for the recovery of the unpaid balance of the
price.
That contention is not a justification for setting aside the holding that Ong had no right to levy upon the mortgaged taxicabs and that he could have levied only
upon the mortgagor's equity of redemption. The essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and not for
the judgment credit of the mortgagor's unsecured creditor. The mortgagee is not obligated to file an "independent action" for the enforcement of his credit. To
require him to do so would be a nullification of his lien and would defeat the purpose of the chattel mortgage which is to give him preference over the mortgaged
chattels for the satisfaction of his credit. (See art. 2087, Civil Code).
It is relevant to note that intervenor Filinvest Credit Corporation, the assignee of a portion of the chattel mortgage credit, realized that to vindicate its claim by
independent action would be illusory. For that pragmatic reason, it was constrained to enter into a compromise with Honesto Ong by agreeing to pay him
P145,000. That amount was characterized by Northern Motors, Inc. as the "ransom" for the taxicabs levied upon by the sheriff at the behest of Honesto Ong.
Honesto Ong's theory that Manila Yellow Taxicab's breach of the chattel mortgage should not affect him because he is not privy of such contract is untenable. The
registration of the chattel mortgage is an effective and binding notice to him of its existence (Ong Liong Tiak vs. Luneta Motor Company, 66 Phil 459). The
mortgage creates a real right (derecho real, jus in re or jus ad rem, XI Enciclopedia Juridica Espaola 294) or a lien which, being recorded, follows the chattel
wherever it goes.
Honesto Ong's contention that Northern Motors, Inc., was negligent because it did not sue the sheriff within the 120-day period provided for in section 17, Rule 39
of the Rules of Court is not correct. Such action was filed on April 14, 1975 in the Court of First Instance of Rizal, Pasig Branch XIII, in Civil Case No. 21065

entitled "Northern Motors, Inc. vs. Filwriters Guaranty Assurance Corporation, et al.". However, instead of Honesto Ong, his assignor, Tropical Commercial
Corporation, was impleaded as a defendant therein. That might explain his unawareness of the pendency of such action.
The other arguments of Honesto Ong in his motion may be boiled down to the proposition that the levy made by mortgagor's judgment creditor against the chattel
mortgagor should prevail over the chattel mortgage credit. That proposition is devoid of any legal sanction and is glaringly contrary to the nature of a chattel
mortgage. To uphold that contention is to destroy the essence of chattel mortgage as a paramount encumbrance on the mortgaged chattel.
Respondent Ong admits "that the mortgagee's right to the mortgaged property is superior to that of the judgment creditor". But he contends that the rights of the
purchasers of the cars at the execution sale should be respected. He reasons out they were not parties to the mortgage and that they acquired the cars prior to the
mortgagee's assertion of its rights thereto.
That contention is not well-taken. The third-party claim filed by Northern Motors, Inc. should have alerted the purchasers to the risk which they were taking when
they took part in the auction sale. Moreover, at an execution sale the buyers acquire only the right of the judgment debtor which in this case was a mere right or
equity of redemption. The sale did not extinguish the pre-existing mortgage lien (See sec. 25, Rule 39, Rules of Court; Potenciano vs. Dineros and Provincial
Sheriff of Rizal, 97 Phil, 196; Lara vs. Bayona, 97 Phil. 951; Hacbang vs. Leyte Autobus Co., Inc., L-7907, May 30, 1963, 8 SCRA 103).
Some arguments adduced by Honesto Ong in his motion were intended to protect the interests of the mortgagor, Manila Yellow Taxicab Co., Inc., which he
erroneously characterized as a "respondent" (it is not a respondent in this case). Ong argues that the proceeds of the execution sale, which was held on
December 18, 1974, should be delivered to Northern Motors, Inc. "only to such extent as has exceeded the amount paid by respondent Manila Yellow Taxicab to"
Northern Motors, Inc. That argument is not clear. Ong probably means that the installments already paid by Manila Yellow Taxicab Co., Inc. to Northern Motors,
Inc. should be deducted from the proceeds of the execution sale. If that is the point which Ong is trying to put across, and it is something which does not directly
affect him, then, that matter should be raised by Manila Yellow Taxicab Co., Inc. in the replevin case, Civil Case No. 20536 of the Court of First Instance of Rizal,
Pasig Branch VI, entitled "Northern Motors, Inc. versus Manila Yellow Taxicab Co., Inc. et al."
Ong's contention, that the writ of execution, which was enforced against the seven taxicabs (whose sale at public auction was stopped) should have precedence
over the mortgage lien, cannot be sustained. Those cabs cannot be sold at an execution sale because, as explained in the resolution under reconsideration, the
levy thereon was wrongful.
The motion for reconsideration of Ong and the sheriff should be denied.
2. Petitioners motion for partial reconsideration. The lower court in its order of January 3, 1975 cancelled the indemnity bonds for P480,000 filed on December
18, 1975 by Filwriters Guaranty Assurance Corporation for Tropical Commercial Co., Inc. The bonds were cancelled without notice to Northern Motors, Inc. as
third-party claimant.
We already held that the cancellation of the bonds constituted a grave abuse of discretion but we previously denied petitioner's prayer for the reinstatement of the
bonds because Northern Motors Inc. had given the impression that it had not filed any action for damages against the sheriff within the one hundred twenty-day
period contemplated in Section 17, Rule 39 of the Rules of Court.
As already noted above, the truth is that such an action for damages was filed on April 14, 1975 against the surety, the sheriff and the judgment creditor in Civil
Case No. 21065 of the Court of First Instance of Rizal, Pasig Branch XIII. The action involves the indemnity bond for P240,000 (No. 0032 posted on December 18,
1974).
It may also be noted that in a prior case, Civil Case No. 20536 of the Court of First Instance of Rizal at Pasig, entitled "Northern Motors, Inc. vs. Manila Yellow
Taxicab Co., Inc., et al.", a replevin case (where an amended complaint dated January 15, 1975 was filed), the surety, Filwriters Guaranty Assurance Corporation,

was impleaded as a defendant by reason of its bond for P240,000. Northern Motors, Inc. in that case prayed that the surety be ordered to pay to it damages in the
event that the eight taxicabs could not be surrendered to the mortgagee.
Northern Motors, Inc., in its instant motion for partial reconsideration, reiterates its petition for the reinstatement of the bond filed by Filwriters Guaranty Assurance
Corporation. If the said bond is not reinstated or if the lower court's orders cancelling it are allowed to stand, the aforementioned Civil Cases Nos. 20536 and
21065 would be baseless or futile actions against the surety. That injustice should be corrected. Hence, our resolution of August 29, 1975, insofar as it did not
disturb the lower court's orders cancelling the indemnity bonds, should be reconsidered.
Northern Motors. Inc. further prays for the reconsideration of that portion of our resolution allowing the sheriff to deduct expenses from the proceeds of the
execution sale for the eight taxicabs which sale was held on December 18, 1974. It argues that Honesto Ong or Manila Yellow Taxicab Co., Inc. should shoulder
such expenses of execution.
We already held that the execution was not justified and that Northern Motors, Inc., as mortgagee, was entitled to the possession of the eight taxicabs. Those cabs
should not have been levied upon and sold at public auction to satisfy the judgment credit which was inferior to the chattel mortgage. Since the cabs could no
longer be recovered because apparently they had been transferred to persons whose addresses are unknown (see par. 12, page 4, Annex B of motion), the
proceeds of the execution sale may be regarded as a partial substitute for the unrecovarable cabs (See arts. 1189[2] and 1269, Civil Code; Urrutia & Co. vs. Baco
River Plantation Co., 26 Phil. 632). Northern Motors, Inc. is entitled to the entire proceeds without deduction of the expenses of execution.
WHEREFORE, private respondents' motion for reconsideration is denied and petitioner's motion for partial reconsideration is granted. The resolution of August 29,
1975 is modified in the sense that the lower court's orders of January 3 and 6, 1975, cancelling the indemnity bond for P240,000 (as reaffirmed in its order of
January 17, 1975), are set aside. The said indemnity bond for P240,000 is regarded as in full force and Respondent Sheriff of Manila is further directed to deliver
to Northern Motors, Inc. the entire proceeds of the execution sale held on December 18, 1974 for the eight taxicabs which were mortgaged to that firm.
SO ORDERED.
RESITA ALCANTARA VERGARA, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the March 28, 2003 decision [1] of the Court of Appeals and its September 30, 2003 resolution [2] in CA-G.R. CR No. 25799, which
affirmed in toto the June 10, 1992 decision[3] of the Regional Trial Court of Makati, Branch 132, in Criminal Case No. 91-2267, finding petitioner Teresita Alcantara
Vergara guilty beyond reasonable doubt of violation of Batas Pambansa Blg. 22 (BP 22).
The facts show that on June 13, 1988, Livelihood Corporation (LIVECOR) granted Perpetual Garments Corporation (PERPETUAL) a continuing credit line in
the amount of P750,000.00.[4] The parties agreed that for each availment from the line, PERPETUAL would execute a promissory note and issue postdated checks
corresponding to the amount of the loan. Petitioner, in her capacity as Vice President and General Manager of PERPETUAL, signed the credit agreement and all
the postdated checks.
One of the checks issued and signed by petitioner was Check No. 019972 for P150,000.00. When deposited on December 15, 1988, the check was
dishonored for insuffiency of funds.[5] On the same month, LIVECOR verbally informed petitioner of the dishonor of the check.

On April 1, 1991, LIVECOR charged petitioner with violation of BP 22. The information[6] reads:
That on or about the 15th day of Dec. 1988, in the Municipality of Makati, Metro Manila Philippines and within the jurisdiction of this Honorable Court, the abovenamed accused, did then and there willfully, unlawfully and feloniously make out or draw and issue to Livecor and represented by Victor Hernandez[,] to apply on
account or for value the dated check described below:
Check No.
Drawn Against
In the amount of
Date
Payable to

:019972
:Metro Bank
:P150,000.00
:Dec. 15, 1988
:LIVECOR

said accused well knowing that at the time of issue thereof, she did not have sufficient funds in or credit with the drawee bank for the payment in full of the face
amount of such check upon its presentment for payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for the
reason DRAWN AGAINST INSUFFICIENT FUNDS and, despite receipt of notice of such dishonor, the accused failed to pay said payee the face amount of said
check or to make arrangement for full payment thereof within five (5) banking days after receiving notice.
Contrary to law.
The prosecution claims that petitioner failed to pay the full amount of Check No. 019972 or to make arrangements for its full payment within 5 days from notice
of dishonor thereof in December 1988. Although petitioner made cash and check payments after the dishonor, the same were treated by LIVECOR as continuing
payments of the outstanding loan. The payments were applied first to the interests and penalties while the rest were applied to the principal, pursuant to the terms
of the agreement. As of February 29, 1992, PERPETUALs total outstanding loan is P610,656.95. [7]
Petitioner averred that she cannot be charged with violation of BP 22 because she replaced Check No. 019972 on May 25, 1989, with 6 checks, each for
P25,000.00 or for the total amount of P150,000.00. [8] She claimed that from the time of dishonor up to March 1992, PERPETUAL paid LIVECOR P542,000.00 thus
covering the full amount of the dishonored check. [9]
On June 10, 1992, the trial court rendered decision finding petitioner guilty of violating BP 22. It ruled, however, that petitioner is not civilly liable to LIVECOR,
thus:
Premises considered, the Court finds the accused guilty beyond reasonable doubt of violation of BP 22. Considering, however, that the borrower is Perpetual
Garments Corporation and there is no agreement that she shall be liable for the loan in her personal capacity, she shall not be liable to pay the unpaid balance
thereof.
WHEREFORE, the accused is hereby sentenced to pay a fine of P200,000.00 with subsidiary imprisonment in case of insolvency and to pay the costs.
SO ORDERED.[10]
Dissatisfied, both LIVECOR and petitioner appealed to the Court of Appeals.

On March 28, 2003, the appellate court dismissed the consolidated appeals and affirmed the trial courts decision in all respects. The dispositive portion
thereof, reads:
IN VIEW OF ALL THE FOREGOING, the instant appeals are ordered DISMISSED, and the appealed Decision dated June 10, 1992 is hereby AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.[11]
Petitioner moved for reconsideration but was denied on September 30, 2003. [12] Hence, the instant petition.
In a Resolution dated December 15, 2004, petitioner was required to file a Reply. However, to date, no reply was filed. In the interest of justice and speedy
disposition of cases, we resolve to dispense with the filing of said Reply and to decide the case based on the pleadings filed.
The issue for resolution in this petition for review is whether petitioner should be convicted of violation of BP 22.
The Solicitor General contends that petitioners conviction is proper because all the elements of violation of BP 22 are present. Petitioner, on the other hand,
insists that the full payment of the value of the dishonored check 2 years prior to the filing of the information justifies her acquittal. Petitioner argues that her
conviction is without basis since the total payments she made from knowledge of the dishonor of the check in December 1988, up to the filing of the information on
April 1, 1991, far exceeds the value of the bounced check.
It is settled that factual findings of the trial court are accorded great weight, even finality on appeal, except when it has failed to appreciate certain facts and
circumstances which, if taken into account, would materially affect the result of the case. This exception is present here.[13]
In King v. People,[14] we ruled thus:
Section 1 of BP 22 defines the offense as follows:
Section 1. Checks without sufficient funds. - Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue
that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid
reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less
than but not more than double the amount of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and imprisonment at
the discretion of the court.
The same penalty shall be imposed upon any person who having sufficient funds with the drawee bank when he makes or draws and issues a check, shall fail to
keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon,
for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under
this Act.
Accordingly, this Court has held that the elements of the crime are as follows:
1. The accused makes, draws or issues any check to apply to account or for value.
2. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit; or it would have been dishonored for the same reason
had not the drawer, without any valid reason, ordered the bank to stop payment.

3. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, drawee bank for the payment of the
check in full upon its presentment.[15]
To hold petitioner liable for violation of BP 22, it is not enough that she issued the check that was subsequently dishonored for insufficiency of funds. It must
also be shown beyond reasonable doubt that she knew of the insufficiency of funds at the time the check was issued. Thus:
To hold a person liable under BP 22, it is not enough to establish that a check issued was subsequently dishonored. It must be shown further that the person who
issued the check knew at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment. Because this element involves a state of mind which is difficult to establish, Section 2 of the law creates a prima facie presumption of such
knowledge, as follows:
Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of
such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or make arrangements for payment in full by the
drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.
In other words, the prima facie presumption arises when a check is issued. But the law also provides that the presumption does not arise when the issuer pays the
amount of the check or makes arrangement for its payment within five banking days after receiving notice that such check has not been paid by the drawee.
Verily, BP 22 gives the accused an opportunity to satisfy the amount indicated in the check and thus avert prosecution.[16] (Emphasis ours)
Going through the records of this case, we find that it was not clearly established when the notice of dishonor was served on petitioner, thus:
Atty. De Jesus:
After you were informed by the bank that the check was dishonored due to insufficient funds, what did you do next, if any?
Ms. Dalisay:
We informed our client about it and made several demands upon her to redeem the bounced check.
Q. Did the accused make good the amount of the bounced check?
A. No.[17]

Q. After you were informed by the bank that the check bounced, what did you do next, if any?
Atty. Arias:
That was already answered. She informed the accused
Court:
She said the client was informed and demand was made. How were the demands made upon the accused?

A. Verbally, Your Honor.

Court:
All verbal?
A: All verbal in the case of the subject check but written in the case of the entire loan. [18]
Even the petitioner was not sure as to when she was notified of the dishonor, thus:
Court:
You did not see the return notice of dishonor. So he was aware that the check was dishonored. Alright. Prior to, about a week before October 10,
1990, did you ever learn whether the check in the amount of P150,000.00 marked Exhibit D, was dishonored?
Accused:
Yes, Your Honor.
Court:
When for the first time did you learn that the check was dishonored?
A. When they informed me at my residence in Bian, Your Honor.
Court:
When?
A. That was a long time ago, Your Honor. They just sent their employee to our house at Bian to inform me that my check bounced.
Court:
In what year?
A: That was a long time, Your Honor, maybe 1988.
Court:
You were informed of the dishonor of the check. In what month in 1988?
A. Maybe December 1988, Your Honor.[19]
To our mind, the above testimonies do not categorically prove exactly when petitioner received the notice of dishonor. Hence, there was no way of determining
when the 5-day period prescribed in Section 2 of BP 22 would start and end.
In Danao v. Court of Appeals,[20] we held that:
if there is no proof as to when such notice was received by the drawer, then the presumption or prima facie evidence provided in Section 2 of B.P. Blg. 22
cannot arise, since there would simply be no way of reckoning the crucial 5-day period.
In the present case, no proof of receipt by petitioner of any notice of non-payment of the checks was ever presented during the trial. As found by the trial court
itself, (t)he evidence however is not clear when Macasieb (private complainant) made the demands. There is no proof of the date when DANAO received the
demand letter (Exh. F).
Obviously, in the instant case, there is no way of determining when the 5-day period prescribed in Section 2 of B.P. Blg. 22 would start and end. Thus, the
presumption or prima facie evidence of knowledge by the petitioner of the insufficiency of funds or credit at the times she issued the checks did not arise.

Even assuming that petitioner was properly notified of the dishonor, still, the prima facie presumption of knowledge of insufficiency of funds would not arise.
Contrary to the claim of LIVECOR, it appears that an arrangement for the payment of the bounced check was entered into by the parties. Under the
circumstances, we are more inclined to lend credence to petitioners allegation that she replaced the bounced check with 6 checks, each for P25,000.00, or a total
of P150,000.00. For more than 2 years after the dishonor, LIVECOR accepted the payments made by PERPETUAL without complain.
In addition, it appears that it has been the practice of LIVECOR to allow its client to redeem the dishonored checks and replace them with new ones. Thus:
Atty. Arias:
And it is a matter of procedure in you office, Madam Witness
Court:
For a while, is that check different from Exhibit F?
Atty. Arias:
The same, Your Honor.
Q: And as a matter of fact, your practice is that whenever payments are made in check or checks and if these checks bounced, you first send the letter to
redeem or to replace those bounced checks, is that correct?
Ms. Dalisay:
Yes.
Q: And you did that also, when the check of the accused in the amount of P150,000.00 bounced, you sent her a letter to redeem or replace the check, is
that not correct?
A: I dont remember about the P150,000.00. I dont remember sending her a letter.
Q: But it is a matter of practice that you
Court:
That has been answered.[21]

Atty. Arias:
However, your Honor, we want also to establish the fact that whenever a check bounced, they always asked for replacement or redemption of the
check.
Court:
She already admitted that that is a matter of policy.[22]
The presumption that the issuer has knowledge of the insufficiency of funds is brought into existence only after it is proved that the issuer had received notice
of dishonor and that within 5 banking days from receipt thereof, he failed to pay the amount of the check or to make arrangement for its payment. [23] The
prosecution is burdened to prove these acts that give rise to the prima facie presumption.[24]
Under the equipoise rule, where the evidence on an issue of fact is in equipoise or there is doubt on which side the evidence preponderates, the party having
the burden of proof loses. The equipoise rule finds application if, as in this case, the inculpatory facts and circumstances are capable of two or more explanations,

one of which is consistent with the innocence of the accused and the other consistent with his guilt, for then the evidence does not fulfill the test of moral certainty,
and does not suffice to produce a conviction. Briefly stated, the needed quantum of proof to convict the accused of the crime charged is found lacking. [25]
In the case at bar, the constitutional presumption of innocence tilts the scales in favor of petitioner considering that the prosecution failed to discharge its
burden of proving the evidentiary facts that would establish the prima facie presumption of knowledge of the insufficiency of funds. In criminal cases, the
prosecutions cases must rise and fall on the strength of its own evidence, never on the weakness of the defense. [26]
Finally, there is no merit in prosecutions claim that even if the 6 checks be considered replacement of the dishonored check, petitioner should still be held
liable because they did not cover the entire amount of the dishonored check as 1 of the 6 checks for P25,000.00 also bounced for insufficiency of funds. Note that
the replacement check for P25,000.00 was dishonored in July 1989 but LIVECOR notified PERPETUAL of the dishonor only after 3 years or on March 10, 1992.
Petitioner could not thus be blamed for failing to make good said check due to the negligence of LIVECOR. At any rate, even if the P25,000.00 dishonored check
be excluded from the P423,365.00 payments made by petitioner, the remaining balance thereof is still more than the P150,000.00 dishonored check subject of the
instant case.
In Magno v. Court of Appeals,[27] it was held that Batas Pambansa Blg. 22 or the Bouncing Checks Law was devised to safeguard the interest of the banking
system and the legitimate public checking account user. It was not intended to shelter or favor nor encourage users of the system to enrich themselves through
the manipulation and circumvention of the noble purpose and objectives of the law. Under the utilitarian theory, the protective theory in criminal law affirms that
the primary function of punishment is the protection of the society against actual and potential wrong doers.
In the case at bar, petitioner could hardly be classified as a menace against whom the society should be protected. The records show that from December
1988 when petitioner was informed of the dishonor, to the filing of the information on April 1, 1991, she paid P423,354.00 to LIVECOR. [28] Although petitioner has
not yet fully paid the loan, it cannot be denied that the previous payments fully covered the value of the dishonored check. It would be unjust to penalize her for
the issuance of said check which has been satisfied 2 years prior to the filing of the criminal charge against her.
Similarly, in Griffith v. Court of Appeals,[29] the conviction of the accused for violation of BP 22 was found to be unjustified because the case was filed 2 years
after private complainant had collected more than the value of the dishonored check. In acquitting the accused, we held that there exists no more reason to
penalize him for the offense charged, thus:
While we agree with the private respondent that the gravamen of violation of B.P. 22 is the issuance of worthless checks that are dishonored upon their
presentment for payment, we should not apply penal laws mechanically. We must find if the application of the law is consistent with the purpose of and reason for
the law. Ratione cessat lex, et cessat lex. (When the reason for the law ceases, the law ceases.) It is not the letter alone but the spirit of the law also that gives it
life. This is especially so in this case where a debtors criminalization would not serve the ends of justice but in fact subvert it. The creditor having collected
already more than a sufficient amount to cover the value of the checks for payment of rentals, via auction sale, we find that holding the debtors president to
answer for a criminal offense under B.P. 22 two years after said collection is no longer tenable nor justified by law or equitable considerations.
In sum, considering that the money value of the two checks issued by petitioner has already been effectively paid two years before the informations against him
were filed, we find merit in this petition. We hold that petitioner herein could not be validly and justly convicted or sentenced for violation of B.P. 22. Whether the
number of checks issued determines the number of violations of B.P. 22, or whether there should be a distinction between postdated and other kinds of checks
need no longer detain us for being immaterial now to the determination of the issue of guilt or innocence of petitioner. [30]

WHEREFORE, in view of all the foregoing, the petition is GRANTED. The decision of the Court of Appeals dated March 28, 2003 in CA-G.R. CR No. 25799
which affirmed in toto the June 10, 1992 decision of the Regional Trial Court of Makati, Branch 132, in Criminal Case No. 91-2267, and its September 30, 2003
resolution denying reconsideration thereof, are REVERSED and SET ASIDE. Petitioner Teresita Alcantara Vergara is ACQUITTED of the charge of violation of
Batas Pambansa Blg. 22. No pronouncement as to costs.
SO ORDERED.
G.R. No. 77465 May 21, 1988
SPOUSES UY TONG & KHO PO GIOK, petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C. EJERCITO, Judge of the Court of First Instance of Manila, Branch XXXVII and BAYANIHAN
AUTOMOTIVE CORPORATION, respondents.
Platon A. Baysa for petitioner.
Manuel T. Ybarra for respondents.
CORTES, J.:
In the present petition, petitioners assail the validity of a deed of assignment over an apartment unit and the leasehold rights over the land on which the building
housing the said apartment stands for allegedly being in the nature of a pactum commissorium.
The facts are not disputed.
Petitioners Uy Tong (also known as Henry Uy) and Kho Po Giok (SPOUSES) used to be the owners of Apartment No. 307 of the Ligaya Building, together with the
leasehold right for ninety- nine (99) years over the land on which the building stands. The land is registered in the name of Ligaya Investments, Inc. as evidenced
by Transfer Certificate of Title No. 79420 of the Registry of Deeds of the City of Manila. It appears that Ligaya Investments, Inc. owned the building which houses
the apartment units but sold Apartment No. 307 and leased a portion of the land in which the building stands to the SPOUSES.
In February, 1969, the SPOUSES purchased from private respondent Bayanihan Automotive, Inc. (BAYANIHAN) seven (7) units of motor vehicles for a total
amount of P47,700.00 payable in three (3) installments. The transaction was evidenced by a written "Agreement" wherein the terms of payment had been
specified as follows:
That immediately upon signing of this Agreement, the VENDEE shall pay unto the VENDOR the amount of Seven Thousand Seven Hundred
(P7,000.00) Pesos, Philippine Currency, and the amount of Fifteen Thousand (P15,000.00) Pesos shah be paid on or before March 30, 1969 and the
balance of Twenty Five Thousand (P25,000.00) Pesos shall be paid on or before April 30, 1969, the said amount again to be secured by another
postdated check with maturity on April 30, 1969 to be drawn by the VENDEE;
That it is fully understood that should the two (2) aforementioned checks be not honored on their respective maturity dates, herein VENDOR will give
VENDEE another sixty (60) days from maturity dates, within which to pay or redeem the value of the said checks;
That if for any reason the VENDEE should fail to pay her aforementioned obligation to the VENDOR,the latter shall become automatically the owner
of the former's apartment which is located at No. 307, Ligaya Building, Alvarado St., Binondo, Manila, with the only obligation on its part to pay unto
the VENDEE the amount of Three Thousand Five Hundred Thirty Five (P3,535.00) Pesos, Philippine Currency; and in such event the VENDEE shall

execute the corresponding Deed of absolute Sale in favor of the VENDOR and or the Assignment of Leasehold Rights. [emphasis supplied]. (Quoted
in Decision in Civil Case No. 80420, Exhibit "A" of Civil Case No. 1315321].
After making a downpayment of P7,700.00, the SPOUSES failed to pay the balance of P40,000.00. Due to these unpaid balances, BAYANIHAN filed an action for
specific performance against the SPOUSES docketed as Civil Case No. 80420 with the Court of First Instance of Manila.
On October 28, 1978, after hearing, judgment was rendered in favor of BAYANIHAN in a decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered, ordering the defendants, jointly and severally, to pay the plaintiffs, the sum of P40,000.00, with interest
at the legal rate from July 1, 1970 until full payment. In the event of their failure to do so within thirty (30) days from notice of this judgment, they are
hereby ordered to execute the corresponding deed of absolute sale in favor of the plaintiff and/or the assignment of leasehold rights over the
defendant's apartment located at 307 Ligaya Building, Alvarado Street, Binondo, Manila, upon the payment by the plaintiff to the defendants of the
sum of P3,535.00. [emphasis supplied].
Pursuant to said judgment, an order for execution pending appeal was issued by the trial court and a deed of assignment dated May 27, 1972, was executed by
the SPOUSES [Exhibit "B", CFI Records, p. 127] over Apartment No. 307 of the Ligaya Building together with the leasehold right over the land on which the
building stands. The SPOUSES acknowledged receipt of the sum of P3,000.00 more or less, paid by BAYANIHAN pursuant to the said judgment.
Notwithstanding the execution of the deed of assignment the SPOUSES remained in possession of the premises. Subsequently, they were allowed to remain in
the premises as lessees for a stipulated monthly rental until November 30,1972.
Despite the expiration of the said period, the SPOUSES failed to surrender possession of the premises in favor of BAYANIHAN. This prompted BAYANIHAN to file
an ejectment case against them in the City Court of Manila docketed as Civil Case No. 240019. This action was however dismissed on the ground that
BAYANIHAN was not the real party in interest, not being the owner of the building.
On February 7, 1979, after demands to vacate the subject apartment made by BAYANIHAN's counsel was again ignored by the SPOUSES, an action for recovery
of possession with damages was filed with the Court of First Instance of Manila, docketed as Civil Case No. 121532 against the SPOUSES and impleading Ligaya
Investments, Inc. as party defendant. On March 17, 1981, decision in said case was rendered in favor of BAYANIHAN ordering the following:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants spouses UY TONG and KHO GIOK and defendant
Ligaya Investment, Inc., dismissing defendants' counterclaim and ordering:
1. The defendants spouses UY TONG and KHO PO GIOK and any andlor persons claiming right under them, to vacate, surrender and deliver
possession of Apartment 307, Ligaya Building, located at 64 Alvarado Street, Binondo, Manila to the plaintiff;
2. Ordering defendant Ligaya Investment, Inc. to recognize the right of ownership and possession of the plaintiff over Apartment No. 307, Ligaya
Building;
3. Ordering Ligaya Investment, Inc. to acknowledge plaintiff as assignee-lessee in liue of defendants spouses Uy Tong and Kho Po Giok over the lot
on which the building was constructed;
4. Ordering the defendants spouses Uy Tong and Kho Po Giok to pay to the plaintiff the sum of P200.00 commencing from June, 1971 to November
30, 1972, or a total amount of P3,400.00 as rental for the apartment, and the sum of P200.00 from December 1, 1972 until the premises are finally
vacated and surrendered to the plaintiff, as reasonable compensation for the use of the apartment; and
5. Ordering the defendants spouses Uy Tong and Kho Po Giok to pay P3,000.00 as and for attorney's fees to the plaintiff, and the costs of this suit.
Not satisfied with this decision, the SPOUSES appealed to the Court of Appeals. On October 2,1984, the respondent Court of Appeals affirmed in toto the decision
appealed from [Petition, Annex "A", Rollo, pp. 15-20]. A motion for reconsideration of the said decision was denied by the respondent Court in a resolution dated
February 11, 1987 [Petition, Annex "C", Rollo, pp. 31- 34].

Petitioners-SPOUSES in seeking a reversal of the decision of the Court of Appeals rely on the following reasons:
I. The deed of assignment is null and void because it is in the nature of a pactum commissoriumand/or was borne out of the same.
II. The genuineness and due Prosecution of the deed of assignment was not deemed admitted by petitioner.
III. The deed of assignment is unenforceable because the condition for its execution was not complied with.
IV. The refusal of petitioners to vacate and surrender the premises in question to private respondent is justified and warranted by the circumstances
obtaining in the instant case.
I. In support of the first argument, petitioners bring to the fore the contract entered into by the parties whereby petitioner Kho Po Giok agreed that the apartment in
question will automatically become the property of private respondent BAYANIHAN upon her mere failure to pay her obligation. This agreement, according to the
petitioners is in the nature of a pactum commissorium which is null and void, hence, the deed of assignment which was borne out of the same agreement suffers
the same fate.
The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of the same. Any stipulation to the contrary is
null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is
pledged or mortgaged by way of security for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period.
A perusal of the terms of the questioned agreement evinces no basis for the application of the pactum commissorium provision. First, there is no indication of 'any
contract of mortgage entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks.
Second, there is no case of automatic appropriation of the property by BAYANIHAN. When the SPOUSES defaulted in their payments of the second and third
installments of the trucks they purchased, BAYANIHAN filed an action in court for specific performance. The trial court rendered favorable judgment for
BAYANIHAN and ordered the SPOUSES to pay the balance of their obligation and in case of failure to do so, to execute a deed of assignment over the property
involved in this case. The SPOUSES elected to execute the deed of assignment pursuant to said judgment.
Clearly, there was no automatic vesting of title on BAYANIHAN because it took the intervention of the trial court to exact fulfillment of the obligation, which, by its
very nature is ". . anathema to the concept of pacto commissorio" [Northern Motors, Inc. v. Herrera, G.R. No. L-32674, February 22, 1973, 49 SCRA 392]. And
even granting that the original agreement between the parties had the badges of pactum commissorium, the deed of assignment does not suffer the same fate as
this was executed pursuant to a valid judgment in Civil Case No. 80420 as can be gleaned from its very terms and conditions:
DEED OF ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS:
This deed made and entered into by Uy Tiong also known as Henry Uy and Kho Po Giok, both of legal age, husband and wife, respectively, and
presently residing at 307 Ligaya Bldg., Alvarado St., Binondo, Manila, and hereinafter to be known and called as the ASSIGNORS, in favor of
Bayanihan Automotive Corporation, an entity duly organized and existing under the laws of the Philippines, with principal business address at 1690
Otis St., Paco, Manila and hereinafter to be known and called the ASSIGNEE;
-witnessethWHEREAS, the ASSIGNEE has filed a civil complaint for "Specific Performance with Damages" against the ASSIGNORS in the Court of First
Instance of Manila, Branch V, said case having been docketed as Civil Case No. 80420;
WHEREAS, the ASSIGNEE was able to obtain a judgment against the ASSIGNOR wherein the latter was ordered by the court as follows, to wit:

WHEREFORE, judgment is hereby rendered ordering the defendants, jointly and severally to pay the plaintiff the sum of P40,000.00,
with interest at the legal rate from July 31, 1970 until full payment. In the event of their failure to do so within thirty (30) days from notice
of this judgment, they are hereby ordered to execute the corresponding deed of absolute sale in favor of the plaintiff and/or the
assignment of leasehold, rights over the defendants' apartment located at No. 307 Ligaya Building, Alvarado Street, Binondo, Manila,
upon the payment by the plaintiff to the defendants the sum of P 3,535.00. The defendants shall pay the costs.
WHEREAS, the court, upon petition by herein ASSIGNEE and its deposit of sufficient bond, has ordered for the immediate execution of the said
decision even pending appeal of the aforesaid decision;
WHEREAS, the ASSIGNORS have elected to just execute the necessary deed of sale and/or assignment of leasehold rights over the apartment
mentioned in the decision in favor of the herein ASSIGNEE;
NOW, THEREFORE, for and in consideration of the foregoing premises, the ASSIGNORS have transferred assigned and ceded, and by these
presents do hereby transfer, assign and cede all their rights and interests over that place known as Apartment No. 307 at the Ligaya Building which is
located at No. 864 Alvarado St., Binondo, Manila, together with the corresponding leasehold rights over the lot on which the said building is
constructed, in favor of the hererein ASSIGNEE, its heirs or assigns.
IN WITNESS WHEREOF, We have hereunto signed our names this 27th day of May, 1971 at Manila, Philippines.
UY TONG/HENRY UY KHO PO GIOK
Assignor Assignor
ACR-2151166 Manila 1/13/51 ACR-C-001620
Manila March 3, 1965
This being the case, there is no reason to impugn the validity of the said deed of assignment.
II. The SPOUSES take exception to the ruling of the Court of Appeals that their failure to deny the genuineness and due execution of the deed of assignment was
deemed an admission thereof. The basis for this exception is the SPOUSES' insistence that the deed of assignment having been borne out of pactum
commissorio is not subject to ratification and its invalidity cannot be waived.
There is no compelling reason to reverse the abovementioned ruling of the appellate court. Considering this Court's above conclusion that the deed of assignment
is not invalid, it follows that when an action founded on this written instrument is filed, the rule on contesting its genuineness and due execution must be followed.
That facts reveal that the action in Civil Case No. 121532 was founded on the deed of assignment. However, the SPOUSES, in their answer to the complaint,
failed to deny under oath and specifically the genuineness and due execution of the said deed. Perforce, under Section 8, Rule 8 of the Revised Rules of Court,
the SPOUSES are deemed to have admitted the deed's genuineness and due execution. Besides, they themselves admit that ". . . the contract was duly executed
and that the same is genuine" [Sur-Rejoinder, Rollo, p. 67]. They cannot now claim otherwise.
III. The SPOUSES also question the enforceability of the deed of assignment. They contend that the deed is unenforceable because the condition for its execution
was not complied with. What petitioners SPOUSES refer to is that portion of the disposition in Civil Case No. 80420 requiring BAYANIHAN to pay the former the
sum of P 3,535.00. To buttress their claim of non- compliance, they invoke the following receipt issued by the SPOUSES to show that BAYANIHAN was P535.00
short of the complete payment.
RECEIPT
This is to acknowledge the fact that the amount of THREE THOUSAND (P3,000.00) PESOS, more or less as indicated in the judgment of the Hon.
Conrado Vasquez, Presiding Judge of the Court of First Instance of Manila, Branch V, in Civil Case entitled "Bayanihan Automotive Corp. v. Pho (sic)

Po Giok, etc." and docketed as Civil Case No. 80420 has been applied for the payment of the previous rentals of the property which is the subject
matter of the aforesaid judgment. [emphasis supplied.]
(Sgd.) Pho (sic) Po Glok
(Sgd.) Henry Uy
August 21, 1971
The issue presented involves a question of fact which is not within this Court's competence to look into. Suffice it to say that this Court is of the view that findings
and conclusion of the trial court and the Court of Appeals on the question of whether there was compliance by BAYANIHAN of its obligation under the decision in
Civil Case No. 80420 to pay the SPOUSES the sum of P3,535.00 is borne by the evidence on record. The Court finds merit in the following findings of the trial
court:
... Defendants 'contention that the P 3,535.00 required in the decision in Civil Case No. 80420 as a condition for the execution of the deed of
assignment was not paid by the plaintiff to the defendants is belied by the fact that the defendants acknowledged payment of P3,000.00, more or
less, in a receipt dated August 21, 1971. This amount was expressly mentioned in this receipt as indicated in the judgment of the Honorable Conrado
Vasquez, presiding Judge of the CFI of Manila, Branch V, in Civil Case entitled Bayanihan Automotive Corp. versus Kho Po Giok, docketed as Civil
Case No. 80420, and also expressly mentioned as having been applied for the payment of the previous rentals of the property subject matter of the
said judgment. Nothing could be more explicit. The contention that there is still a difference of P535.00 is had to believe because the spouses Kho Po
Giok and Uy Tong executed the deed of assignment without first demanding from the plaintiff the payment of P535.00. Indeed, as contended by the
plaintiff, for it to refuse to pay this small amount and thus gave defendants a reason not to execute the Deed of Assignment. is hard to
believe Defendants further confirm by the joint manifestation of plaintiff and defendants, duly assisted by counsel, Puerto and Associates, dated
September, 1971, Exhibit "O", wherein it was stated that plaintiff has fully complied with its obligation to the defendants caused upon it (sic) by the
pronouncement of the judgment as a condition for the execution of their (sic) leasehold rights of defendants, as evidenced by the receipt duly
executed by the defendants, and which was already submitted in open court for the consideration of the sum of P3,535.00. [Emphasis supplied].
[Decision, Civil Case No. 121532, pp. 3-4].
This Court agrees with private respondent BAYANIHAN's reasoning that inasmuch as the decision in Civil Case No. 80420 imposed upon the parties correlative
obligations which were simultaneously demandable so much so that if private respondent refused to comply with its obligation under the judgment to pay the sum
of P 3,535.00 then it could not compel petitioners to comply with their own obligation to execute the deed of assignment over the subject premises. The fact that
petitioners executed the deed of assignment with the assistance of their counsel leads to no other conclusion that private respondent itself had paid the full
amount.
IV. Petitioners attempt to justify their continued refusal to vacate the premises subject of this litigation on the following grounds:
(a) The deed of assingnment is in the nature of a pactum commissorium and, therefore, null and void.
(b) There was no full compliance by private respondent of the condition imposed in the deed of assignment.
(c) Proof that petitioners have been allowed to stay in the premises, is the very admission of private respondent who declared that petitioners were
allowed to stay in the premises until November 20, 1972. This admission is very significant. Private respondent merely stated that there was a termuntil November 30, 1972-in order to give a semblance of validity to its attempt to dispossess herein petitioners of the subject premises. In short, this
is one way of rendering seemingly illegal petitioners 'possession of the premises after November 30, 1972.

The first two classifications are mere reiterations of the arguments presented by the petitioners and which had been passed upon already in this decision. As
regards the third ground, it is enough to state that the deed of assignment has vested in the private respondent the rights and interests of the SPOUSES over the
apartment unit in question including the leasehold rights over the land on which the building stands. BAYANIHAN is therefore entitled to the possession thereof.
These are the clear terms of the deed of assignment which cannot be superseded by bare allegations of fact that find no support in the record.
WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals is AFFIRMED in toto.
SO ORDERED.

SPOUSES WILFREDO N. ONG and EDNA SHEILA

PAGUIO-ONG,
Petitioners,
- versus -

ROBAN LENDING CORPORATION,

Respondent.

G.R. No. 172592

Present:
QUISUMBING, J.,
person,
CARPIO MORALES,
TINGA,
BRION, and
AUSTRIAMARTINEZ,*JJ.
Promulgated:
July 9, 2008

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

DECISION
CARPIO MORALES, J.:
On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from
Roban Lending Corporation (respondent) in the total amount of P4,000,000.00. These loans were secured by a real estate mortgage on petitioners parcels of
land located in Binauganan, TarlacCity and covered by TCT No. 297840.[1]

On February 12, 2001, petitioners and respondent executed an Amendment to Amended Real Estate Mortgage [2] consolidating their loans inclusive of
charges thereon which totaled P5,916,117.50. On even date, the parties executed a Dacion in Payment Agreement [3] wherein petitioners assigned the properties
covered by TCT No. 297840 to respondent in settlement of their total obligation, and a Memorandum of Agreement [4] reading:
That the FIRST PARTY [Roban Lending Corporation] and the SECOND PARTY [the petitioners] agreed to consolidate and restructure all
aforementioned loans, which have been all past due and delinquent since April 19, 2000, and outstanding obligations totaling P5,916,117.50. The
SECOND PARTY hereby sign [sic] another promissory note in the amount of P5,916,117.50 (a copy of which is hereto attached and forms xxx an
integral part of this document), with a promise to pay the FIRST PARTY in full within one year from the date of the consolidation and restructuring,
otherwise the SECOND PARTY agree to have their DACION IN PAYMENT agreement, which they have executed and signed today in favor of
the FIRST PARTY be enforced[.][5]

In April 2002 (the day is illegible), petitioners filed a Complaint, [6] docketed as Civil Case No. 9322, before the Regional Trial Court (RTC) of Tarlac City, for
declaration of mortgage contract as abandoned, annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages, alleging that the Memorandum
of Agreement and the Dacion in Payment executed are void for being pactum commissorium.[7]
Petitioners alleged that the loans extended to them from July 14, 1999 to March 20, 2000 were founded on several uniform promissory notes, which
provided for 3.5% monthly interest rates, 5% penalty per month on the total amount due and demandable, and a further sum of 25% attorneys fees thereon, [8] and
in addition, respondent exacted certain sums denominated as EVAT/AR. [9] Petitioners decried these additional charges as illegal, iniquitous, unconscionable,
and revolting to the conscience as they hardly allow any borrower any chance of survival in case of default. [10]
Petitioners further alleged that they had previously made payments on their loan accounts, but because of the illegal exactions thereon, the total balance
appears not to have moved at all, hence, accounting was in order.[11]
Petitioners thus prayed for judgment:
a)
Declaring the Real Estate Mortgage Contract and its amendments x x x as null and void and without legal force and effect for
having been renounced, abandoned, and given up;
b)
commissorium;

Declaring the Memorandum of Agreement xxx and Dacion in Payment x x x as null and void for being pactum

c)
Declaring the interests, penalties, Evat [sic] and attorneys fees assessed and loaded into the loan accounts of the plaintiffs
with defendant as unjust, iniquitous, unconscionable and illegal and therefore, stricken out or set aside;
d)
Ordering an accounting on plaintiffs loan accounts to determine the true and correct balances on their obligation against legal
charges only; and

e)

Ordering defendant to [pay] to the plaintiffs: -e.1 Moral damages in an amount not less than P100,000.00 and exemplary damages of P50,000.00;
e.2 Attorneys fees in the amount of P50,000.00 plus P1,000.00 appearance fee per hearing; and
e.3 The cost of suit.[12]

as well as other just and equitable reliefs.

In its Answer with Counterclaim,[13] respondent maintained the legality of its transactions with petitioners, alleging that:
xxxx
If the voluntary execution of the Memorandum of Agreement and Dacion in Payment Agreement novated the Real Estate Mortgage then the
allegation of Pactum Commissorium has no more legal leg to stand on;
The Dacion in Payment Agreement is lawful and valid as it is recognized x x x under Art. 1245 of the Civil Code as a special form of
payment whereby the debtor-Plaintiffs alienates their property to the creditor-Defendant in satisfaction of their monetary obligation;
The accumulated interest and other charges which were computed for more than two (2) years would stand reasonable and valid taking into
consideration [that] the principal loan isP4,000,000 and if indeed it became beyond the Plaintiffs capacity to pay then the fault is attributed to them
and not the Defendant[.][14]
After pre-trial, the initial hearing of the case, originally set on December 11, 2002, was reset several times due to, among other things, the parties efforts to
settle the case amicably.[15]
During the scheduled initial hearing of May 7, 2003, the RTC issued the following order:
Considering that the plaintiff Wilfredo Ong is not around on the ground that he is in Manila and he is attending to a very sick relative, without
objection on the part of the defendants counsel, the initial hearing of this case is reset to June 18, 2003 at 10:00 oclock in the morning.
Just in case [plaintiffs counsel] Atty. Concepcion cannot present his witness in the person of Mr. Wilfredo Ong in the next scheduled
hearing, the counsel manifested that he will submit the case for summary judgment. [16] (Underscoring supplied)

It appears that the June 18, 2003 setting was eventually rescheduled to February 11, 2004 at which both counsels were present[17] and the RTC issued the
following order:
The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 oclock in the morning. However, the counsels are directed to be ready
with their memorand[a] together with all the exhibits or evidence needed to support their respective positions which should be the basis for the
judgment on the pleadings if the parties fail to settle the case in the next scheduled setting.
x x x x[18] (Underscoring supplied)
At the scheduled April 14, 2004 hearing, both counsels appeared but only the counsel of respondent filed a memorandum. [19]
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on the basis of the pleadings that there was no pactum commissorium, dismissed
the complaint.[20]
On appeal,[21] the Court of Appeals[22] noted that
x x x [W]hile the trial court in its decision stated that it was rendering judgment on the pleadings, x x x what it actually rendered was a
summary judgment. A judgment on the pleadings is proper when the answer fails to tender an issue, or otherwise admits the material allegations
of the adverse partys pleading. However, a judgment on the pleadings would not have been proper in this case as the answer tendered an issue,
i.e. the validity of the MOA and DPA. On the other hand, a summary judgment may be rendered by the court if the pleadings, supporting affidavits,
and other documents show that, except as to the amount of damages, there is no genuine issue as to any material fact. [23]
Nevertheless, finding the error in nomenclature to be mere semantics with no bearing on the merits of the case, [24] the Court of Appeals upheld the RTC
decision that there was no pactum commissorium.[25]
Their Motion for Reconsideration[26] having been denied,[27] petitioners filed the instant Petition for Review on Certiorari, [28] faulting the Court of Appeals for
having committed a clear and reversible error
I.

. . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL REQUISITES WHICH WOULD WARRANT THE SETTING ASIDE
OF THE SUMMARY JUDGMENT IN VIOLATION OF APPELLANTS RIGHT TO DUE PROCESS;

II.

. . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN
DISPUTE;

III.

. . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO
AGREEMENT (DPA) WERE DESIGNED TO CIRCUMVENT THE LAW AGAINST PACTUM COMMISSORIUM; and

IV.

. . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO (DPA) ARE
NULL AND VOID FOR BEING CONTRARY TO LAW AND PUBLIC POLICY.[29]

The petition is meritorious.

Both parties admit the execution and contents of the Memorandum of Agreement and Dacion in Payment. They differ, however, on whether both contracts
constitutepactum commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum commissorium, which is prohibited under Article 2088 of the
Civil Code which provides:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null
and void.
The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure
proceedings,[30] are: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation
for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. [31]
In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no provisions for foreclosure proceedings nor redemption. Under the
Memorandum of Agreement, the failure by the petitioners to pay their debt within the one-year period gives respondent the right to enforce the Dacion in Payment
transferring to it ownership of the properties covered by TCT No. 297840. Respondent, in effect, automatically acquires ownership of the properties upon
petitioners failure to pay their debt within the stipulated period.
Respondent argues that the law recognizes dacion en pago as a special form of payment whereby the debtor alienates property to the creditor in
satisfaction of a monetary obligation. [32] This does not persuade. In a true dacion en pago, the assignment of the property extinguishes the monetary debt. [33] In
the case at bar, the alienation of the properties was by way of security, and not by way of satisfying the debt. [34] The Dacion in Payment did not extinguish
petitioners obligation to respondent. On the contrary, under the Memorandum of Agreement executed on the same day as the Dacion in Payment, petitioners had
to execute a promissory note for P5,916,117.50 which they were to pay within one year.[35]
Respondent cites Solid Homes, Inc. v. Court of Appeals [36] where this Court upheld a Memorandum of Agreement/Dacion en Pago.[37] That case did not
involve the issue of pactum commissorium.[38]
That the questioned contracts were freely and voluntarily executed by petitioners and respondent is of no moment, pactum commissorium being void for
being prohibited by law.[39]
Respecting the charges on the loans, courts may reduce interest rates, penalty charges, and attorneys fees if they are iniquitous or unconscionable. [40]

This Court, based on existing jurisprudence, [41] finds the monthly interest rate of 3.5%, or 42% per annum unconscionable and thus reduces it to 12% per
annum. This Court finds too the penalty fee at the monthly rate of 5% (60% per annum) of the total amount due and demandable principal plus interest, with
interest not paid when due added to and becoming part of the principal and likewise bearing interest at the same rate, compounded monthly [42] unconscionable
and reduces it to a yearly rate of 12% of the amount due, to be computed from the time of demand. [43] This Court finds the attorneys fees of 25% of the principal,
interests and interests thereon, and the penalty fees unconscionable, and thus reduces the attorneys fees to 25% of the principal amount only. [44]
The prayer for accounting in petitioners complaint requires presentation of evidence, they claiming to have made partial payments on their loans, vis a
vis respondents denial thereof.[45] A remand of the case is thus in order.
Prescinding from the above disquisition, the trial court and the Court of Appeals erred in holding that a summary judgment is proper. A summary judgment
is permitted only if there is no genuine issue as to any material fact and a moving party is entitled to a judgment as a matter of law. [46] A summary judgment is
proper if, while the pleadings on their face appear to raise issues, the affidavits, depositions, and admissions presented by the moving party show that such issues
are not genuine.[47] A genuine issue, as opposed to a fictitious or contrived one, is an issue of fact that requires the presentation of evidence. [48] As mentioned
above, petitioners prayer for accounting requires the presentation of evidence on the issue of partial payment.
But neither is a judgment on the pleadings proper. A judgment on the pleadings may be rendered only when an answer fails to tender an issue or otherwise
admits the material allegations of the adverse partys pleadings. [49] In the case at bar, respondents Answer with Counterclaim disputed petitioners claims that the
Memorandum of Agreement and Dation in Payment are illegal and that the extra charges on the loans are unconscionable. [50] Respondent disputed too petitioners
allegation of bad faith.[51]
WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET ASIDE. The Memorandum of Agreement and the Dacion in Payment
executed by petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on February 12, 2001 are declared
NULL AND VOID for beingpactum commissorium.
In line with the foregoing findings, the following terms of the loan contracts between the parties are MODIFIED as follows:
1.
2.
3.

The monthly interest rate of 3.5%, or 42% per annum, is reduced to 12% per annum;
The monthly penalty fee of 5% of the total amount due and demandable is reduced to 12% per annum, to be computed from the time of
demand; and
The attorneys fees are reduced to 25% of the principal amount only.

Civil Case No. 9322 is REMANDED to the court of origin only for the purpose of receiving evidence on petitioners prayer for accounting.
SO ORDERED.